The Fix is Out: E-Book Pricing Settlement Approved

The Fix is Out: E-Book Pricing Settlement Approved

On Sep. 6 U.S. District Judge Denise Cote approved a price-fixing settlement between the U.S. Department of Justice and the e-book publishers Simon & Schuster, Hachette Book Group Inc., and HarperCollins Publishers LLC.

In April the DOJ filed suit against the three publishers and several others, including Apple Inc., alleging that they colluded to fix e-book prices. Judge Cote declined to hold an evidentiary hearing, citing the huge volume of comments on the agreement from the public, as well as the time-sensitive nature of ending anti-competitive behavior to help consumers. The case centers around contracts between retailers and publishers that essentially set the prices of many newly released and bestselling e-books to $12.99-$14.99, preventing retailers, primarily Amazon, from charging less (Amazon had generally been selling those books at $9.99, a substantially lower price than competitors, in an effort to capture a large market share).

Many in the public, as well as big players in the industry such as Apple and Barnes and Noble, argued that without such an agreement Amazon was able to engage in predatory pricing, forcing others out of the market. Judge Cote rebutted this claim in her ruling, arguing that none of the 868 comments on the proposed agreement “…demonstrate that either condition for predatory pricing by Amazon existed or will likely exist.” She further argued that “even if Amazon was engaged in predatory pricing, this is no excuse for unlawful price-fixing… The familiar mantra regarding ‘two wrongs’ would seem to offer guidance in these circumstances.”

The three publishers who chose to settle with the DOJ denied wrongdoing, but agreed to settle regardless. Apple, Penguin Group USA, and Macmillan chose to decline the settlement and will instead take the case to trial in the summer of 2013. The settlement requires the publishers to terminate many existing contracts and places limitations on the types of agreements that they may make with e-book retailers for the next several years.

While Amazon has yet to comment on the ruling, they are the clear winner and will likely soon lower the prices of many e-books for Kindle owners. Apple, the publishers named in the suit, and small independent bookstores on the other hand will undoubtedly be less than satisfied at having to compete once more against the low e-book prices Amazon will inevitably revert back to. As predatory pricing is quite difficult to prove in contrast to the relative ease with which horizontal price-fixing of the kind claimed against the defendants can be proved, Apple and the remaining publishers who chose not to settle may have some cause for concern.

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