Antitrust Law Daily Wrap Up, ANTITRUST NEWS: Public Comments on E-Book Settlement with Penguin to Be Published Electronically, (Apr 4, 2013)

By Jeffrey May, J.D.

The Department of Justice Antitrust Division will post public comments on its website regarding a proposed consent decree with Penguin Group (USA), Inc., settling allegations that the publisher participated in a conspiracy with Apple, Inc. to fix the sales prices of electronic books or e-books. The federal district court in New York City excused the government from publishing the comments in the Federal Register, in view of the costs associated with such publication.

The Antitrust Division anticipates posting the public comments by April 5. It will publish a notice in the Federal Register providing the website address to obtain the public comments.

While publication of the public comments and the U.S. response is required by the Antitrust Procedures and Penalties Act, also known as the Tunney Act, the law was amended in 2004 to permit the Justice Department to make public comments on a consent decree available through means other than the Federal Register. In recent years, courts have granted the Antitrust Division's request for relief from the Federal Register publication requirement.

In the government's latest request, it was noted that the court had allowed electronic publication of the public comments on the original consent decree resolving allegations against three other defending publishers: Hachette Book Group (USA), HarperCollins Publishers L.L.C., and Simon & Schuster Inc. The Justice Department posted 868 comments from individuals, publishers, and booksellers—including Apple—on the Antitrust Division website. In addition, it published in the Federal Register on July 27, 2012, the website address at which the public comments may be viewed and downloaded.

Only three comments, totaling 56 pages, were submitted with respect to the pending consent decree with Penguin. However, the Justice Department explained that, because publication in the Federal Register would require photographic treatment at a rate of $522 per page, the publication cost could exceed $29,000.

Penguin agreed to settle the Antitrust Division's civil suit last December. In April 2012, the government filed its suit, alleging that the publishers Hachette, HarperCollins, Simon & Schuster, Penguin, and Holtzbrinck Publishers LLC, which does business as Macmillan, 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.

Macmillan also has agreed to settle the Antitrust Division’s allegations. A proposed consent decree with Macmillan was announced in February, and the public comment period remains open.

The Justice Department is preparing to litigate against Apple. A trial is scheduled to begin this June.

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, which was approved in September 2012 (2012-2 Trade Cases ¶78,042).

Like the other settling publishers, Penguin would be required to terminate contracts 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" 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. The government had anticipated moving for entry of the consent decree on April 19.

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

News: Antitrust AntitrustDivisionNews