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DoJ Finally Settles with Penguin over Ebook Price Fixing

The Department of Justice said on Tuesday that it had finally reached a settlement with book publisher Penguin Group Inc regarding the ebook price-fixing scandal. The Department said it will continue to litigate against iPad giant Apple and publisher Macmillan (Holtzbrinck Publishers LLC) for conspiring to raise ebook prices.

"Today’s proposed settlement was filed in the U.S. District Court for the Southern District of New York," the Department said. "If approved by the court, the settlement will resolve the department’s competitive concerns as to Penguin, ending Penguin’s role as a defendant in the civil antitrust lawsuit filed by the department on April 11, 2012."

The news follows a previous settlement the Department of Justice made with Hachette Book Group Inc., HarperCollins Publishers L.L.C. and Simon & Schuster Inc. All three reportedly didn't have the resources to fight the Department's claims in court, and chose to reach an agreement back in September which now includes a refund to consumers who purchased over-priced ebooks.

"Since the department’s settlement with Hachette, HarperCollins and Simon & Schuster, consumers are already paying lower prices for the e-book versions of many of those publishers’ new releases and bestsellers,” said Jamillia Ferris, Chief of Staff and Counsel at the Department of Justice’s Antitrust Division.  "If approved by the court, the proposed settlement with Penguin will be an important step toward undoing the harm caused by the publishers’ anticompetitive conduct and restoring retail price competition so consumers can pay lower prices for Penguin’s e-books."

The complaint filed by the Department of Justice accused five major book publishers of conspiring with Apple to raise ebook prices. All six parties reportedly feared the ebook market dominance of Amazon and its Kindle ereader, and decided to eliminate the competition once the iPad arrived by eradicating the competitive "Wholesale" price model – where retailers set the price – to an Agency model that allows the publisher to set ebook prices instead.

Once the iPad stormed the computing market, consumers began to see rising costs in ebooks, most of which began to hover around the $15 region – that's more expensive than a paperback book. No longer were retailers allowed to sell ebooks at the "wretched $9.99 price point," as one ebook publisher allegedly described the previous pricing model.

At one point, Penguin said that it would fight the Department of Justice alongside Apple and Macmillan, but that stance seems to have changed. "Under the proposed settlement agreement, Penguin will terminate its agreements with Apple and other e-books retailers and will be 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 the Penguin’s e-books," the Department said.

The proposed settlement agreement will also impose a strong antitrust compliance program on Penguin which forces the publisher to report any communication it has with other publishers. Penguin must also not enter into any kind of most favored nation (MFN) agreement for the next five years.

A trial against Macmillan and Apple currently is scheduled to begin in June 2013, the Department said.


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