Macmillan reaches e-book pricing settlement with DOJ

Now all that's left is Apple. The Justice Department says it will continue to litigate against the electronics giant for allegedly conspiring with Macmillan and four other big book publishers to raise e-book prices.

The U.S. Department of Justice has reached a settlement with Macmillan in an antitrust case related to e-book pricing, leaving only Apple to battle the suit.

In an antitrust lawsuit filed last April, federal prosecutors accused Apple and five book publishers of conspiring to artificially hike prices. The same day, the Justice Department announced it had reached settlements with three publishers but said Apple and the other two publishers had opted to fight the charges. Lagardere SCA's Hachette Book Group, News Corp.'s HarperCollins Publishers, and Simon & Schuster (owned by CBS, which publishes CNET) agreed to settle. Penguin, one of the two publisher holdouts, reached a settlement in December . Macmillan, formally known as Holtzbrinck Publishers LLC, was the last publisher to settle with the Justice Department. The DOJ said today that it will continue its suit against Apple.

CNET has contacted Apple for comment regarding Macmillan's settlement and will update this report when we learn more. In a legal memo filed in August, Apple called the previous settlements "fundamentally unfair, unlawful, and unprecedented. " The trial against Apple is scheduled to begin in June.

As with the other settlements, Macmillan agreed to immediately lift restrictions it had imposed on discounting and other promotions by e-book retailers. It also will be prohibited from entering into new agreements with similar restrictions until December 2014.

The proposed settlement agreement will impose a strong antitrust compliance program on Macmillan, including requirements that it provide advance notification to the Justice Department of any e-book ventures it plans to undertake jointly with other publishers and regularly report to the department on any communications it has with other publishers. Also for five years, Macmillan will be forbidden from agreeing to any kind of most favored nation provision that could undermine the effectiveness of the settlement.

Macmillan CEO John Sargent said in a letter posted online that the company ultimately settled "because the potential penalties became too high to risk even the possibility of an unfavorable outcome."

He noted the company had not settled earlier because the settlement called for a level of e-book discounting that he believed would be harmful to the industry and because Sargent believed the company had done no wrong.

However, the estimate for the maximum possible damage figure should Macmillan have lost the case was "breathtaking" and was "much more" than the entire equity of the company, Sargent said.

"Our company is not large enough to risk a worst case judgment," Sargent said. "I like to believe that we would win at trial. But outcomes are hard to predict with certainty, particularly in a civil case with a low burden of proof. And so we agreed to settle with no admission of guilt. As with the other settling publishers, retailers will now be able to discount Macmillan e-books for a limited time. This change will take effect quickly."

Here's the full statement from Macmillan:

February 8, 2013

Dear Authors, Illustrators and Agents,

Today we agreed to settle our case with the DOJ. We settled because the potential penalties became too high to risk even the possibility of an unfavorable outcome.

There are two reasons we did not settle earlier. First, the settlement called for a level of e-book discounting we believed would be harmful to the industry. We felt that if only three of the big six publishers were required to discount and we stood firm, those problems might be avoided. But when Random House agreed to be bound by the Penguin settlement, it became clear that all five of the other big six publishers would be allowing the whole agent's commission to be used as discount, and Macmillan's stand-alone selling at full agency price would have no impact on the overall marketplace. And in addition, your books and our business would have a pricing disadvantage for two years.

The second reason was simpler. I had an old fashioned belief that you should not settle if you have done no wrong. As it turns out, that is indeed old fashioned. Our company is not large enough to risk a worst case judgment. In this action the government accused five publishers and Apple of conspiring to raise prices. As each publisher settled, the remaining defendants became responsible not only for their own treble damages, but also possibly for the treble damages of the settling publishers (minus what they settled for). A few weeks ago I got an estimate of the maximum possible damage figure. I cannot share the breathtaking amount with you, but it was much more than the entire equity of our company.

I like to believe that we would win at trial. But outcomes are hard to predict with certainty, particularly in a civil case with a low burden of proof. And so we agreed to settle with no admission of guilt. As with the other settling publishers, retailers will now be able to discount Macmillan e-books for a limited time. This change will take effect quickly.

Thank you for all the support you have shown for Macmillan, and me, over this last year. And also thanks to the many booksellers and others who voiced their opinions. I'm disappointed it ended this way. But this round will shortly be over, and it is time for us to move on to the next.

All best,

John

 

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