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

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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 (s amzn) — 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 (s aapl) 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

19 Responses to “Judge approves e-book price-fixing settlement in surprise ruling”

  1. As a publisher of audiobooks and eBooks, Amazon pays us monthly by wire with totally interactive sales reports available in virtual real time. Audible, the Amazon division that runs the iTunes audiobook store (yes they do work together as well as compete), pays us quarterly. Books have a short shelf life in bookstores, even a Tom Clancy. Even best selling authors like Agatha Christie have only a fraction of their books on the shelf. Amazon and Apple/iTunes and iBookstore have them all. Readers benefit from far lower prices and publishers get paid higher commissions (70% at $2.99 and up). A bonanza for authors with higher royalties more sales and faster payments. The big six don’t like it because some of the biggest authors are going direct which will mean they make more and trend towards lower prices for readers. Print books are trending towards clubs and discounters who have terrific bargains too. Good for almost everyone; fair trading went out in the 50’s with the rise of discounters. The book industry has been a wee bit behind as with many things….

  2. I’m not sure what this means. Will big-6 ebook prices finally drop to a reasonable level? How is Amazon selling books below cost? As a loss leader? What’s the difference between that and a grocery store? What’s to keep brick and mortar bookstores from doing the same thing? And how is this different from me walking into B&N and getting a best-selling hardcover for $5 after it’s been out a while? On the other hand, if I, as an indie author, set a price of $5.99 for my book, can Amazon sell it for less?

    • There’s no way to know if Amazon will change their terms for self-publishing. They don’t have to – that was not an issue in this case – but, they could choose to. Or they could keep it the same. But, there’s just no way to know.

      As for what keeps other companies (particularly those that sell just books, or some other stuff but mostly books) from doing the same – money. Amazon sells so much other crap (HDTVs, diapers, appliances, honestly pretty much everything you could think of really) that they can afford to take a loss on books that most other companies can’t realistically compete with.

      • Brandon Rinebold

        “Amazon sells so much other crap (HDTVs, diapers, appliances, honestly pretty much everything you could think of really) that they can afford to take a loss on books”

        You’re missing the point: if Amazon is taking a loss on ebooks then there is no point in them selling ebooks and they will stop doing so. If Amazon didn’t think people will buy enough ebooks at a given price to turn a profit then they’d close that division as quickly as B&N closes a brick an mortar store that repeatedly runs a loss. No reasonable businessman ever runs a department that isn’t making a profit unless it’s simply amazing PR because they could close that division and make even more money.

        Anyway, under the terms of this settlement, Amazon is *required* to turn a profit on its ebook sales. I find it hard to believe that was much of a sticking point on Amazon’s end of the negotiations because that was their plan from the beginning.

    • Paulo Sargaço

      paper books will keep existing as long as there is a market for them. I don’t understand arguments like those of Rebecca. if amazon follows unlawful practices then that must be tackled. but it is no excuse for allowing publishers to do price fixing. and I hope Rebecca and others who love their pbooks can be so kind as to recognize that ebook consumers have as much right to fair prices. maybe out of the kindness of their hearts…?

      • I don’t consider below-cost prices “fair.” I would never demand or expect below-cost prices for a new copy of a print book. So do you think anything other than Amazon’s below-cost pricing for e-books is unfair? If you dislike a specific book’s price you are always able to vote with your wallet and not buy the book. If enough people don’t buy it, the publisher will probably adjust the price. If they don’t adjust it, that means it probably is selling fine at the price they set. I don’t actually want the government going after Amazon either – in fact I’d like them to stay out of this issue and business altogether (Unfortunately there is no socially liberal, fiscally conservative party in this country…. but that’s another topic).

      • Paulo Sargaço

        Rebecca said “I don’t consider below-cost prices “fair.””

        Well, Rebecca, neither do I. That’s why I wrote “if amazon follows unlawful practices then that must be tackled.”.

  3. “Judge Cote acknowledges that the vast majority of public comments in response to the settlement were negative”

    I don’t think I understand. Most people are against ending price-fixing? Did I read that wrong?

    If this means buying a book on my Kindle is no longer *more expensive* than buying the same book in hardback, it sounds pretty good.

    • Thanks for the comment, Pinky. I should have more specific — the “public comments” was a reference to the regulatory process in which people were invited to submit their views of the settlement. In practice, this means that the majority of comments are not submitted by the general public but by people who have a stake in the outcome (meaning the comments may not reflect the view of the average book buyer)

      • I am a book buyer and submitted a comment against the settlement. I hate Amazon, love print books, and absolutely adore bookstores. It would be an understatement to say that I will be heartbroken if bookstores go away because of this court decision. Amazon’s pricing was below cost and no one can realistically compete with it. So much for “competition.” I am a consumer that doesn’t want to buy e-books, and doesn’t want to buy ANYTHING whatsoever from Amazon, but apparently only e-book consumers matter.

      • Jonathan Wilson

        Those who argue its bad because it gives Amazon more power to set pricing (loss leaders etc) and that will further entrench Amazon as the dominant player need to remember that Apple, Barnes & Noble and others would also be able to do such discounting. So if Amazon puts iBooks etc out of business, it would be because those stores are unwilling to follow Amazon down the deep-discounting road.

      • Thanks for the clarification!

        I don’t think ebooks will kill print books as Rebecca says. I still buy plenty of specialty books not available digitally, or “special” books that I want to have and reread and loan to friends.

  4. Mark Gisleson

    Great news. Price fixing stinks and the publishing industry needed to be taken down a peg or two for their featherbedding prices that ignored digital savings and subsidized antiquated ink and paper operations.