Pearson PLC‘s (NYSE:PSO) book publishing arm, Penguin Group, has settled antitrust charges related to a deal made with Apple (NASDAQ:AAPL), agreeing to pay $75 million in damages to consumers over the way it priced electronic books.
When e-books were first taking off, publishers would set a wholesale price, then a slightly higher price for e-books. Retailers were free to offer discounts, which Amazon.com Inc. (NASDAQ:AMZN) took advantage of by offering hugely discounted prices on new releases to promote its Kindle e-book reader.
Before the launch of Apple’s iPad in 2010, Apple offered publishers a way to price books that would allow them to set a fixed price themselves, then give Apple a 30 percent cut for selling through the iBookstore. Five publishers — including Penguin, Lagardere Publishing imprint Hachette, News Corp. (NASDAQ:NWSA) subsidiary HarperCollins, and CBS Corp. (NYSE:CBS) subsidiary Simon & Schuster – signed on with Apple, and then imposed new rules effectively banning Amazon from offering discounts on e-books.
Antitrust proceedings were filed against Apple and the publishers by the U.S. Justice Department and the European Commission, accusing the companies of colluding to raise the price of e-books in advance of the iPad’s launch. Hachette, HarperCollins, and Simon & Schuster settled without admitting wrongdoing.
Penguin has been the last company to settle. Penguin’s $75 million settlement with the U.S. State Attorneys General follows settlements with the U.S. Department of Justice and the European Union.
The pricing agreement Penguin reached with Apple is referred to as an “agency model” in which publishers can set prices for the e-books. This is different from the “wholesale model” used by Amazon, where retailers are free to offer discounts and set their own prices. Many publishers believe the wholesale model is harmful to the publishing industry and book selling business as a whole.
Penguin said it would scrap its deal with Apple back in April. Apple is left to stand its ground alone, as now all publishers involved in the case have settled. Apple is the subject of a Department of Justice complaint that is set to go to civil trial on June 3.
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