Court OKs feds' e-book settlement with publishers

Court's approval of Department of Justice deal with three of five book publishers accused of fixing e-book prices is bad news for Apple.

Greg Sandoval Former Staff writer
Greg Sandoval covers media and digital entertainment for CNET News. Based in New York, Sandoval is a former reporter for The Washington Post and the Los Angeles Times. E-mail Greg, or follow him on Twitter at @sandoCNET.
Greg Sandoval
2 min read

A federal court has approved a settlement agreement reached between the U.S. Department of Justice and three book publishers accused of conspiring with Apple to fix e-book prices.

The DOJ filed suit against Apple and five of the country's largest book publishers in April and accused the group of antitrust violations. Immediately after filing the complaint, the government announced that it had reached a settlement with three of the five accused publishers: Hachette Book Group, HarperCollins Publishers, and Simon & Schuster (owned by CBS, parent company of CNET).

As part of that settlement, the three e-book publishers agreed to nullify their e-book contracts with Apple, stop "placing constraints" on retailers' ability to offer discounts to consumers for two years, stop sharing "competitively sensitive information" with competitors for five years, and to implement an "antitrust compliance program." In return, the government agreed to drop the charges against them.

Apple, Macmillan Publishers (owned by Germany's Verlagsgruppe Georg von Holtzbrinck holding company), and Pearson PLC's Penguin Group say they've done nothing wrong and have chosen to fight the charges in court instead of settling. An Apple representative was not immediately available for comment. We'll update as soon as we hear back.

According to a report from Bloomberg, U.S. District Judge Denise Cote wrote: "The government alleges substantial ongoing harm as a result of the settling of the defendants' illegal activity.... e-book consumers should not be forced to wait until after the June 2013 trial to experience the significant anticipated benefits of the decree."

The judge's decision is a setback for Apple, which must now watch as Amazon will be allowed once again to offer heavily discounted prices on best-selling books.

The government alleged in its complaint that the motive for the price fixing was fear that Amazon's pricing strategy would drive out competition and hand it control of the e-book market. In Walter Isaacson's authorized biography of Steve Jobs, the Apple co-founder says Apple and the accused publishers got together leading up to the release of the iPad in 2010 and agreed the best way forward was for the publishers to set retail prices, not book merchants. So, they went about forcing this new pricing model on retailers.

From then on, retailers would have to compete on title selection, shopping experience, and everything else other than price. By taking price out of the equation, Apple stood to make up ground on Amazon, which owned 90 percent of the e-book market at the time, according to the DOJ.

The problem is that in trying to take Amazon down, Apple and the publishers threw consumers under the bus. Amazon said after the complaint was filed it was looking forward to reducing prices again.

Apple and the publishers are scheduled to go to trial next June.