Antitrust Law Daily Wrap Up, ANTITRUST NEWS: EC accepts Penguin’s settlement terms to resolve e-book pricing investigation, (Jul 25, 2013)

By Jeffrey May, J.D.

The European Commission (EC) has approved a settlement in its e-books pricing investigation that had been proposed by publisher Penguin, which earlier this month combined with Random House to become Penguin Random House. The EC announced today that it has made the commitments legally binding.

The settlement with Penguin follows the EC's decision in December 2012 to make legally binding commitments from Apple Inc. and four other book publishers--Simon & Schuster, HarperCollins, Hachette Livre, and Verlagsgruppe Georg von Holtzbrinck (owner of Macmillan) to close the investigation against those firms.

Penguin offered substantially the same commitments as those agreed to by the other four publishers, according to the EC. Penguin is required to terminate on-going agency agreements and refrain from using certain most-favored-nation (MFN) clauses in its agency agreements during the next five years. Penguin also offered to give retailers freedom to discount e-books, subject to certain conditions, during a two-year “cooling-off” period.

The commitments were released for market testing in April 2013. The EC is now satisfied that the commitments offered by Penguin remedy the competition concerns it had identified.

If Penguin, Apple, or one of the other publishers were to break the commitments, the EC could impose a fine on the firm.

In March 2011, the EC opened proceedings against Simon & Schuster, HarperCollins, Hachette, Holtzbrinck/Macmillan, Penguin, and Apple. The investigation had arisen out of its concerns regarding agency agreements between Apple and the publishers, under which publishers would set the prices of e-books, and Apple would sell the books in exchange for a commission on each sale. This contrasted with the “wholesale model” previously employed in the industry, under which the publishers would sell books at a set price to retailers, and then the retailers would charge a price they found appropriate. The EC also had concerns about the MFN clauses contained in the agency contracts.

In the United States, Penguin Group (USA) Inc. settled similar antitrust charges brought by the U.S. Department of Justice and state attorneys general. Under the Justice Department settlement, Penguin agreed to terminate contracts with Apple, as well as contracts with other e-book retailers that contained either a restriction on an e-book retailer’s ability to set the retail prices or a price-based MFN clause. Penguin also was required to refrain from including prohibitions on retailer discounting in new agreements, and the company agreed to establish an antitrust compliance program.

Penguin was the fifth and final publisher to settle the allegations of 31 states, the District of Columbia, and Puerto Rico. Under the terms of the settlement of the state suit, which also resolves the claims of private class action plaintiffs, Penguin agreed to provide $75 million for consumer compensation.

Companies: Apple Inc.; Hachette Book Group Inc.; HarperCollins Publishers L.L.C.; Simon & Schuster Inc.; Penguin Random House; Holtzbrinck Publishers, LLC.

News: Antitrust