United States v. Apple, Inc., Hachette Book Group, Inc., HarperCollins Publishers L.L.C., Verlagsgruppe Georg Von Holtzbrinck Gmbh, Holtzbrinck Publishers, LLC D/B/A Macmillan, The Penguin Group, A Division of Pearson PLC, Penguin Group (USA), Inc., and Simon & Schuster, Inc.; Proposed Final Judgment and Competitive Impact Statement, 77094-77111 [2012-31339]

Agencies

• Antitrust Division
• Department of Justice

[Federal Register Volume 77, Number 250 (Monday, December 31, 2012)]
[Notices]
[Pages 77094-77111]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2012-31339]


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DEPARTMENT OF JUSTICE

Antitrust Division


United States v. Apple, Inc., Hachette Book Group, Inc., 
HarperCollins Publishers L.L.C., Verlagsgruppe Georg Von Holtzbrinck 
Gmbh, Holtzbrinck Publishers, LLC D/B/A Macmillan, The Penguin Group, A 
Division of Pearson PLC, Penguin Group (USA), Inc., and Simon & 
Schuster, Inc.; Proposed Final Judgment and Competitive Impact 
Statement

    Notice is hereby given pursuant to the Antitrust Procedures and 
Penalties Act, 15 U.S.C. 16(b)-(h), that a proposed Final Judgment, 
Stipulation and Competitive Impact Statement have been filed with the 
United States District Court for the Southern District of New York in 
United States of America v. Apple, Inc. et al., Civil Action No. 12-CV-
2826 (DLC). On April 11, 2012, the United States filed a Complaint 
alleging that the defendants agreed to raise the retail price of e-
books, in violation of Section 1 of the Sherman Act, 15 U.S.C. 1. On 
September 6, 2012, a Final Judgment as to defendants Hachette Book 
Group, Inc., HarperCollins Publishers L.L.C., and Simon & Schuster, 
Inc. was entered by the United States District Court for the Southern 
District of New York. On December 18, 2012, the United States filed a 
proposed Final Judgment as to defendants The Penguin Group, a division 
of Pearson plc, and Penguin Group (USA), Inc.--to return pricing 
discretion to e-book retailers and comply with other obligations 
designed to end the anticompetitive effects of the conspiracy.
    Copies of the Complaint, proposed Final Judgment, and Competitive 
Impact Statement are available for inspection at the Department of 
Justice, Antitrust Division, Antitrust Documents Group, 450 Fifth 
Street NW., DC 20530 Suite 1010 (telephone: 202-514-2481), on the 
Department of Justice's Web site at https://www.justice.gov/atr, and at 
the Office of the Clerk of the United States District Court for the 
Southern District of New York. Copies of these materials may be 
obtained from the Antitrust Division upon request and payment of the 
copying fee set by Department of Justice regulations.
    Public comment is invited within 60 days of the date of this 
notice. Such comments will be filed with the Court and will either be 
published in the Federal Register or, with the permission of the Court, 
will be posted electronically on the Department of Justice's Web site. 
Comments should be directed to John R. Read, Chief, Litigation III 
Section, Antitrust Division, Department of Justice, Washington, DC 
20530 (telephone: 202-307-0468).

Patricia A. Brink,
Director of Civil Enforcement.

United States District Court for the Southern District of New York

    United States of America, Plaintiff, v. Apple, Inc., Hachette Book 
Group, Inc., Harpercollins Publishers L.L.C., Verlagsgruppe Georg Von 
Holtzbrinck Gmbh, Holtzbrinck Publishers, Llc d/b/a Macmillan, The 
Penguin Group, A Division Of Pearson Plc, Penguin Group (Usa), Inc., 
And Simon & Schuster, Inc., Defendants.

Civil Action No. 1:12-cv-02826.
Judge: Cote, Denise.
Date Filed: 04/11/2012.
Description: Antitrust.

Complaint

    The United States of America, acting under the direction of the 
Attorney General of the United States, brings this civil antitrust 
action against Defendants Apple, Inc. (``Apple''); Hachette Book Group, 
Inc. (``Hachette''); HarperCollins Publishers L.L.C. 
(``HarperCollins''); Verlagsgruppe Georg von Holtzbrinck GmbH and 
Holtzbrinck Publishers, LLC d/b/a Macmillan (collectively, 
``Macmillan''); The Penguin Group, a division of Pearson plc and 
Penguin Group (USA), Inc. (collectively, ``Penguin''); and Simon & 
Schuster, Inc. (``Simon & Schuster''; collectively with Hachette, 
HarperCollins, Macmillan, and Penguin, ``Publisher Defendants'') to 
obtain equitable relief to prevent and remedy violations of Section 1 
of the Sherman Act, 15 U.S.C. Sec.  1. Plaintiff alleges:

