Penguin reaches pact with EU to end e-book price-fixing probe

The publisher has agreed to terminate its pricing deal with Apple and refrain from making "most favored nation" pricing pacts for five years.

Shara Tibken Former managing editor
Shara Tibken was a managing editor at CNET News, overseeing a team covering tech policy, EU tech, mobile and the digital divide. She previously covered mobile as a senior reporter at CNET and also wrote for Dow Jones Newswires and The Wall Street Journal. Shara is a native Midwesterner who still prefers "pop" over "soda."
Shara Tibken
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Apple has made several tweaks to its iBooks program. James Martin/CNET

Penguin has vowed to change its pricing strategy for digital books, including terminating an e-book pricing pact with Apple, to resolve an antitrust probe by the European Union.

As part of the deal, Penguin has agreed to terminate existing agency agreements -- those pacts that allow a publisher, not a retailer, to set prices -- and will refrain from adopting "most favored nation" pricing clauses for five years. Those had prevented retailers such as Amazon from undercutting Apple's e-book prices.

If Penguin does enter into new agency agreements, retailers would be free to set the retail price of e-books during a two-year period as long as the price discount doesn't exceed the total annual amount of commission that the retailer receives from the publisher.

The European Commission said in a statement today that Penguin's proposals are "substantially the same" as the agreements with Simon & Schuster, News Corp.'s Harper Collins, Lagardere SCA's Hachette, and Verlagsgruppe Georg von Holtzbrinck, the owner of German company Macmillan. Those pacts became legally binding in December. CBS, the parent company of CNET, also owns Simon & Schuster.

Competitors and customers have one month to comment on Penguin's proposal.

Penguin said in a statement that while it has reached an agreement with the European Commission, it still believes it didn't break the law.

"Penguin's position that it has done nothing wrong remains unchanged, and the company continues to believe that the agency pricing model operates in the best interests of consumers and authors. While we disagree with some elements of the Commission's analysis, we are settling as a procedural matter to clear the decks in anticipation of our proposed merger with Random House."

Apple and the five book publishers have faced investigations and lawsuits for the past couple of years related to how they sell digital books. The companies have been accused of conspiring to artificially hike prices and forcing retailers like Amazon to raise prices. Government agencies in the U.S. and elsewhere have argued the pricing agreements hurt customers and limited competition in the marketplace.

Most companies involved have reached settlements, with Penguin the last holdout in the EU. However, Apple still faces litigation by the U.S. Department of Justice, and that trial is scheduled to begin in June.