The Department of Justice filed its long-awaited e-book pricing antitrust suit against Apple and five publishers today, and very quickly three of the publishers involved, Simon & Schuster, HarperCollins, and Hachette announced that they had agreed to settlement terms. Talks between DOJ and three other parties involved in the case, Apple, Macmillan, and the Penguin Group presumably continue, but now that the DOJ has filed suit, the pressure is on Apple and the publishers to settle quickly to avoid a costly court case.
The antitrust action arose over a change in the model for e-book pricing. Unhappy with Amazon setting a $9.99 e-book standard price, the publishers after meeting with Apple, which was about to enter the e-book market in a big way with its iPad, decided to shift from a “wholesale” model, where the retailer set the consumer price to an “agency” model where the publishers, not the retailers, determined the consumer price for e-books and Apple was protected from any price competition (see “Multiple Investigations of E-Book Pricing” and “Justice Department Warns Apple, Publishers of Impending Suits”).
Under terms of the settlement, Hachette, HarperCollins, and Simon & Schuster have agreed to terminate their agreements with Apple and other e-book retailers, and they will be prohibited for two years from entering into new agreements that constrain retailers’ ability to offer discounts. The settlement doesn’t prohibit the trio of publishers from new agency agreements with e-book retailers, but those agreements cannot prevent the retailers from reducing the price set by the publishers. The three publishers have also agreed to strong antitrust compliance program that prohibits them from sharing key data with their competitors, forces them to hire antitrust compliance officers, and provide the Justice Department with advance information on any joint e-book ventures, while regularly reporting to the DOJ concerning any conversations that they have with other publishers.
It will be interesting to see if the other parties named in the suit (Apple, Penguin, and Macmillan) accept settlements or fight the case out in court. The effect of the DOJ’s actions on the burgeoning e-book market is not altogether clear at this time, but it will put a downward pressure on e-book pricing (Amazon is already talking about lowering prices on Kindle e-books). Amazon and e-book consumers appear to be the big winners in the DOJ action.