I. Introduction

    1. Technology has brought revolutionary change to the business of 
publishing and selling books, including the dramatic explosion in sales 
of ``e-books''--that is, books sold to consumers in electronic form and 
read on a variety of electronic devices, including dedicated e-readers 
(such as the Kindle or the Nook), multipurpose tablets, smartphones and 
personal computers. Consumers reap a variety of benefits from e-books, 
including 24-hour access to product with near-instant delivery, easier 
portability and storage, and adjustable font size. E-books also are 
considerably cheaper to produce and distribute than physical (or 
``print'') books.
    2. E-book sales have been increasing rapidly ever since Amazon 
released its first Kindle device in November of 2007. In developing and 
then mass marketing its Kindle e-reader and associated e-book content, 
Amazon substantially increased the retail market for e-books. One of 
Amazon's most successful marketing strategies was to lower 
substantially the price of newly released and bestselling e-books to 
$9.99.
    3. Publishers saw the rise in e-books, and particularly Amazon's 
price discounting, as a substantial challenge to their traditional 
business model. The Publisher Defendants feared that lower retail 
prices for e-books might lead eventually to lower wholesale prices for 
e-books, lower prices for print books, or other consequences the 
publishers hoped to avoid. Each Publisher Defendant desired higher 
retail e-book prices across the industry before ``$9.99'' became an 
entrenched consumer expectation. By the end of 2009, however, the 
Publisher Defendants had concluded that unilateral efforts to move 
Amazon away from its practice of offering low retail prices would not 
work, and they

[[Page 77095]]

thereafter conspired to raise retail e-book prices and to otherwise 
limit competition in the sale of e-books. To effectuate their 
conspiracy, the Publisher Defendants teamed up with Defendant Apple, 
which shared the same goal of restraining retail price competition in 
the sale of e-books.
    4. The Defendants' conspiracy to limit e-book price competition 
came together as the Publisher Defendants were jointly devising schemes 
to limit Amazon's ability to discount e-books and Defendant Apple was 
preparing to launch its electronic tablet, the iPad, and considering 
whether it should sell e-books that could be read on the new device. 
Apple had long believed it would be able to ``trounce Amazon by opening 
up [its] own ebook store,'' but the intense price competition that 
prevailed among e-book retailers in late 2009 had driven the retail 
price of popular e-books to $9.99 and had reduced retailer margins on 
e-books to levels that Apple found unattractive. As a result of 
discussions with the Publisher Defendants, Apple learned that the 
Publisher Defendants shared a common objective with Apple to limit e-
book retail price competition, and that the Publisher Defendants also 
desired to have popular e-book retail prices stabilize at levels 
significantly higher than $9.99. Together, Apple and the Publisher 
Defendants reached an agreement whereby retail price competition would 
cease (which all the conspirators desired), retail e-book prices would 
increase significantly (which the Publisher Defendants desired), and 
Apple would be guaranteed a 30 percent ``commission'' on each e-book it 
sold (which Apple desired).
    5. To accomplish the goal of raising e-book prices and otherwise 
limiting retail competition for e-books, Apple and the Publisher 
Defendants jointly agreed to alter the business model governing the 
relationship between publishers and retailers. Prior to the conspiracy, 
both print books and e-books were sold under the longstanding 
``wholesale model.'' Under this model, publishers sold books to 
retailers, and retailers, as the owners of the books, had the freedom 
to establish retail prices. Defendants were determined to end the 
robust retail price competition in e-books that prevailed, to the 
benefit of consumers, under the wholesale model. They therefore agreed 
jointly to replace the wholesale model for selling e-books with an 
``agency model.'' Under the agency model, publishers would take control 
of retail pricing by appointing retailers as ``agents'' who would have 
no power to alter the retail prices set by the publishers. As a result, 
the publishers could end price competition among retailers and raise 
the prices consumers pay for e-books through the adoption of identical 
pricing tiers. This change in business model would not have occurred 
without the conspiracy among the Defendants.
    6. Apple facilitated the Publisher Defendants' collective effort to 
end retail price competition by coordinating their transition to an 
agency model across all retailers. Apple clearly understood that its 
participation in this scheme would result in higher prices to 
consumers. As Apple CEO Steve Jobs described his company's strategy for 
negotiating with the Publisher Defendants, ``We'll go to [an] agency 
model, where you set the price, and we get our 30%, and yes, the 
customer pays a little more, but that's what you want anyway.'' Apple 
was perfectly willing to help the Publisher Defendants obtain their 
objective of higher prices for consumers by ending Amazon's ``$9.99'' 
price program as long as Apple was guaranteed its 30 percent margin and 
could avoid retail price competition from Amazon.
    7. The plan--what Apple proudly described as an ``aikido move''--
worked. Over three days in January 2010, each Publisher Defendant 
entered into a functionally identical agency contract with Apple that 
would go into effect simultaneously in April 2010 and ``chang[e] the 
industry permanently.'' These ``Apple Agency Agreements'' conferred on 
the Publisher Defendants the power to set Apple's retail prices for e-
books, while granting Apple the assurance that the Publisher Defendants 
would raise retail e-book prices at all other e-book outlets, too. 
Instead of $9.99, electronic versions of bestsellers and newly released 
titles would be priced according to a set of price tiers contained in 
each of the Apple Agency Agreements that determined de facto retail e-
book prices as a function of the title's hardcover list price. All 
bestselling and newly released titles bearing a hardcover list price 
between $25.01 and $35.00, for example, would be priced at $12.99, 
$14.99, or $16.99, with the retail e-book price increasing in relation 
to the hardcover list price.
    8. After executing the Apple Agency Agreements, the Publisher 
Defendants all then quickly acted to complete the scheme by imposing 
agency agreements on all their other retailers. As a direct result, 
those retailers lost their ability to compete on price, including their 
ability to sell the most popular e-books for $9.99 or for other low 
prices. Once in control of retail prices, the Publisher Defendants 
limited retail price competition among themselves. Millions of e-books 
that would have sold at retail for $9.99 or for other low prices 
instead sold for the prices indicated by the price schedules included 
in the Apple Agency Agreements--generally, $12.99 or $14.99. Other 
price and non-price competition among e-book publishers and among e-
book retailers also was unlawfully eliminated to the detriment of U.S. 
consumers.
    9. The purpose of this lawsuit is to enjoin the Publisher 
Defendants and Apple from further violations of the nation's antitrust 
laws and to restore the competition that has been lost due to the 
Publisher Defendants' and Apple's illegal acts.
    10. Defendants' ongoing conspiracy and agreement have caused e-book 
consumers to pay tens of millions of dollars more for e-books than they 
otherwise would have paid.
    11. The United States, through this suit, asks this Court to 
declare Defendants' conduct illegal and to enter injunctive relief to 
prevent further injury to consumers in the United States.

