Publishers to Pay States $69 Million to Settle E-book Price-Fixing Claims

The settlement was filed concurrently with an antitrust suit in U.S. District Court in New York against the three settling publishers plus Macmillan and Penguin, which are still contesting the Justice lawsuit. The attorneys general suit accuses the publishers of conspiring to increase e-book prices and eliminate “retail price competition” between retailers, “such that retail prices to consumers would be the same regardless of the outlet patronized by the consumer.” The settlement must be approved by the court.

"While publishers are entitled to their profits, consumers are equally entitled to a fair and open marketplace,” said a statement from Connecticut Attorney General George Jepsen, who co-led the suit and settlement with Texas Attorney General Greg Abbott. Connecticut consumers are expected to receive “up to” $1.26 million in the settlement, his office said. The settling publishers “colluded to artificially set prices that should have been determined by the free market,” said Abbott in a separate statement. Texas is getting up to $5.5 million, his office said; Missouri, up to $1.1 million, said Attorney General Chris Koster in a separate statement; and Washington state, $2 million, said Attorney General Rob McKenna separately.

The publishers will compensate consumers who bought e-books from any of the five sued publishers, including Macmillan and Penguin, from April 1, 2010, through May 21, 2012. “In a conspiracy, coconspirators are jointly and severally liable for all the harm caused by the alleged illegal conduct,” a spokeswoman for Jepsen told us by email: “Thus, a consumer who purchased a book published by Penguin (or MacMillan) at an artificially inflated price has a cause of action against, e.g., HarperCollins.” Consumers would get “another payout” if the states prevail over Penguin or Macmillan, she added. For two years the settling publishers will be prohibited from limiting retailers’ ability to offer discounts or promotions on e-books; and for five years, sharing “competitively sensitive information” with competitors or entering any agreement that could undermine the effectiveness settlement, McKenna’s office said.

Texas and Connecticut on April 11 reached “preliminary agreement” with Hachette and HarperCollins on “the terms of a monetary settlement and injunctive relief,” and Simon & Schuster continued negotiations as 16 states filed suit against it, Penguin and Macmillan, said a states’ memorandum in support of the settlement. (Jepsen’s office provided us the court documents, which weren’t posted to the court system as of Thursday afternoon.) The memorandum said Minnesota consumers accounted for 1.67 percent of Hachette’s 2011 sales, HarperCollins, 1.78 percent, and Simon & Schuster, 1.92 percent, reducing what would have been a $70.3 million settlement to $69 million. Hachette will pay $31.7 million, HarperCollins, $19.6 million, and Simon & Schuster, $17.8 million. Under controlling precedent from the 2nd U.S. Circuit Court of Appeals, the settlement need only be “fair, reasonable and adequate” for judicial approval, the memorandum said.

The memorandum argues at length against requiring a “full fairness hearing” to consider the settlement terms before granting preliminary approval. That issue is now slowing down approval of the Justice settlement with the three publishers, which has drawn stiff opposition from the Authors Guild and Barnes & Noble among others. The New York federal court’s own precedent says a proposed settlement that “appears to be the product of serious, informed, non-collusive negotiations, has no obvious deficiencies, does not improperly grant preferential treatment to class representatives or segments of the class and falls within the range of possible approval” should get preliminary approval, the memorandum said. Settlement negotiations led by Texas, Connecticut and Justice started in late 2011: “Negotiations were lengthy, often adversarial and time-consuming, with each side fully articulating its positions, which were often rejected by the other,” until they had “refined” the settlement points for the court’s consideration.

The strenuous denial of wrongdoing by the three publishers also argues in favor of settlement approval, the memorandum said. The publishers said their actions “were merely parallel, unilateral, or justified by market forces and completely legal,” and that some e-book prices actually fell following the adoption of the agency model, it said. And though states’ evidence is “remarkably strong,” following through on litigation “would require meticulous focus on the specific communications and actions of each” publisher and one or more could be found not liable or not responsible for the damages amount asserted by states, it said. The publishers will pay consumers 51 percent of the total estimated damages from alleged price-fixing, a percentage far higher than courts have approved for other settlements, and possibly more than 100 percent of damages if Penguin and Macmillan settle or are found liable, the memorandum said.

The settlement proposes distributions of $1.32 per unit for New York Times bestseller-list fiction, nonfiction and advice books; $0.36 for other books sold within a year of initial publication, known as “frontlist”; and $0.25 for books sold more than a year after initial publication, or “backlist.” As an example, the memorandum said a consumer who bought 10 bestsellers from HarperCollins, 10 frontlist from Macmillan and 10 backlist from Simon & Schuster would get $19.30. The distribution plan envisions consumers either getting an e-book or print book credit or requesting a check. Amazon, Barnes & Noble and Apple have already agreed to cooperate in the distribution, making “up to” 97 percent of consumers eligible for automatic credits to their Kindle, Nook or iBookstore accounts “without taking any action,” an arrangement that will also work for Kobo customers, the memorandum said.