August 30, 2012, 4:42 PM

Three publishers will pay $69 million to settle an e-book price-fixing suit

Retailers would be able to set their own e-book prices for those publishers’ titles.

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The attorneys general of 54 states and territories announced yesterday they have reached an agreement with three publishing companies to settle an antitrust suit that alleges the publishers conspired to increase e-book pricing.

Under the terms of the agreement, publishers Hachette Book Group Inc., HarperCollins Publishers LLC and Simon & Schuster Inc. will pay more than $69 million to consumers who purchased e-books they and two other companies published between April 1, 2010, and May 21, 2012. The other two publishers are The Penguin Group Inc. and Macmillan, which is owned by Verlagsgruppe Georg Von Holtzbrinck GmbH and Holtzbrinck Publishers LLC. Those companies are not participating in the settlement and continue, along with Apple Inc., to litigate a related case filed in April by the U.S. Justice Department.

At issue in both cases is the so-called agency pricing model, which emerged in late 2009 and effectively put publishers in control of retail prices. That was in response to aggressive pricing by Amazon.com Inc., which, in order to promote sales of its market-leading Kindle e-book reader often priced bestsellers at $9.99, often below the wholesale price it paid publishers. The publishers feared that such a low price would put pressure on them to reduce prices on their printed volumes. Amazon.com is No. 1 in Internet Retailer’s Top 500 Guide.

The Justice Department suit says Apple and the five publishers shared the same goal of restraining retail price competition of e-books and worked out the agency pricing model ahead of Apple’s launch of the iPad iPad tablet computer in spring 2010. Under the agency model, publishers set the retail price for e-books and pay the retailer a commission for each e-book sold. Under a previous pricing model, publishers sold e-books to retailers under the same model they used for print books, with the retailer paying a wholesale price up front. The retailer could then sell the title for whatever price it chose to, which left Amazon free to use e-books as loss leaders to spur sales of the Kindle reader.

The civil suit says the publishers, in requiring retailers to comply with the agency model if they wanted to sell the publishers’ e-book titles, “conspired and agreed to increase retail e-book prices for all consumers” and eliminated e-book retail price competition between e-book outlets. The settlement requires the three publishers to cancel the existing agency model pricing agreements they have with retailers, and allow those retailers to price e-books as they see fit. The publishers are also prohibited for two years from introducing any new agreements that would prevent retailers from discounting e-books. The U.S. District Court for the Southern District of New York, where the suit and settlement were simultaneously filed, needs to approve the settlement. If it does, payments to consumers will begin 30 days later. 

The settlement strikes a blow at the agency pricing model, but it doesn’t mean the agency model is going away anytime soon, says Forrester Research Inc. analyst James McQuivey.  The Penguin Group Inc. and Macmillan are still fighting the Justice Department’s case in court hoping to preserve the pricing arrangement, and the largest trade book publisher in the world, Random House Inc., can continue to use it since it only began following the agency model in 2011 and was not involved in either suit. Other publishers are in a similar situation.

“The agency model isn't dead, though it is significantly wounded,” McQuivey says. He says publishers continue to evolve their pricing structures, and he doesn’t expect consumers will see a great change in future e-book prices.

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