II. Defendants

    12. Apple, Inc. has its principal place of business at 1 Infinite 
Loop, Cupertino, CA 95014. Among many other businesses, Apple, Inc. 
distributes e-books through its iBookstore.
    13. Hachette Book Group, Inc. has its principal place of business 
at 237 Park Avenue, New York, NY 10017. It publishes e-books and print 
books through publishers such as Little, Brown, and Company and Grand 
Central Publishing.
    14. HarperCollins Publishers L.L.C. has its principal place of 
business at 10 E. 53rd Street, New York, NY 10022. It publishes e-books 
and print books through publishers such as Harper and William Morrow.
    15. Holtzbrinck Publishers, LLC d/b/a Macmillan has its principal 
place of business at 175 Fifth Avenue, New York, NY 10010. It publishes 
e-books and print books through publishers such as Farrar, Straus and 
Giroux and St. Martin's Press. Verlagsgruppe Georg von Holtzbrinck GmbH 
owns Holtzbrinck Publishers, LLC d/b/a Macmillan and has its principal 
place of business at G[auml]nsheidestra[szlig]e 26, Stuttgart 70184, 
Germany.
    16. Penguin Group (USA), Inc. has its principal place of business 
at 375 Hudson Street, New York, NY 10014. It publishes e-books and 
print books through publishers such as The Viking Press and Gotham 
Books. Penguin Group (USA), Inc. is the United States

[[Page 77096]]

affiliate of The Penguin Group, a division of Pearson plc, which has 
its principal place of business at 80 Strand, London WC2R 0RL, United 
Kingdom.
    17. Simon & Schuster, Inc. has its principal place of business at 
1230 Avenue of the Americas, New York, NY 10020. It publishes e-books 
and print books through publishers such as Free Press and Touchstone.

III. Jurisdiction, Venue, and Interstate Commerce

    18. Plaintiff United States of America brings this action pursuant 
to Section 4 of the Sherman Act, 15 U.S.C. Sec.  4, to obtain equitable 
relief and other relief to prevent and restrain Defendants' violations 
of Section 1 of the Sherman Act, 15 U.S.C 1.
    19. This Court has subject matter jurisdiction over this action 
under Section 4 of the Sherman Act, 15 U.S.C. 4, and 28 U.S.C. 1331, 
1337(a), and 1345.
    20. This Court has personal jurisdiction over each Defendant and 
venue is proper in the Southern District of New York under Section 12 
of the Clayton Act, 15 U.S.C. 22, and 28 U.S.C. 1391, because each 
Defendant transacts business and is found within the Southern District 
of New York. The U.S. component of each Publisher Defendant is 
headquartered in the Southern District of New York, and acts in 
furtherance of the conspiracy occurred in this District. Many thousands 
of the Publisher Defendants' e-books are and have been sold in this 
District, including through Defendant Apple's iBookstore.
    21. Defendants are engaged in, and their activities substantially 
affect, interstate trade and commerce. The Publisher Defendants sell e-
books throughout the United States. Their e-books represent a 
substantial amount of interstate commerce. In 2010, United States 
consumers paid more than $300 million for the Publisher Defendants' e-
books, including more than $40 million for e-books licensed through 
Defendant Apple's iBookstore.

