Home » Big Publishing, Legal Stuff » The Broad Strokes of the Hachette, HarperCollins and S&S Price-Fixing Settlement

The Broad Strokes of the Hachette, HarperCollins and S&S Price-Fixing Settlement

12 April 2012

From Publishers Weekly:

Three publishers—Hachette, HarperCollins, and Simon & Schuster—have agreed to a proposed settlement with the U.S. Department of Justice to settle federal claims of price fixing regarding e-books. PW takes an initial look at the broad strokes of the deal, and what it means for the settling publishers.

Terms: 

The agency model is not dead. However, once the settlement goes into effect, the current agency agreements, along with the “Most Favored Nation” clauses they included, are history, at least for a period of time.

Going forward, the Settling Publishers can still use the agency model if they choose, but for a period of two years they cannot dictate final consumer prices, which was the allure of the agency model to begin with. Under the terms of the Settlement, however, e-book retailers can only  lower consumer prices up to the amount of their commission—generally 30%, under current agency terms.

Publishers are also expressly enjoined from “retaliating” against e-book retailers.

Compliance:

This is the most onerous part of the settlement, and helps explain why Macmillan and Penguin have decided to fight. Under the Settlement, each publisher will have to engage in a number of compliance measures, including:

The appointment of an “Anti-Trust Compliance Officer,” reporting directly to the company’s general counsel.

In addition, the publishers must provide at least “four hours of training” for relevant staff delivered by an attorney and conduct “an annual compliance audit.”

The Settling Publishers must also furnish to the DoJ “on a quarterly basis” electronic copies of any non-privileged communications containing allegations of noncompliance and must “maintain and furnish to the Department of Justice on a quarterly basis, a log of all oral and written communications, excluding privileged or public communications,” between the publishers’ “officers, directors, or employees” involved in the development of the Settling Defendant’s plans or strategies relating to e-books.

Under the Settlement, the DoJ can also inspect the publishers’ offices, and “require Settling Defendants to provide to the United States hard copy or electronic copies of all books, ledgers, accounts, records, data, and documents in the possession, custody, or control of Settling Defendants, relating to any matters contained in this Final Judgment.”

Link to the rest at Publishers Weekly and thanks to David for the tip.

Say what you want about the government, but they sure know how to write an audit clause.

You can see the kind of drag that extreme antitrust compliance can exert on an organization. Passive Guy assumes the internal controls at non-settling companies are similarly strict. As mentioned in a prior post, they won’t want to give the DOJ additional ammunition to use in the suit.

Big Publishing, Legal Stuff

10 Comments to “The Broad Strokes of the Hachette, HarperCollins and S&S Price-Fixing Settlement”

  1. Interesting times. Some pundits say DOJ’s gonna lose. Here’s the link: http://cnet.co/HDgSoe

    • I’m definitely no expert, but I don’t think it matters anymore at this point. With three of the big publishers unable to fix the final consumer price, I can’t see how the status quo will last even if Apple and the remaining publishers win.

  2. You say “Compliance: This is the most onerous part of the settlement, and helps explain why Macmillan and Penguin have decided to fight.”
    None of the terms you mention seem particularly onerous – I’m interested in why you think these would have such an adverse effect that the companies would rather fight:
    – Anti-Trust Compliance Officer – I presume if they sign they would intend to comply, so this shouldn’t be a problem
    – Four hours training and annual compliance audit – again, this could be seen as a positive investment rather than a huge problem, surely.
    – furnishing communications on a quarterly basis – again, a business cost, but hardly a huge imposition once the systems are set up and running. Plenty of businesses have much more onerous compliance measures in place.
    I would suggest it is the Terms that are much, much more important than the Compliance measures.

    • The initial parts of the compliance program are more of a pain. They probably don’t even have to create a new position but can simply designate an existing person’s job as being the “Anti-Trust Compliance Officer.”

      What they don’t like is probably the rest of it, which requires the companies to:

      1) “maintain and furnish to the Department of Justice on a quarterly basis, a log of all oral and written communications, excluding privileged or public communications,” between the publishers’ “officers, directors, or employees” involved in the development of the Settling Defendant’s plans or strategies relating to e-books.

      2) Under the Settlement, the DoJ can also inspect the publishers’ offices, and “require Settling Defendants to provide to the United States hard copy or electronic copies of all books, ledgers, accounts, records, data, and documents in the possession, custody, or control of Settling Defendants, relating to any matters contained in this Final Judgment.”

      3) DoJ officials can also interview “either informally or on the record” the Settling Defendants’ “officers, employees, or agents.” But, if you’re tabbed, you do get to bring your attorney.

      Basically, the DOJ is telling the publishers they can no longer make a strategic move in ebooks without divulging it to the DOJ. And since publishers have become so used to collusion as the best strategy (and mega-consolidation only made this worse) they probably can’t come up with many options that wouldn’t be non-colluding.

    • ‘Compliance’ is the government’s foot in the door. One person could handle the details for a small company, but a corporation will require people to collect all of the information and make sure everything gets into that quarterly report. Then there are the legal fees for the government-savvy lawyers who will vet that report and make sure it contains the information the government wants (while hiding the information that the company doesn’t want the government to have).

      The corporate culture will need to change as well. The government does not accept “Oopsies. I forgotted.” as a valid excuse for missing or late data. The resulting fines and additional restrictions would be somewhere in the wrath-of-God category.

      Any time the government extends a compliance mandate to a company or industry, the burden to produce the required paperwork is very heavy. The broadcast industries (TV/radio) are a very good example of this. (If you want to see a broadcast executive flinch and grow pale, throw out the word ‘ascertainment’. That innocent word alone cost stations a lot of man power and money during the last century.)

    • My day job is with a company subject to regular Government audits. It costs us tens of millions of dollars a year to deal with. Just managing the records required in the log above are incredibly expensive–basically every piece of paper (meeting minutes, email, memos, etc.) has to be collected, organized, and delivered.

      And the Government likes us. I shudder to think of undergoing an audit that was adversarial.

  3. That article also says that DOJ’s case is much stronger against publishers. Where Apple may escape, publishers have some very real and lasting problems with this, including lawsuit settlements for damages that are going to wipe out those higher profit margins publishers have been raving about in the past few months despite declining overall income. This is a big old lasting mess caused by the publishers themselves.

  4. Even if agency pricing is not dead, I cannot see how Amazon will give into it again. Amazon has the power at this point.

  5. Gee, maybe we can get the DOJ to deliver our royalty statements based on their audit.

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