2:56 p.m. | Updated A federal judge on Thursday approved a settlement with three major publishers in a civil antitrust case brought by the Department of Justice over collusion in e-book pricing, paving the way for a war over the cost of digital books in the coming months.
Denise L. Cote, the federal judge in Manhattan who is overseeing the case, rejected arguments against the settlement, saying they were “insufficient†to deny its approval.
In April, the government announced that it had filed a lawsuit against five publishers and Apple, accusing them of conspiring to raise the price of e-books.
Three publishers - Hachette Book Group, Simon & Schuste r and HarperCollins â€" agreed to settle with the government, while Penguin Group USA, Macmillan and Apple declined to settle. They face a trial next summer.
The settlement approved on Thursday called for the publishers to end their contracts with Apple within one week. The publishers must also terminate contracts with e-book retailers that contain restrictions on the retailer's ability to set the price of an e-book or contain a so-called “most favored nation†clause, which says that no other retailer is allowed to sell e-books for a lower price.
For the next two years, the settling publishers may not agree to contracts with e-book retailers that restrict the retailer's “discretion over e-book pricing,†the court said. For five years, the publishers are not allowed to make contracts with retailers that includes a most favored nation clause.
“The Government reasonably describes these time-limited provisions as providing a “cooling- off period†for the e-books industry that will allow it to return to a competitive state free from the impact of defendants' collusive behavior,†the court said in a filing on Thursday. “The time limits on these provisions suggest that they will not unduly dictate the ultimate contours of competition within the e-books industry as it develops over time.â€
Amazon, which in April called the settlement “a big win for Kindle owners,†has vowed to drop prices on its e-books, probably to the $9.99 point that it once preferred for most bestsellers and newly released e-books.
Other retailers, like Barnes & Noble, could feel pressure to respond. Barnes & Noble has spent heavily in the last several years to build its digital business in an effort to catch up to Amazon. While it has captured at least 25 percent of the e-book market, it does not have Amazon's deep pockets and may have trouble matching discounts that Amazon can offer.
It was e xactly the prospect of lower prices for consumers that the government cited when it filed suit. But publishers and retailers who are critical of the deal say it would have the unintended effect of allowing Amazon to gain a monopoly by offering lower prices than everyone else.
An Amazon spokesperson declined to comment on the ruling.
The approval of the settlement had been widely expected. During a 60-day public comment period that ended June 25, the court received 868 public comments responding to the settlement, including objections from the American Booksellers Association, the Authors Guild and Barnes & Noble.
Bob Kohn, the chairman and chief executive of RoyaltyShare and an outspoken opponent of the settlement, said he was “very disappointed†that the court made a decision without a formal public hearing.
“It appears that the district court completely deferred to the D.O.J., whose analysis of the case was faulty and insufficient,†he said. “I am hopeful that the U.S. Court of Appeals will closely review the important public issues in this case.â€
Spokeswomen for HarperCollins and Hachette Book Group declined comment. Simon & Schuster did not immediately return a request for comment.
