Judge approves e-book price-fixing settlement in surprise ruling

Judge in Court

In an unexpected move, a federal court abruptly approved a settlement between the Department of Justice and three publishers that will resolve a controversy over e-book pricing.

The approval comes in the form of a strongly-worded ruling that is a defeat for the publishing industry, but that also contains flowery language and a full-length Emily Dickinson poem (see below).

The ruling in question was issued Thursday in Manhattan by US District Judge Denise Cote. It gives formal approval to an arrangement that will see HarperCollins, Simon & Schuster and Hachette agree to grant retailers more freedom to set the price of e-books. In return, the Justice Department will drop an anti-trust lawsuit against them.

Under the terms of the deal, the publishers must abandon so-called “agency pricing” contracts within seven days of the settlement’s approval. In practice, this means that retailers — including Amazon — no longer have to abide by terms under which the publishers set the price. For consumers, this means that bestseller prices could drop significantly in coming weeks.

Many in the publishing community have complained bitterly about the government’s actions, saying it has given a plum to Amazon, which already dominates the market. Under the terms of the settlement, Amazon can sell titles below cost so long as all their e-book sales together do not add up to a loss.

Judge Cote, however, has long been skeptical about the claims of the publishers. In May, she peremptorily rejected a request to dismiss the case and stated that she believed the parties had hatched an illegal conspiracy. Her latest ruling suggests she is more convinced than ever:

Although the Government did not submit any economic studies to support its allegations, such studies are unnecessary… In this straightforward price-fixing case, no further showing is required.

The settlement was expected to be the subject of upcoming hearings at which Apple and others planned to voice their objections to the arrangement. Remarkably, Judge Cote wrote that a hearing was unnecessary given the voluminous facts submitted by the government: “A hearing would serve only to delay the proceedings unnecessarily.”

In another section of the decision, Judge Cote acknowledges that the vast majority of public comments in response to the settlement were negative. She adds, however, that some comments were “extreme” and sought to blame “every evil to befall publishing on Amazon’s $9.99 price for newly released and bestselling e-books, and crediting every positive event — including entry of new competitors in the market for e-readers — on the advent of agency pricing.”

Judge Cote also adds a paean to books and reading, and posts a Dickinson poem in the middle of the judgment:

There is no Frigate like a Book
To take us Lands away,
Nor any Coursers like a Page
Of prancing Poetry –
This Traverse may the poorest take Without oppress of Toll –
How frugal is the Chariot
That bears a Human soul

Despite the surprise ruling, the overall case is far from finished. Apple and two other publishers have not settled with the Justice Department so that part of the lawsuit will go forward. A trial is set for next summer provided the parties do not also decide to settle.

Meanwhile, the three settling publishers have also hatched a deal with state governments that will see them pay millions of dollars in restitution to consumers.

For now, in addition to having to tear up their existing “agency pricing” contracts, the settling publishers will also be forbidden from restricting retailers’ discounting and using “most favored nation” clauses in their contracts.

The opinion, first reported by Publishers Weekly, can be seen in full here:

Cote Approves DOJ E-book Deal
 

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