Judge Approves Controversial Ebook Settlement Between DOJ, Three Publishers

Today, as Jeff Bezos was unveiling his newest threat to Apple -- an 8.9-inch tablet -- his company got a boost from a federal judge overseeing antitrust litigation about ebooks.

Despite objections from the Authors Guild, Barnes & Noble, Apple and literally hundreds of other commenters, U.S. District Court Judge Denise Cote today approved a deal requiring three book publishers to immediately cancel their current contracts with Apple. The settlement provides that Hachette, HarperCollins, and Simon & Schuster can't enter into "agency" agreements with Apple again for at least two years.

Those publishers and two others -- Macmillan and Penguin, who are fighting the case -- were accused of conspiring to put an end to Amazon's $9.99-a-book price for bestsellers. Apple, also sued by DOJ for allegedly conspiring to increase the price of ebooks, is fighting the case as well.

According to the DOJ, Apple and the publishers allegedly forged a deal to move from a wholesale pricing model -- which left retailers like Amazon free to sell books at whatever prices they wished -- to an agency model. The agency model involves publishers setting prices and giving commissions to retailers.

The industrywide shift to the agency model obviously benefited Apple, because otherwise the company would have had to price bestsellers for the iPad at the below-cost rate of $9.99 per download in order to compete with Amazon.

The shift also resulted in higher prices for Kindle users, because the publishers allegedly banded together to force Amazon to accept an agency model.

Even so, critics of the lawsuit said that Amazon's pricing was predatory and would have resulted in the company's monopoly over ebooks -- which would be bad for consumers as well as other booksellers.

Cote discounted those concerns today. She didn't accept that Amazon's pricing was predatory, mainly because the DOJ said that Amazon's ebook business was "consistently profitable."

What's more, she added, "even if Amazon was engaged in predatory pricing, this is no excuse for unlawful price-fixing."

Apple unsuccessfully argued that any settlement should be put off until after it had a chance to defend itself in court -- which won't happen until next year. Apple argued that it didn't do anything wrong and shouldn't see its contracts canceled by a court before trial. "There have been no findings here that could warrant pre-trial termination of contracts that Apple contends are perfectly legal," the company said in court papers.

Cote rejected that logic. "E-books consumers should not be forced to wait until after the June 2013 trial to experience the significant anticipated benefits of the decree," she wrote.




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