Penguin, Macmillan Settle in E-Book Price-Fixing Class Action

Does it matter whether a product is fairly, competitively priced or not? And do consumers have a right to expect this? One of the bases of a free and open market is that rivals should strive to produce cheaper, higher quality products in order to win customers - a principle which is also protected by law. Antitrust and anti-monopoly laws seek to prevent companies from working together to artificially inflate prices of similar products.

Allegations include that Apple played publishers against each other to raise prices.

Essentially, rival companies – or even friendly companies who provide a similar product or service – cannot agree to coordinate their pricing so as to increase the cost to consumers. While price matching – whereby different companies independently set prices around the same level within a market – is standard business practice, any agreement hidden from consumers is highly suspect. It is this of which several major book publishers, and Apple Inc, have been accused.

Hachette Book Group Inc, HarperCollins Publishers LLC, Simon & Schuster Inc, Penguin Group (USA) Inc, Holtzbrinck Publishers, LLC, and Apple Inc recently faced federal, state and personal lawsuits alleging that they coordinated the prices of e-books through price fixing contracts with e-book retailers in an “illegal conspiracy.” The Department of Justice first filed suit in April 2012, and at the time Hachette, HarperCollins and Simon & Schuster agreed to a proposed settlement.

While Macmillan, Apple and Penguin announced they planned to fight, Penguin and Macmillan have both now settled, with Macmillan admitting that in the worst-case scenario fines and damages would have equaled more than the total equity of the company. The lawsuit also allowed the cost of potential fines against publishers to be redistributed to remaining defendants every time a publisher chose to settle, making the last few plaintiffs liable for far more than originally planned. Now, Apple alone will face trial in June.

According to some reports, they’re unlikely to settle on principle, but will instead fight the antitrust charges despite a pretrial hearing in which U.S. District Judge Denise Cote expressed a tentative view that the Department of Justice would most likely be able to prove conspiracy between the publishers and Apple’s e-book publishing arm. Allegations include that Apple played publishers against each other to raise prices, and to collude against online retailer Amazon.com. It’s been suggested that Amazon’s habit of selling e-books for $9.99 and less may have inspired the reported price fixing agreements.

Penguin’s settlement with multiple states came to $75 million, while Macmillan’s settlement is reported to top $26 million. Both deny wrongdoing but point to the financial burden of continuing the fight. Settlements for all the publishers include terms limiting contracts with online retailers, giving sellers more freedom to set their own prices, and a provision that authorities must be informed whenever publishers form an agreement on aspects of pricing or selling. The majority of the settlement money in all cases has been earmarked as compensation for those who bought e-books at inflated prices. Publishers have also been told they must reduce prices within a certain time-frame – for Macmillan, who settled later than others, a mere three business days.