IV. Co-Conspirators

    22. Various persons, who are known and unknown to Plaintiff, and 
not named as defendants in this action, including senior executives of 
the Publisher Defendants and Apple, have participated as co-
conspirators with Defendants in the offense alleged and have performed 
acts and made statements in furtherance of the conspiracy.

V. The Publishing Industry and Background of the Conspiracy

A. Print Books

    23. Authors submit books to publishers in manuscript form. 
Publishers edit manuscripts, print and bind books, provide advertising 
and related marketing services, decide when a book should be released 
for sale, and distribute books to wholesalers and retailers. Publishers 
also determine the cover price or ``list price'' of a book, and 
typically that price appears on the book's cover.
    24. Retailers purchase print books directly from publishers, or 
through wholesale distributors, and resell them to consumers. Retailers 
typically purchase print books under the ``wholesale model.'' Under 
that model, retailers pay publishers approximately one-half of the list 
price of books, take ownership of the books, then resell them to 
consumers at prices of the retailer's choice. Publishers have sold 
print books to retailers through the wholesale model for over 100 years 
and continue to do so today.

B. E-books

    25. E-books are books published in electronic formats. E-book 
publishers avoid some of the expenses incurred in producing and 
distributing print books, including most manufacturing expenses, 
warehousing expenses, distribution expenses, and costs of dealing with 
unsold stock.
    26. Consumers purchase e-books through Web sites of e-book 
retailers or through applications loaded onto their reading devices. 
Such electronic distribution allows e-book retailers to avoid certain 
expenses they incur when they sell print books, including most 
warehousing expenses and distribution expenses.
    27. From its very small base in 2007 at the time of Amazon's Kindle 
launch, the e-book market has exploded, registering triple-digit sales 
growth each year. E-books now constitute at least ten percent of 
general interest fiction and non-fiction books (commonly known as 
``trade'' books \1\) sold in the United States and are widely predicted 
to reach at least 25 percent of U.S. trade books sales within two to 
three years.
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    \1\ Non-trade e-books include electronic versions of children's 
picture books and academic textbooks, reference materials, and other 
specialized texts that typically are published by separate imprints 
from trade books, often are sold through separate channels, and are 
not reasonably substitutable for trade e-books.
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D. Publisher Defendants and ``The $9.99 Problem''

    28. The Publisher Defendants compete against each other for sales 
of trade e-books to consumers. Publishers bid against one another for 
print- and electronic-publishing rights to content that they expect 
will be most successful in the market. They also compete against each 
other in bringing those books to market. For example, in addition to 
price-setting, they create cover art and other on-book sales 
inducements, and also engage in advertising campaigns for some titles.
    29. The Publisher Defendants are five of the six largest publishers 
of trade books in the United States. They publish the vast majority of 
their newly released titles as both print books and e-books. Publisher 
Defendants compete against each other in the sales of both trade print 
books and trade e-books.
    30. When Amazon launched its Kindle device, it offered newly 
released and bestselling e-books to consumers for $9.99. At that time, 
Publisher Defendants routinely wholesaled those e-books for about that 
same price, which typically was less than the wholesale price of the 
hardcover versions of the same titles, reflecting publisher cost 
savings associated with the electronic format. From the time of its 
launch, Amazon's e-book distribution business has been consistently 
profitable, even when substantially discounting some newly released and 
bestselling titles.
    31. To compete with Amazon, other e-book retailers often matched or 
approached Amazon's $9.99-or-less prices for e-book versions of new 
releases and New York Times bestsellers. As a result of that 
competition, consumers benefited from Amazon's $9.99-or-less e-book 
prices even if they purchased e-books from competing e-book retailers.
    32. The Publisher Defendants feared that $9.99 would become the 
standard price for newly released and bestselling e-books. For example, 
one Publisher Defendant's CEO bemoaned the ``wretched $9.99 price 
point'' and Penguin USA CEO David Shanks worried that e-book pricing 
``can't be $9.99 for hardcovers.''
    33. The Publisher Defendants believed the low prices for newly 
released and bestselling e-books were disrupting the industry. The 
Amazon-led $9.99 retail price point for the most popular e-books 
troubled the Publisher Defendants because, at $9.99, most of these e-
book titles were priced substantially lower than hardcover versions of 
the same title. The Publisher Defendants were concerned these lower

