E-book landscape shifts as DoJ rocks agency model

The future of the agency model looks uncertain this evening (11th April) after three giant US publishers-- Hachette Book Group, Simon & Schuster Inc and HarperCollins--chose to abandon their deals with Apple rather than engage in a lengthy legal battle with the US Department of Justice. The DoJ had earlier alleged a conspiracy between these publishers -- plus Penguin and Macmillan -- and Apple, over the introduction of the agency model in early 2010.

HarperCollins said it had made a "business decision to settle the DoJ investigation in order to end a potentially protracted legal battle". And it added: "HarperCollins did not violate any anti-trust laws and will comply with its obligations under the agreement."  Hachette Book Group said it had settled "after much deliberation" but added that "Hachette was not involved in a conspiracy to illegally fix the price of e-books, and we have made no admission of liability." According to reports these publishers now face hefty fines and must also negotiate agreements with individual US States.

Under the terms of the settlement the three publishers must terminate their agency agreements with Apple, including the Most Favoured Nation clause, and are prohibited for two years from placing constraints on retailers’ ability to offer discounts. That does not in itself mean the end of agency, particularly with other publishers such as Random House, still operating under agency terms, but with the model also under investigation by the European Commission, if agency does survive it is likely to be severely curtailed.

One source in the UK said negotiations with the EC were "ongoing", but the latter regulatory body has already indicated that it will take its lead from whatever happens in the US. According to a statement issued by the EC, Apple and four international publishers have sent proposals to try to solve an e-books anti-trust case: Penguin being the stand-out.

Macmillan, Penguin and Apple have refused to settle and now face a lengthy and expensive legal battle in order to clear their names. But the developments mean Amazon will again be able to unilaterally lower the price of e-books, undermining those few agency agreement that remain in place. Following the DoJ's statements, Amazon described it as a "big win for Kindle owners" and said it would look forward to discounting more e-books.

Speaking at a press conference held in Washington DC, acting assistant attorney general Sharis A Pozen said the investigation "provided details of the alleged conspiracy, which drove up e-book prices virtually overnight". Attorney general Eric Holder stated: "As a result of this alleged conspiracy, we believe that consumers paid millions of dollars more for some of the most popular titles."   

Pozen said the proposed settlement would "begin to undo the harm caused by the companies’ anticompetitive conduct, and will restore price competition so that consumers can pay lower prices for their e-books".

Neither Penguin nor Apple commented about their decisions to contest the claims, but Macmillan USA chief executive John Sargent said it had decided "to fight this in court", adding "It is also hard to settle a lawsuit when you know you have done no wrong. The government's charge is that Macmillan's CEO colluded with other CEO's in changing to the agency model. I am Macmillan's CEO and I made the decision to move Macmillan to the agency model."