Publisher Settles in E-book Price Fixing Case

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Another publisher has settled with the states in a case involving e-book price fixing.

Simon & Schuster has agreed to work out a settlement (PDF) with 29 states, the District of Columbia, and Puerto Rico in an antitrust lawsuit that alleges the publisher participated in a conspiracy to fix e-book prices in 2010.

Simon & Shuster joins Hachette and HarperCollins in agreeing to settle with the states. Two publishers, Macmillan and Penguin, as well as Apple, are continuing to litigate the case.

No details of the settlement were released, which court documents suggest is still being hammered out. A dismissal memo states that Simon & Schuster intends to enter into a settlement agreement that will be filed with the federal district court hearing the case.

In similar antitrust lawsuit by the U.S. Department of Justice (DOJ), the three publishers also agreed to a settlement. The publishers agreed to:

  • terminate any deals with Apple or other sellers of e-books that "restricts, limits, or impedes the e-book retailer’s ability to set, alter, or reduce the retail price of any e-book;"
  • not to enter into such deals for at least two years; and
  • abstain from retaliating against any retailer setting, altering, or reducing the retail price any e-book.

In addition to the lawsuits by the DOJ and states, a consumer class action is pending against the publishers and Apple. Apple and the publishers moved to get that lawsuit dismissed this week, but the judge hearing that case rejected the motion.

All the lawsuits allege that Apple and the publishers engaged in conspiracy to fix the price of e-books because of Amazon's dominance of the market. Prior to the implementation of the alleged conspiracy in 2010, Amazon had 90 percent of the e-book market. Afterward, its share dropped to 60 percent.

Many legal experts believe the antitrust case against the publishers is stronger than the one against Apple.

In its agreement with the publishers to sell e-books, Apple received favorable terms as a reward for its participation in the price-fixing scheme, the DOJ argues.

That agreement contains something called a "most-favored nation" clause. Typically, those clauses are included in contracts to protect a buyer from wholesale price fluctuations.

Apple's most-favored nation clause was different, according to the Justice Department. "[I]nstead of [a clause] designed to protect Apple's ability to compete, this [clause] was designed to protect Apple from having to compete on price at all, while still maintaining Apple's 30 percent margin," the Justice Department says in its complaint against Apple and the publishers.

In addition, in evidence made public for the first time this week, the DOJ released a letter from Apple co-founder Steve Jobs trying to persuade a publisher with cold feet about joining the conspiracy to change its position.

Within three days of the letter, the foot-dragging publisher and its co-conspirators agreed to an e-book pricing scheme and signed a deal with Apple based on that scheme.

Follow freelance technology writer John P. Mello Jr. and Today@PCWorld on Twitter.

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