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Macmillan settles with DOJ, leaving Apple last defendant standing in ebook pricing case

Macmillan, the last remaining publisher holdout in the Department of Justice’s ebook pricing antitrust lawsuit against five publishers and Apple (s AAPL), has decided to settle about ten months after the lawsuit was originally filed. Following Penguin’s settlement in December, Macmillan CEO John Sargent had said  Macmillan wouldn’t follow suit, but he acknowledged Friday in a letter to authors and agents that “the potential penalties became too high to risk even the possibility of an unfavorable outcome.” The settlement means that Apple is the only remaining party fighting the DOJ lawsuit, with a trial set to begin this summer.

How this settlement is different

According to documents filed with the court Friday (PDF, and see links below), Macmillan agreed to many of the same settlement terms that HarperCollins, Simon & Schuster, Hachette and Penguin already agreed to — but there are also significant differences. Retailers will immediately be allowed to discount Macmillan’s ebooks, in order to “provide for more prompt relief to consumers.” In the cases of the three original settling publishers (HarperCollins, Simon & Schuster and Hachette) and Penguin (which settled in December), “several months passed before consumers saw the benefits of the settlements through lower retail prices on many of the settling publishers’ ebooks.” In Macmillan’s case, however, according to the competitive impact statement:

Macmillan must allow its e-book retailers to discount within three business days of agreeing to the settlement, even if it has not formalized new contracts with retailers…To induce Macmillan to accept this more stringent term, the United States agreed that the two-year cooling-off period for Macmillan would run from December 18, 2012, the date on which Penguin signed its settlement.

That “two-year cooling-off period” means that, for two years, settling publishers can’t restrict retailers like Amazon (s AMZN) from setting, changing, or lowering ebook prices. The settlement means Macmillan gets a back-dated head start on this period, so it will again be able to restrict discounting in December 2014. Most-favored nations clauses are prohibited for five years, but Macmillan had already removed those from its contracts.

Unlike the other big-six publishers, Macmillan also publishes digital textbooks. Those are exempt from the settlement because the DOJ antitrust case focused only on trade books.

Finally, there are provisions to make it clear that Macmillan’s parent company, Holtzbrinck, would be in trouble if it “worked in concert with Macmillan to evade Macmillan’s obligations under the settlement.”

“Our company is not large enough to risk a worst case judgment”

In his letter, Sargent describes massive legal bills that Macmillan — the smallest of the big-six publishers, and the only one that is entirely privately owned — would have had to pay in “a worst case judgment”:

As each publisher settled, the remaining defendants became responsible not only for their own treble damages, but also possibly for the treble damages of the settling publishers (minus what they settled for).  A few weeks ago I got an estimate of the maximum possible damage figure. I cannot share the breathtaking amount with you, but it was much more than the entire equity of our company.

Court docs

Macmillan’s proposed final judgment (PDF)

Competitive impact statement (PDF)

3 Responses to “Macmillan settles with DOJ, leaving Apple last defendant standing in ebook pricing case”

  1. Sad day. Wish the DOJ would remember that there are many of us consumers that care very much about the survival of real books and bookstores – I would be absolutely devastated and heartbroken if bookstores and print books were gone, they mean so much to me. I am terrified about possibly losing Barnes & Noble because it’s the only local bookstore left with a decent selection. The DOJ seems to have forgotten that many book consumers don’t want e-books or to buy from Amazon, but apparently thinks it is perfectly just to throw us under the boss to give in to the greedy, entitled demands of e-book readers who were spoiled by Amazon’s predatory scorched earth tactics and feel they deserve below-cost e-books. It disgusts me that the DOJ is helping Amazon to destroy an entire category of physical stores to benefit a bunch of whiny, entitled e-book readers and a would-be monopolist. I wish Macmillan had kept on fighting. SOMEONE needs to stand up to Amazon for what they are doing to readers who love bookstores and real books!

  2. I think Amazon having egged on DoJ in this anti-trust action to further its own quest to dominate the ebook space as it has done with the physical version might wish it left well enough alone. The “Agency” racket might in the fullness time appear a sweet deal compared to what they may end up being – merely an advertising and referral affiliate for the publishers and authors.

    The logistics for eBook distribution is much easier than for the physical version where Amazon managed to smother its B&M competitors. And now the publishers seem to have caught on and only this past week three of the big pissed off publishers banded together to roll out their own collaborative review, discovery and distribution platform, BOOKISH.COM. Even though its CEO protested rather too loudly that it is “not trying to steal sales from Amazon and other retailers”, I think it is exactly that and is a clear effort to “disintermediate” book retailers, especially for ebooks. Why bother with agency model, wholesale model etc. when all that is needed is a platform to host the content, manage DRM, process payment and advertise/promote etc. In time they might seek to reset their relationship with platforms like Amazon, B&N, Google etc. as merely advertising and referral affiliates. And another logical next step would be to offer a subsidized generic eInk reader supporting something like a Webkit open browser and break themselves and their readers out of the Apple, Kindle and Nook walled gardens.