Publishers Lunch
On Wednesday afternoon, the Department of
Justice announced it had reached a settlement with Penguin, "one of the
largest book publishers in the United States," of the ebook pricing
lawsuit that Penguin had previously vowed to litigate in court. (Indeed, in
April, Penguin Group ceo John Makinson had defiantly underscored
that "alone among the publishers party to the investigations that
resulted in today’s announcements, we have held no settlement discussions with
the DOJ or the states.") The settlement, which again requires
the approval by Judge Denise Cote of New York's Southern District Court,
imposes the same basics terms as the approved settlements between the DOJ and
Harper, Hachette, and Simon & Schuster.
When Penguin and Random House announced
their proposed merger at the end of October, it was widely presumed that
Penguin would need to settle the ebook pricing lawsuits and investigations
rather than litigate. The main question was a matter of when: Would they hold
out as long as possible to use the settlements as a bargaining chip while
seeking government approval in multiple jurisdictions of the merger, or would
they settle quickly to clear the decks, leave Pearson with the not
inconsiderable costs, and start the clock moving on the two-year timeframe
under which settling publishers must live with Agency Lite rather than full
agency.
Now we have that answer. In a statement,
Penguin noted "it is also in everyone's interests that the proposed
Penguin Random House company should begin life with a clean sheet of
paper." At the same time they reiterate their belief Penguin "has
done nothing wrong and has no case to answer." The publisher "continues
to believe that the agency pricing model has encouraged competition among
distributors of both ebooks and ebook readers and, in the company's view,
continues to operate in the interest of consumers and
authors." Random House declined to comment on the matter.
The other big question was how any
settlement would affect the ebook business practices of the merged Penguin
Random House if and once that deal is approved--and Wednesday's settlement has
an answer there, too. As DOJ puts it in their announcement, "Should the proposed
joint venture proceed to consummation, the terms of Penguin’s settlement will
apply to it." The language in the settlement itself is a bit more
abstract. It's the definitions section that indicates "Penguin"
includes any successors and assigns, "expressly including Penguin
Random House and any similar joint venture between Penguin and Random
House Inc." Those successors have 30 days after closing a deal to meet the
same obligations that the settlement imposes on Penguin. The implication is that
if the merger is approved, Penguin Random House as a whole would have to follow
the same operating conditions with respect to ebook sales terms that Penguin
alone will follow once the settlement is approved. So you can see why the
parties would want to get started--and finished--with the two-year period of
Agency Lite as quickly as possible.
That inference is reinforced by another
special provision. The settlement itself is subject to the same 60-day comment
period that applied to the original settlement--but the two-year clock on the
Agency Lite contractual terms can begin, if Penguin wishes (which they clearly
do), as soon as they notify individual ebook retailers that they won't prohibit
them from discounting. (Or more formally, "that Penguin will not enforce
any term(s) in its agreement with the E-book Retailer that restrict,
limit, or impede the E-book Retailer from setting, altering, or reducing
the Retail Price of one or more E-books, or from offering price discounts
or any other form of promotions to encourage consumers to Purchase one or
more E-books.")
So it's reasonable to postulate those
notices could go out as early as, say, December 25. Additionally, the
settlement stipulates that in any event Penguin will notify retailers
other than Apple of their right to terminate existing contracts by January 8,
2013 in any case. That means unlike the first settlement, this one will become
operational well before it is formally approved by the court--so that Penguin
can catch up to its peers on working their way through the two years of
restricted agency, and saddle the proposed Penguin Random House with as short a
period of Agency Lite as possible.
One other curious variant of the new
settlement versus the one entered into by Harper, HBG and Simon & Schuster
is a provision ensuring Penguin's "entering into and enforcing
agreements relating to the distribution of another E-book Publisher’s
E-books (not including the E-books of another Publisher Defendant) or to
the co-publication with another E-book Publisher of specifically
identified E-book titles or a particular author's E-books, or ... participating
in output-enhancing industry standard-setting activities relating to
E-book security or technology." Penguin is subject to similar restrictions
about oversight of any joint ventures that the previous three Settlers already
agreed to. As with the other three Settlers, the exact nature of Penguin's
new pricing arrangements won't be known until they arrive at new contracts with
retailers.
Presumably
Penguin will follow the federal settlement with a settlement with the state
attorneys general, which is expected to include a significant restitution
payment, comparable to the payments agreed to by the original Settlers. (The
original state settlement itself is still awaiting final judicial approval.) In
the EU, Penguin spokesperson Rebecca Sinclair already tipped their hand last
week in acknowledging that "as a practical matter, we are settling in
the interests of clearing the decks before the new company is established."
The EC itself had simply said they were "engaged in constructive
discussions with Penguin on possible commitments."Proposed final judgment
Competitive impact statement
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