[[Page 77097]]

e-book prices would lead to the ``deflation'' of hardcover book prices, 
with accompanying declining revenues for publishers. The Publisher 
Defendants also worried that if $9.99 solidified as the consumers' 
expected retail price for e-books, Amazon and other retailers would 
demand that publishers lower their wholesale prices, further 
compressing publisher profit margins.
    34. The Publisher Defendants also feared that the $9.99 price point 
would make e-books so popular that digital publishers could achieve 
sufficient scale to challenge the major incumbent publishers' basic 
business model. The Publisher Defendants were especially concerned that 
Amazon was well positioned to enter the digital publishing business and 
thereby supplant publishers as intermediaries between authors and 
consumers. Amazon had, in fact, taken steps to do so, contracting 
directly with authors to publish their works as e-books--at a higher 
royalty rate than the Publisher Defendants offered. Amazon's move 
threatened the Publisher Defendants' traditional positions as the gate-
keepers of the publishing world. The Publisher Defendants also feared 
that other competitive advantages they held as a result of years of 
investments in their print book businesses would erode and, eventually, 
become irrelevant, as e-book sales continued to grow.

E. Publisher Defendants Recognize They Cannot Solve ``The $9.99 
Problem'' Alone

    35. Each Publisher Defendant knew that, acting alone, it could not 
compel Amazon to raise e-book prices and that it was not in its 
economic self-interest to attempt unilaterally to raise retail e-book 
prices. Each Publisher Defendant relied on Amazon to market and 
distribute its e-books, and each Publisher Defendant believed Amazon 
would leverage its position as a large retailer to preserve its ability 
to compete and would resist any individual publisher's attempt to raise 
the prices at which Amazon sold that publisher's e-books. As one 
Publisher Defendant executive acknowledged Amazon's bargaining 
strength, ``we've always known that unless other publishers follow us, 
there's no chance of success in getting Amazon to change its pricing 
practices.'' In the same email, the executive wrote, ``without a 
critical mass behind us Amazon won't `negotiate,' so we need to be more 
confident of how our fellow publishers will react. * * *''
    36. Each Publisher Defendant also recognized that it would lose 
sales if retail prices increased for only its e-books while the other 
Publisher Defendants' e-books remained competitively priced. In 
addition, higher prices for just one publisher's e-books would not 
change consumer perceptions enough to slow the erosion of consumer-
perceived value of books that all the Publisher Defendants feared would 
result from Amazon's $9.99 pricing policy.

VI. Defendants' Unlawful Activities

    37. Beginning no later than September 2008, the Publisher 
Defendants' senior executives engaged in a series of meetings, 
telephone conversations and other communications in which they jointly 
acknowledged to each other the threat posed by Amazon's pricing 
strategy and the need to work collectively to end that strategy. By the 
end of the summer of 2009, the Publisher Defendants had agreed to act 
collectively to force up Amazon's retail prices and thereafter 
considered and implemented various means to accomplish that goal, 
including moving under the guise of a joint venture. Ultimately, in 
late 2009, Apple and the Publisher Defendants settled on the strategy 
that worked--replacing the wholesale model with an agency model that 
gave the Publisher Defendants the power to raise retail e-book prices 
themselves.
    38. The evidence showing conspiracy is substantial and includes:
     Practices facilitating a horizontal conspiracy. The 
Publisher Defendants regularly communicated with each other in private 
conversations, both in person and on the telephone, and in emails to 
each other to exchange sensitive information and assurances of 
solidarity to advance the ends of the conspiracy.
     Direct evidence of a conspiracy. The Publisher Defendants 
directly discussed, agreed to, and encouraged each other to collective 
action to force Amazon to raise its retail e-book prices.
     Recognition of illicit nature of communications. Publisher 
Defendants took steps to conceal their communications with one another, 
including instructions to ``double delete'' email and taking other 
measures to avoid leaving a paper trail.
     Acts contrary to economic interests. It would have been 
contrary to the economic interests of any Publisher Defendant acting 
alone to attempt to impose agency on all of its retailers and then 
raise its retail e-book prices. For example, Penguin Group CEO John 
Makinson reported to his parent company board of directors that ``the 
industry needs to develop a common strategy'' to address the threat 
``from digital companies whose objective may be to disintermediate 
traditional publishers altogether'' because it ``will not be possible 
for any individual publisher to mount an effective response,'' and 
Penguin later admitted that it would have been economically 
disadvantaged if it ``was the only publisher dealing with Apple under 
the new business model.''
     Motive to enter the conspiracy, including knowledge or 
assurances that competitors also will enter. The Publisher Defendants 
were motivated by a desire to maintain both the perceived value of 
their books and their own position in the industry. They received 
assurances from both each other and Apple that they all would move 
together to raise retail e-book prices. Apple was motivated to ensure 
that it would not face competition from Amazon's low-price retail 
strategy.
     Abrupt, contemporaneous shift from past behavior. Prior to 
January 23, 2010, all Publisher Defendants sold their e-books under the 
traditional wholesale model; by January 25, 2010, all Publisher 
Defendants had irrevocably committed to transition all of their 
retailers to the agency model (and Apple had committed to sell e-books 
on a model inconsistent with the way it sells the vast bulk of the 
digital media it offers in its iTunes store). On April 3, 2010, as soon 
as the Apple Agency Agreements simultaneously became effective, all 
Publisher Defendants immediately used their new retail pricing 
authority to raise the retail prices of their newly released and 
bestselling e-books to the common ostensible maximum prices contained 
in their Apple Agency Agreements.

