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Penguin settles U.S. e-book pricing case

A book on display with the penguin logo. in Cirencester, England.

Tim Ireland/AP

Penguin has become the fourth publisher to reach a settlement with the U.S. Department of Justice over e-book pricing, clearing a hurdle in the path of its planned merger with Random House.

The settlement with Penguin, which is owned like the Financial Times by Pearson, leaves only Apple Inc. and Macmillan Inc. to fight the agency's antitrust lawsuit, which in April alleged a conspiracy by five publishers and the creator of the iBookstore to raise e-book prices.

It comes weeks after Penguin announced a plan to merge with Random House, the Bertelsmann-owned leader of the consumer book publishing market, which will give Pearson a 47 per cent stake in the venture. The DoJ is among the agencies reviewing the merger.

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Random House was not a target of the DoJ's investigation, as it did not initially adopt the pricing model the DoJ objected to, which allowed publishers to set e-books' retail prices as opposed to allowing retailers to discount. However, the combined Penguin Random House would be bound by the settlement terms should the merger be cleared, the DoJ said.

Random House declined to comment. Penguin said it still maintained it had done nothing wrong but indicated that it had settled to smooth the path of the merger.

"The agency pricing model has encouraged competition among distributors of both e-books and e-book readers and . . . continues to operate in the interest of consumers and authors," Penguin said. "But it is also in everyone's interests that the proposed Penguin Random House company should begin life with a clean sheet of paper."

Penguin agreed to terminate such "agency" agreements with Apple and other e-book retailers and sign no similar deals for two years. It also agreed to "a strong antitrust compliance program" and said it would sign no "most favoured nation" agreements for five years.

"It's quite a price to pay," said Ned May, lead analyst at Outsell, "not to the bottom line today, or the top line, but in the complexity around managing the terms of the settlement at a time there is already so much disruption."

He added that publishers "were not really gaining very much" from the agency model. "It was protecting the ecosystem" in a market dominated by Amazon, the ecommerce group behind the Kindle, he added. Apple was likely to pursue the case, he predicted.

The European Commission, which had launched a similar investigation and settled with Hachette, HarperCollins and Simon & Schuster, said last week it was "engaged in constructive discussions with Penguin on possible commitments".

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A Penguin spokeswoman said of the European discussions: "As a practical matter, we are settling in the interests of clearing the decks before the new company is established."

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