E-Book Settlement Approved

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UPDATE: This piece has been updated to correct the erroneous statement that publisher will be barred from using the agency model to sell their books and will be forced to use a wholesale model.

In a decision that will rock the foundations of the nascent e-book publishing industry, Judge Denise Cote has approved the e-book price-fixing settlement proposed by the Department of Justice and three of the five U.S. publishers being sued for collusion and price-fixing, reports the Wall Street Journal.

The three publishers, Hachette, HarperCollins and Simon & Schuster, will now have to negotiate new contracts with e-book retailers, including Amazon, Barnes & Noble and Apple. The new contracts will give the power to set prices back to the retailers. The publishers will be barred from setting the prices of e-books for two years.

The settlement also stipulates that the retailers may not lose money on any one publishers’ catalog of e-books; the details of this stipulation will be worked out amongst the publishers and the retailers and have not yet been determined.

See a complete breakdown of the settlement here.

When the settlement was announced in April, it received swift, negative reaction from publishers, booksellers and industry observers. E-book consumers, indie authors and Amazon praised the settlement. Over the past two months, criticisms of the settlement intensified, with the likes of Apple, Penguin, the American Booksellers Association, the Association of Authors’ Representatives, Barnes & Noble, attorney Bob Kohn and others writing passionate arguments against it.

Still, antitrust experts expected the settlement to be approved — and Judge Cote met their expectations today.

“The settlement addresses the illegal acts and their effects that were alleged in the complaint and does not otherwise cause harm to the market,” said Jay Levine, a partner in the D.C. office of Birmingham, Ala.-based law firm Bradley Arant Boult Cummings, who specializes in antitrust law and has been following the e-book price-fixing case. “The Judge noted that she can only be concerned about the markets alleged in the complaint and not any other ancillary markets. Additionally, even if the acts were designed to counter Amazon’s alleged monopolizations, the Judge noted that two wrongs do not make it right and that the alleged conspiracy is still illegal.

“You cannot enter into a price fixing agreement to counter some other competitive evil, and the Judge sees this case as a run of the mill price fixing case,” he added.

So, what happens next?

The settling book publishers have seven days to sever their contracts with Apple and others and then 30 days to sign new contracts with the retailers, giving them once again, the power control e-book prices — and discount nearly at will.

Some analysts things that Amazon, the largest e-bookseller and proponent of the settlement — will discount its e-books slowly and strategically so as to maintain its profit margins which are already thin. Others have predicted that Amazon will go on a discounting binge, to show consumers once again that it provides them with the lowest prices.

 

 

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3 thoughts on “E-Book Settlement Approved

  1. Did you read the settlement? Did you read the judge’s decision? The settling publishers are NOT barred from using agency. They are barred from setting retail prices. This is a crucial distinction. This isn’t mysterious at all. If you want to understand how agency would work without the price-fixing that caused this lawsuit, just look at the way Kindle Direct Publishing works. Amazon gives KDP authors the same 70/30 split, but reserves the right to lower the price. I am sure that Amazon would give the settling publishers that sort of deal.

    The important point is that “retailer setting prices” is not necessarily the wholesale model. You should correct the false information in your article.

      • Thank you for the correction. I apologize if I came across as a bit snippy. There has been a concerted propaganda campaign by the big publishers and their allies to spread this particular bit of misinformation and I find it frustrating. If someone gets arrested for using a car to commit homicide, we don’t say that the cops are trying to outlaw cars. Apple and the publishers are accused of using agency pricing and the MFN clause to fix prices for ebooks. It is the horizontal price-fixing by a cartel with substantial market power that is at issue. That is what the settlement is designed to address.

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