A. The Publisher Defendants Recognize a Common Threat

    39. Starting no later than September of 2008 and continuing for at 
least one year, the Publisher Defendants' CEOs (at times joined by one 
non-defendant publisher's CEO) met privately as a group approximately 
once per quarter. These meetings took place in private dining rooms of 
upscale Manhattan restaurants and were used to discuss confidential 
business and competitive matters, including Amazon's e-book retailing 
practices. No legal counsel was present at any of these meetings.
    40. In September 2008, Penguin Group CEO John Makinson was joined 
by Macmillan CEO John Sargent and the CEOs of the other four large 
publishers at a dinner meeting in ``The Chef's Wine Cellar,'' a private 
room at Picholene. One of the CEOs reported that business matters were 
discussed.

[[Page 77098]]

    41. In January 2009, the CEO of one Publisher Defendant, a United 
States subsidiary of a European corporation, promised his corporate 
superior, the CEO of the parent company, that he would raise the future 
of e-books and Amazon's potential role in that future at an upcoming 
meeting of publisher CEOs. Later that month, at a dinner meeting hosted 
by Penguin Group CEO John Makinson, again in ``The Chef's Wine Cellar'' 
at Picholene, the same group of publisher CEOs met once more.
    42. On or about June 16, 2009, Mr. Makinson again met privately 
with other Publisher Defendant CEOs and discussed, inter alia, the 
growth of e-books and Amazon's role in that growth.
    43. On or about September 10, 2009, Mr. Makinson once again met 
privately with other Publisher Defendant CEOs and the CEO of one non-
defendant publisher in a private room of a different Manhattan 
restaurant, Alto. They discussed the growth of e-books and complained 
about Amazon's role in that growth.
    44. In addition to the CEO dinner meetings, Publisher Defendants' 
CEOs and other executives met in-person, one-on-one to communicate 
about e-books multiple times over the course of 2009 and into 2010. 
Similar meetings took place in Europe, including meetings in the fall 
of 2009 between executives of Macmillan parent company Verlagsgruppe 
Georg von Holtzbrinck GmbH and executives of another Publisher 
Defendant's parent company. Macmillan CEO John Sargent joined at least 
one of these parent company meetings.
    45. These private meetings provided the Publisher Defendants' CEOs 
the opportunity to discuss how they collectively could solve ``the 
$9.99 problem.''

B. Publisher Defendants Conspire To Raise Retail E-book Prices Under 
the Guise of Joint Venture Discussions

    46. While each Publisher Defendant recognized that it could not 
solve ``the $9.99 problem'' by itself, collectively the Publisher 
Defendants accounted for nearly half of Amazon's e-book revenues, and 
by refusing to compete with one another for Amazon's business, the 
Publisher Defendants could force Amazon to accept the Publisher 
Defendants' new contract terms and to change its pricing practices.
    47. The Publisher Defendants thus conspired to act collectively, 
initially in the guise of joint ventures. These ostensible joint 
ventures were not meant to enhance competition by bringing to market 
products or services that the publishers could not offer unilaterally, 
but rather were designed as anticompetitive measures to raise prices.
    48. All five Publisher Defendants agreed in 2009 at the latest to 
act collectively to raise retail prices for the most popular e-books 
above $9.99. One CEO of a Publisher Defendant's parent company 
explained to his corporate superior in a July 29, 2009 email message 
that ``[i]n the USA and the UK, but also in Spain and France to a 
lesser degree, the `top publishers' are in discussions to create an 
alternative platform to Amazon for e-books. The goal is less to compete 
with Amazon as to force it to accept a price level higher than 9.99. * 
*''* I am in NY this week to promote these ideas and the movement is 
positive with [the other four Publisher Defendants].'' (Translated from 
French).
    49. Less than a week later, in an August 4, 2009 strategy memo for 
the board of directors of Penguin's ultimate parent company, Penguin 
Group CEO John Makinson conveyed the same message:
    Competition for the attention of readers will be most intense from 
digital companies whose objective may be to disintermediate traditional 
publishers altogether. This is not a new threat but we do appear to be 
on a collision course with Amazon, and possibly Google as well. It will 
not be possible for any individual publisher to mount an effective 
response, because of both the resources necessary and the risk of 
retribution, so the industry needs to develop a common strategy. This 
is the context for the development of the Project Z initiatives [joint 
ventures] in London and New York.

