Macmillan Settles with the DOJ Over Price Fixing Lawsuit

By Jason Boog Comment

Macmillan has settled with the Department of Justice in the lawsuit over the agency model for selling digital books. All five major publishers sued by the DOJ have now settled, leaving Apple to battle the government in court.

Macmillan CEO John Sargent wrote a letter explaining why they settled: “Our company is not large enough to risk a worst case judgment … A few weeks ago I got an estimate of the maximum possible damage figure. I cannot share the breathtaking amount with you, but it was much more than the entire equity of our company.”

Antitrust Division chief of staff Jamillia Ferris offered this statement: “As a result of today’s settlement, Macmillan has agreed to immediately allow retailers to lower the prices consumers pay for Macmillan’s e-books.”

Publishers Weekly reported that “Judge Denise Cote quickly approved a $70-million plus settlement” at a hearing.

The DOJ outlined the terms of the settlement:

Macmillan will immediately lift restrictions it has imposed on discounting and other promotions by e-book retailers and will be prohibited until December 2014 from entering into new agreements with similar restrictions. The proposed settlement agreement also will impose a strong antitrust compliance program on Macmillan, including requirements that it provide advance notification to the department of any e-book ventures it plans to undertake jointly with other publishers and regularly report to the department on any communications it has with other publishers. Also for five years, Macmillan will be forbidden from agreeing to any kind of most favored nation (MFN) provision that could undermine the effectiveness of the settlement.

In December, Macmillan CEO John Sargent wrote a letter to agents and authors explaining why the publisher would not settle. Here’s an excerpt:

There are two reasons we decided not to settle. First, it is hard to settle when you have done nothing wrong. Much as the lawyers explain to me that settling is completely standard business procedure, it still seems fundamentally flawed to me somehow. Call me old-fashioned. The second reason is the more important one. Since the very beginning, the government’s demands have never wavered in all our discussions. They still insist on the two year discounting regime that forms the heart of the agreement signed by the three settling publishers. It was our belief that Amazon would use that entire discount for the two years. That would mean that retailers who felt they needed to match prices with Amazon would have no revenue from e-books from five of the big publishers (and possibly the sixth) for two years. Not no profit, no revenue. For two years. We felt that few retailers could survive this or would choose to survive this. Simultaneous discounting across the major publishers (you could think of it as government-mandated collusive pricing) would lead to an unhealthy marketplace. As we heard of each successive publisher settling, the need to support retailers, both digital and bricks and mortar, became more important.

Editor’s Note: This post has been updated as the story evolved.