Judge Agrees to E-Price Fixing Settlement

Despite plenty of objections, federal district court judge Denise Cote has approved the settlement reached by the Justice Department and three of the five publishing houses in the e-book price-fixing case.

The settlement mandates that Hachette, HarperCollins, and Simon & Schuster discontinue current e-book sales agreements for the next two years and pay $69 million in damages to customers who purchased e-books between April 1, 2010, and May 21, 2012. Apple has said it will appeal the judge’s decision. The ruling means retailers can set their own prices, regardless of publisher pricing.

Amazon has indicated it is ready to resume “aggressive” e-book pricing.

The judge dismissed all objections, finding those concerns to be unreasonable. However, she also sided with the NACS position that e-textbooks should not be part of the settlement.

“While disappointed that the settlement agreement was upheld, we are pleased that the judge agreed in her ruling with our opinion that e-textbooks are not covered by the final judgment,” said Charles Schmidt, director of public relations for NACS. “By making this distinction, we hope that competition and innovation in the higher education textbook market continues.”

What's Next with E-Book Pricing?

While Penguin, Macmillan, and Apple continue the e-book pricing fight with the Department of Justice, Hachette, HarperCollins, and Simon & Schuster have decided it’s better to pay $69 million now than risk further damage to their reputation and possibly even higher fines that could result from losing a court case.

The three agreed to give refunds in the form of account credits or checks, ranging from 25 cents for each non-bestseller sold to $1.32 for books that appeared on The New York Times bestseller list from April 1, 2010-May 21, 2012. Just don’t expect your refund any time soon.

“Consumers aren’t going to see any payouts right now,” Laura Hazard Owen, a reporter covering e-book publishing for paidContent, said to The Boston Globe. “There’s still a lot of waiting ahead.”

The Globe article goes on to predict consumers could see e-book prices drop as much as 30%. Amazon said it would lower prices when the initial settlement with the Department of Justice was announced in April and other e-tailers will likely follow suit to keep pace.

“When retailers or manufacturers conspire to set prices, consumers lose,” said Edgar Dworsky, founder of consumer resource guide ConsumerWorld.org. “So this is a good result.”

The three settling publishers also agreed to change the pricing of their e-books, but that’s where things could get a little murky, according to Billy Pidgeon, analyst at M2 Research.

“The devil is in the details,” he told the eCommerce Times. “There’s a lot of issues with the price of digital media. There are expectations that digital should be priced more cheaply as there are no manufacturers. But this really hasn’t been the case.”

Change is coming to E-Book Market

The Department of Justice recently filed a motion asking that its settlement with Hachette, HarperCollins, and Simon & Schuster in its e-book pricing lawsuit be approved in federal court. No surprise there.

If accepted, sometime around the middle of September, retailers will be able to set their own prices for e-books, at least from the three publishers in the settlement.  The settlement allows the agency-pricing model that came under DOJ scrutiny to remain, but the provisions of the settlement make anything resembling the current agency model highly unlikely.

While the settlement allows retailers to set the sales prices, publishers can prohibit discounts on their books. That provision comes into play when the total sales of a year exceed the margin the retailer has earned, according to an analysis of the agreement in The Shatzkin Files.

However, the article also points out how easily that discount prohibition may be sidestepped. For instance, a retailer such as Amazon may choose to cut e-book prices way below its costs during a specific time frame, such as the upcoming holiday season, figuring to make up the margin over the next nine months. In the meantime, other publishers who may still be clinging to the agency-pricing model may have to lower its prices just to stay competitive.

Which is exactly what many in the bookselling industry feared all along.

Apple, Publishers Fire Back at DOJ

A number of legal experts have said Apple will beat the rap when it comes to the Department of Justice’s price-fixing lawsuit over the agency pricing model of e-books (see the blog post from April 22). Now, the computer giant has weighed in, contending the case against it is without merit.

Apple refutes every charge, according to a report in MacNewsWorld, and argues it negotiated individual deals with publishers, which actually enhanced e-book competition. The company also claimed that Amazon created a monopoly in the e-book market and, by entering the field, Apple helped to spur the growth of e-book titles.

But Yasha Heidari, managing partner of the Heidari Power Law Group, seemed unimpressed.

“It’s just a way of trying to get away from the underlying merit of the case,” Heidari told MacNewsWorld. “The whole thing about antitrust law is, it’s very complex, and once you get very big and powerful, you’ll try to get around it. The question is whether or not Apple is trying to get around it.”

Now, both Penguin and Macmillan have also fired back. the two publishing firms have joined Apple in fighting the lawsuit and recently filed responses that dispute all claims against them, including the one suggesting the publishers met secretly over dinner to devise the agency model.

In the 26-page Macmillan rebuttal, CEO John Sargent claims he “dined once or at most twice with peers from certain other publishing houses, but these dinners were social in nature. No conspiracy was hatched over any such dinner.”

Penguin used its 74-page response to target Amazon, calling the online retail giant “predatory.” The publisher also claims it chose to cooperate with Apple because the iPad allows for enhanced books, which the Kindle does not and suggests the agency pricing strategy allows greater competition in the e-book market.