C. Defendants Agree To Increase and Stabilize Retail E-book Prices by 
Collectively Adopting an Agency Model

    50. To raise e-book prices, the Publisher Defendants also began to 
consider in late 2009 selling e-books under an ``agency model'' that 
would take away Amazon's ability to set low retail prices. As one CEO 
of a Publisher Defendant's parent company explained in a December 6, 
2009 email message, ``[o]ur goal is to force Amazon to return to 
acceptable sales prices through the establishment of agency contracts 
in the USA . . . . To succeed our colleagues must know that we entered 
the fray and follow us.'' (Translated from French).
    51. Apple's entry into the e-book business provided a perfect 
opportunity for collective action to implement the agency model and use 
it to raise retail e-book prices. Apple was in the process of 
developing a strategy to sell e-books on its new iPad device. Apple 
initially contemplated selling e-books through the existing wholesale 
model, which was similar to the manner in which Apple sold the vast 
majority of the digital media it offered in its iTunes store. On 
February 19, 2009, Apple Vice President of Internet Services Eddy Cue 
explained to Apple CEO Steve Jobs in an email, ``[a]t this point, it 
would be very easy for us to compete and I think trounce Amazon by 
opening up our own ebook store.'' In addition to considering 
competitive entry at that time, though, Apple also contemplated 
illegally dividing the digital content world with Amazon, allowing each 
to ``own the category'' of its choice--audio/video to Apple and e-books 
to Amazon.
    52. Apple soon concluded, though, that competition from other 
retailers--especially Amazon--would prevent Apple from earning its 
desired 30 percent margins on e-book sales. Ultimately, Apple, together 
with the Publisher Defendants, set in motion a plan that would compel 
all non-Apple e-book retailers also to sign onto agency or else, as 
Apple's CEO put it, the Publisher Defendants all would say, ``we're not 
going to give you the books.''
    53. The executive in charge of Apple's inchoate e-books business, 
Eddy Cue, telephoned each Publisher Defendant and Random House on or 
around December 8, 2009 to schedule exploratory meetings in New York 
City on December 15 and December 16. Hachette and HarperCollins took 
the lead in working with Apple to capitalize on this golden opportunity 
for the Publisher Defendants to achieve their goal of raising and 
stabilizing retail e-book prices above $9.99 by collectively imposing 
the agency model on the industry.
    54. It appears that Hachette and HarperCollins communicated with 
each other about moving to an agency model during the brief window 
between Mr. Cue's first telephone calls to the Publisher Defendants and 
his visit to meet with their CEOs. On the morning of December 10, 2009, 
a HarperCollins executive added to his calendar an appointment to call 
a Hachette executive at 10:50 a.m. At 11:01 a.m., the Hachette 
executive returned the phone call, and the two spoke for six minutes. 
Then, less than a week later in New York, both Hachette and 
HarperCollins executives told Mr. Cue in their initial meetings with 
him that they wanted to sell e-books under an agency model, a dramatic 
departure from the way books had been sold for over a century.y
    55. The other Publisher Defendants also made clear to Apple that 
they

[[Page 77099]]

