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From Antitrust Law Daily, May 22, 2013

Penguin Settles with States in e-Books Price Fixing Case

By Jeffrey May, J.D.

Penguin Group (USA) Inc., the international publishing company, has agreed to settle the multi-state “e-book” antitrust enforcement action that was set to go to trial in the federal district court in New York City on June 3. Penguin is the fifth and final publisher to settle the allegations of 31 states, the District of Columbia, and Puerto Rico that it participated in a conspiracy to fix the prices of electronic books or e-books.

The agreement requires court approval. Penguin settled similar U.S. Department of Justice allegations in December 2012. The proposed consent decree in the Justice Department action also is awaiting court approval.

In light of the settlements with all of the defendant publishers—Hachette Book Group Inc., HarperCollins Publishers L.L.C., Simon & Schuster Inc., and Holtzbrinck Publishers LLC d/b/a Macmillan—the only remaining defendant in the federal/state antitrust action is Apple, Inc. Apple distributes e-books through its "iBookstore," and is alleged to be the "hub" in the hub-and-spoke conspiracy to fix e-book prices.

Under the terms of the proposed settlement of the state suit, Penguin has agreed to provide $75 million for consumer compensation for alleged actual losses arising from the challenged conduct. Consumers who purchased e-books between April 1, 2010, and May 21, 2012, will be entitled to compensation. This includes consumers nationwide. Consumers not residing in the plaintiff states are part of a settlement class, represented by counsel for the settlement class—Hagens Berman Sobol Shapiro LLP and Cohen Milstein Sellers & Toll PLLC. According to the plaintiff states, consumers nationwide will receive $164 million in compensation as a result of the settlements with the five publishers.

Penguin will pay the plaintiff states $7 million to cover the costs of the investigation and litigation and will pay counsel for the settlement class $8 million for attorney fees and costs. Settlement class plaintiffs will be entitled to service awards of up to $1,000.

The settlement agreement is intended to provide e-book outlets with greater freedom to reduce the prices of their e-book titles as well. Under the Justice Department settlement, Penguin, like the other four publishers, agreed to terminate contracts with non-settling defendant Apple, as well as contracts with other e-book retailers that contained either a restriction on an e-book retailer’s ability to set the retail prices or a price-based “most-favored nation” (MFN) clause. The publishers also are required to refrain from including prohibitions on retailer discounting in new agreements. In addition, Penguin agreed to establish an antitrust compliance program and notify the Justice Department of joint ventures with other publishers related to e-books.

The case is Civil Action No. 12-cv-03394 (DLC).

Attorneys: Daniel F. McInnis (Akin Gump Strauss Hauer & Feld, LLP) for Penguin Group (USA) Inc. David M. Ashton of the Texas Attorney General's Office for the State of Texas.

Companies: Hachette Book Group Inc.; HarperCollins Publishers L.L.C.; Simon & Schuster Inc.; Penguin Group (USA) Inc.; Holtzbrinck Publishers, LLC; Apple Inc.

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