Antitrust Law Daily Wrap Up, ANTITRUST NEWS: Fourth Publisher Settles U.S. Department of Justice Charges in e-Books Case, (Dec 19, 2012)

By Jeffrey May, J.D.

Penguin Group (USA), Inc. has agreed to settle a suit brought by the Department of Justice, alleging that it and other publishers conspired with Apple, Inc. to fix the sales prices of electronic books or e-books. A proposed final judgment was filed on December 18 with the federal district court in New York City for approval (U.S. v. Apple Inc., Case No. 1:12-cv-02826).

Penguin is the fourth publisher to settle the civil antitrust suit, which was filed in April. In September, a final judgment was entered, resolving the government's claims against publishers Hachette Book Group (USA), HarperCollins Publishers L.L.C., and Simon & Schuster Inc. (2012-2 Trade Cases ¶78,042). The Justice Department said that it will continue to litigate against Apple and Holtzbrinck Publishers LLC, which does business as Macmillan. A trial is scheduled to begin in June 2013.

The government alleged that the publishers acted collectively to switch to a new sales model for e-books known as the “agency model” and entered into functionally-identical agreements with Apple, which distributes e-books through its “iBookstore.” Under the agency model, publishers sold titles to consumers directly at prices set by the publishers with retailers serving as the publishers’ “agents” and receiving a percentage of each sale as commission. Previously, the publishers sold e-books using the “wholesale model,” meaning they sold titles to retailers at a wholesale price or discount off the price listed on the physical edition of the book or “list price.” Retailers were then free to sell titles to consumers at retail prices of their choosing. The agency model purportedly led to rising prices for newly released and bestselling e-books.

Penguin agreed to settle the charges on terms substantially similar to those in the consent decree with Hachette, HarperCollins, and Simon & Schuster. The language of the proposed final judgment is largely identical the language of the earlier consent decree, according to the Justice Department. The proposed final judgment does contain language to ensure that its terms would continue to apply if Penguin and Random House, Inc. were to combine, as recently proposed.

Like the other three settling publishers, Penguin would be required to terminate contracts with non-settling defendant 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 “most-favored nation” (MFN) clause. The publisher also would be required to refrain from including prohibitions on retailer discounting in new agreements. In addition, Penguin would be required to establish an antitrust compliance program and notify the Justice Department of joint ventures with other publishers related to e-books.

According to the Justice Department, Penguin has already provided notice of its intent to form a joint venture with Random House. The transaction is currently under review by the Justice Department.

Daniel F. McInnis (Akin, Gump, Strauss, Hauer & Feld, LLP) for Penguin Group (USA), Inc.

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