Macmillan Settles DOJ E-Book Pricing Suit

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Judge approves class-action settlement by Hachette, HarperCollins, and Simon & Schuster

On Friday, February 8, Macmillan became the final publisher to agree to a settlement of the e-book agency model pricing suit brought by the Department of Justice against Hachette, HarperCollins, Macmillan, Penguin, Simon & Schuster, and Apple in April 2012.

In a letter to authors, illustrators, and agents, Macmillan CEO John Sargent said the publisher had finally decided to settle “because the potential penalties became too high to risk even the possibility of an unfavorable outcome.”

Hachette, HarperCollins, and Simon & Schuster settled with DOJ early on, but Macmillan, Penguin, and Apple prepared to fight the case in court. In December, however, as its plans to merge with Random House moved forward, Penguin also reached a settlement with DOJ, in which it too denied any wrongdoing but agreed to terminate its agreements with Apple and other e-book retailers and was prohibited for two years from entering into new agreements that “constrain retailers’ ability to offer discounts or other promotions to consumers to encourage the sale of its e-books. Although not a party in the case, Random House agreed to be bound by the Penguin settlement.

Macmillan did not settle earlier for two reasons, Sargent said: a belief that the level of e-book discounting that the settlement called for would be harmful to the industry and “an old-fashioned belief that you should not settle if you have done no wrong.”

However, when Random House agreed to be bound by the Penguin settlement, there came the realization that “Macmillan’s stand-alone selling at full agency price would have no impact on the overall marketplace,” Sargent said, and Macmillan would be operating at a pricing disadvantage for two years.

“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).” After receiving an estimate of the maximum damage figure that Macmillan would be facing, rather than jeopardize the whole company, Macmillan agreed to settle with DOJ with no admission of guilt, Sargent said.

Retailers will now be able to discount Macmillan e-books for a limited time, and the change will take effect quickly.

Apple alone will continue to fight the case in a civil trial schedule to begin in June.

In a related e-book pricing case, on Friday a federal judge granted final approval to a settlement by Hachette, HarperCollins, and Simon & Schuster of a lawsuit filed by 49 states and the class action law firm of Hagens Berman.

Under the agreement, the three publishers will pay $69 million to eligible consumers who bought e-books between April 2010 and May 21, 2012, as well as $7.6 million to the states. Minnesota did not participate in the suit.

Along with its settlement with DOJ, Macmillan has agreed to create a settlement fund totaling $20 million from which claims to consumers who purchased e-books would be paid, according to Hagens Berman. That settlement must still be approved by the court.

Penguin, which did settle with DOJ, has yet to finalize a deal in the suit brought by the states. Apple also has not settled.