Three publishers—Hachette, HarperCollins, and Simon & Schuster—have agreed to a proposed settlement with the U.S. Department of Justice to settle federal claims of price fixing regarding e-books. PW takes an initial look at the broad strokes of the deal, and what it means for the settling publishers.
The agency model is not dead. However, once the settlement goes into effect, the current agency agreements, along with the “Most Favored Nation” clauses they included, are history, at least for a period of time.
Going forward, the Settling Publishers can still use the agency model if they choose, but for a period of two years they cannot dictate final consumer prices, which was the allure of the agency model to begin with. Under the terms of the Settlement, however, e-book retailers can only lower consumer prices up to the amount of their commission—generally 30%, under current agency terms.
Publishers are also expressly enjoined from “retaliating” against e-book retailers.
This is the most onerous part of the settlement, and helps explain why Macmillan and Penguin have decided to fight. Under the Settlement, each publisher will have to engage in a number of compliance measures, including:
The appointment of an "Anti-Trust Compliance Officer," reporting directly to the company’s general counsel.
In addition, the publishers must provide at least "four hours of training" for relevant staff delivered by an attorney and conduct "an annual compliance audit."
The Settling Publishers must also furnish to the DoJ “on a quarterly basis” electronic copies of any non-privileged communications containing allegations of noncompliance and must “maintain and furnish to the Department of Justice on a quarterly basis, a log of all oral and written communications, excluding privileged or public communications,” between the publishers' “officers, directors, or employees” involved in the development of the Settling Defendant’s plans or strategies relating to e-books.
Under the Settlement, the DoJ can also inspect the publishers' offices, and “require Settling Defendants to provide to the United States hard copy or electronic copies of all books, ledgers, accounts, records, data, and documents in the possession, custody, or control of Settling Defendants, relating to any matters contained in this Final Judgment.”
DoJ officials can also interview “either informally or on the record” the Settling Defendants’ “officers, employees, or agents.” But, if you're tabbed, you do get to bring your attorney.
And, upon request, the Settling publishers must submit “written reports or respond to written interrogatories, under oath if requested,” relating to any of the matters contained in the settlement.
The publishers have seven days from when the settlement is approved to terminate their agreements with Apple; the final agreement would not take place until a 60-day comment period is concluded.
Response to the DoJ’s actions, especially from the publishers who settled with the U.S. agency, came quickly after news broke about the filing. Hachette and HarperCollins, two of the publishers that settled with the DoJ, both issued statements saying that, despite their course of action, neither was admitting to taking part in a price fixing scheme.
Hachette said it came to its decision "reluctantly" and "was not involved in a conspiracy to illegally fix the price of eBooks, and we have made no admission of liability." Hachette also said it was in the process of negotiating settlements with various states. HarperCollins offered a similar reaction, saying in a statement that it “did not violate any anti-trust laws and will comply with its obligations under the agreement." S&S had little to say, only confirming that it had reached a deal.
Reaction from Amazon was also swift. Drew Herdener, a spokesperson for the e-tailer, called the DoJ’s decisions “a big win for Kindle owners,” adding, “We look forward to being allowed to lower prices on more Kindle books.” Barnes & Noble had no comment.
A number of literary agents also expressed disappointment about the ruling and the settlement news. Robert Gottlieb, chairman of Trident Media Group, said: “It’s unwarranted. Knowing the heads of publishing companies as I do, [I'm sure that] the courts will ultimately find there was no collusion. This is an intrusion into the business sector by the federal government in a manner that is designed to bully people into caving.” Gottlieb added that if the Justice Department was truly interested in breaking up supposed monopolies hurting American consumers, it would go after the oil business, "which affects Americans in a much more impactful way than the book business."
Agent Brian DeFiore, who is a member of the board of the Association of Authors' Representatives, expressed particular disappointment in seeing houses settle. "I think what the DoJ has done is terrible for authors and for the industry, and if at all in the interest of consumers--only in the short run. I understand why some publishers felt they had to settle, but I'm sorry that they did."
On Twitter, members of the industry overwhelmingly offered critical reactions to the DoJ’s ruling. Speaking to the tenor of the digital chatter, the hashtag #dojfail cropped up. In one of the more pointed summaries from an industry insider, agent Michael Bourret (@MichaelBourret), acknowledging that his opinion was not being offered in a vacuum, wrote: “I know I'm repeating myself and others, but reading this DOJ complaint, it may as well have been written by Amazon."