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Late Thursday, Federal Judge Denise Cote approved a settlement between the Justice Department and three major publishers in a landmark opinion in the e-book price-fixing case.
The settlement includes Hachette Book Group, Simon & Schuster, and HarperCollins and orders the three publishers to terminate their contracts with Apple within a week. It also orders them to terminate contracts with “most favored nation” clauses, which prohibit other retailers from selling books for less. The publishers must also refrain for two years from entering any new contract that puts limits on a retailer’s ability to price e-books.
The settlement comes as a result of the Justice Department’s accusation that Apple and five publishers illegally conspired to fix the price of e-books in an attempt to unseat Amazon from market dominance. Penguin Group USA, Macmillan, and Apple did not agree to the settlement and will fight the suit in court next summer.
Judge Cote’s decision came despite “voluminous and overwhelmingly negative” comments on the case and the proposed settlement, but Cote defended her decision.
“Some comments were filled with extreme statements, blaming every evil to befall publishing on Amazon’s $9.99 price for newly released and bestselling e-books, and crediting every positive event – including entry of new competitors into the market for e-readers – on the advent of agency pricing,” Cote wrote in her 45-page opinion. “Even if Amazon was engaged in predatory pricing, this is no excuse for price-fixing,” she continued, asserting that “the familiar mantra regarding ‘two wrongs’ would seem to offer guidance in these circumstances.”
The decision comes as a decisive victory for Amazon, whose pricing model Apple and five publishers attempted to topple with its agency pricing plan. The e-retailing giant is expected to drop the price of many e-books back to $9.99 or lower following the decision, pressuring competitors to do the same.