``certainly'' did not want to continue ``the existing way that they 
were doing business,'' i.e., with Amazon promoting their most popular 
e-books for $9.99 under a wholesale model.
    56. Apple saw a way to turn the agency scheme into a highly 
profitable model for itself. Apple determined to give the Publisher 
Defendants what they wanted while shielding itself from retail price 
competition and realizing margins far in excess of what e-book 
retailers then averaged on each newly released or bestselling e-book 
sold. Apple realized that, as a result of the scheme, ``the customer'' 
would ``pay[] a little more.''
    57. On December 16, 2009, the day after both companies' initial 
meetings with Apple, Penguin Group CEO John Makinson had a breakfast 
meeting at a London hotel with the CEO of another Publisher Defendant's 
parent company. Consistent with the Publisher Defendants' other efforts 
to conceal their activities, Mr. Makinson's breakfast companion wrote 
to his U.S. subordinate that he would recount portions of his 
discussion with Mr. Makinson only by telephone.
    58. By the time Apple arrived for a second round of meetings during 
the week of December 21, 2009, the agency model had become the focus of 
its discussions with all of the Publisher Defendants. In these 
discussions, Apple proposed that the Publisher Defendants require all 
retailers of their e-books to accept the agency model. Apple thereby 
sought to ensure that it would not have to compete on retail prices. 
The proposal appealed to the Publisher Defendants because wresting 
pricing control from Amazon and other e-book retailers would advance 
their collusive plan to raise retail e-book prices.
    59. The Publisher Defendants acknowledged to Apple their common 
objective to end Amazon's $9.99 pricing. As Mr. Cue reported in an 
email message to Apple's CEO Steve Jobs, the three publishers with whom 
he had met saw the ``plus'' of Apple's position as ``solv[ing the] 
Amazon problem.'' The ``negative'' was that Apple's proposed retail 
prices--topping out at $12.99 for newly released and bestselling e-
books--were a ``little less than [the publishers] would like.'' 
Likewise, Mr. Jobs later informed an executive of one of the Publisher 
Defendant's corporate parents that ``[a]ll major publishers'' had told 
Apple that ``Amazon's $9.99 price for new releases is eroding the value 
perception of their products in customer's minds, and they do not want 
this practice to continue for new releases.''
    60. As perhaps the only company that could facilitate their goal of 
raising retail e-book prices across the industry, Apple knew that it 
had significant leverage in negotiations with Publisher Defendants. 
Apple exercised this leverage to demand a thirty percent commission--a 
margin significantly above the prevailing competitive margins for e-
book retailers. The Publisher Defendants worried that the combination 
of paying Apple a higher commission than they would have liked and 
pricing their e-books lower than they wanted might be too much to bear 
in exchange for Apple's facilitation of their agreement to raise retail 
e-book prices. Ultimately, though, they convinced Apple to allow them 
to raise prices high enough to make the deal palatable to them.
    61. As it negotiated with the Publisher Defendants in December 2009 
and January 2010, Apple kept each Publisher Defendant informed of the 
status of its negotiations with the other Publisher Defendants. Apple 
also assured the Publisher Defendants that its proposals were the same 
to each and that no deal Apple agreed to with one publisher would be 
materially different from any deal it agreed to with another publisher. 
Apple thus knowingly served as a critical conspiracy participant by 
allowing the Publisher Defendants to signal to one another both (a) 
which agency terms would comprise an acceptable means of achieving 
their ultimate goal of raising and stabilizing retail e-book prices, 
and (b) that they could lock themselves into this particular means of 
collectively achieving that goal by all signing their Apple Agency 
Agreement.
    62. Apple's Mr. Cue emailed each Publisher Defendant between 
January 4, 2010, and January 6, 2010 an outline of what he tabbed ``the 
best approach for e-books.'' He reassured Penguin USA CEO David Shanks 
and other Publisher Defendant CEOs that Apple adopted the approach 
``[a]fter talking to all the other publishers.'' Mr. Cue sent 
substantively identical email messages and proposals to each Publisher 
Defendant.
    63. The outlined proposal that Apple circulated after consulting 
with each Publisher Defendant contained several key features. First, as 
Hachette and HarperCollins had initially suggested to Apple, the 
publisher would be the principal and Apple would be the agent for e-
book sales. Consumer pricing authority would be transferred from 
retailers to publishers. Second, Apple's proposal mandated that every 
other retailer of each publisher's e-books--Apple's direct 
competitors--be forced to accept the agency model as well. As Mr. Cue 
wrote, ``all resellers of new titles need to be in agency model.'' 
Third, Apple would receive a 30 percent commission for each e-book 
sale. And fourth, each Publisher Defendant would have identical pricing 
tiers for e-books sold through Apple's iBookstore.
    64. On January 11, 2010, Apple emailed its proposed e-book 
distribution agreement to all the Publisher Defendants. As with the 
outlined proposals Apple sent earlier in January, the proposed e-book 
distribution agreements were substantially the same. Also on January 
11, 2010, Apple separately emailed to Penguin and two other Publisher 
Defendants charts showing how the Publisher Defendant's bestselling e-
books would be priced at $12.99--the ostensibly maximum price under 
Apple's then-current price tier proposal--in the iBookstore.
    65. The proposed e-book distribution agreement mainly incorporated 
the principles Apple set out in its email messages of January 4 through 
January 6, with two notable changes. First, Apple demanded that the 
Publisher Defendants provide Apple their complete e-book catalogs and 
that they not delay the electronic release of any title behind its 
print release. Second, and more important, Apple replaced the express 
requirement that each publisher adopt the agency model with each of its 
retailers with an unusual most favored nation (``MFN'') pricing 
provision. That provision was not structured like a standard MFN in 
favor of a retailer, ensuring Apple that it would receive the best 
available wholesale price. Nor did the MFN ensure Apple that the 
Publisher Defendants would not set a higher retail price on the 
iBookstore than they set on other Web sites where they controlled 
retail prices. Instead, the MFN here required each publisher to 
guarantee that it would lower the retail price of each e-book in 
Apple's iBookstore to match the lowest price offered by any other 
retailer, even if the Publisher Defendant did not control that other 
retailer's ultimate consumer price. That is, instead of an MFN designed 
to protect Apple's ability to compete, this MFN was designed to protect 
Apple from having to compete on price at all, while still maintaining 
Apple's 30 percent margin.
    66. The purpose of these provisions was to work in concert to 
enforce the Defendants' agreement to raise and stabilize retail e-book 
prices. Apple and the Publisher Defendants recognized that coupling 
Apple's right to all of their e-books with its right to demand that 
those e-books not be priced higher on the iBookstore than on any other 
Web site effectively required that each Publisher Defendant take away 
retail pricing control from all other e-book

[[Page 77100]]

retailers, including stripping them of any ability to discount or 
otherwise price promote e-books out of the retailer's own margins. 
Otherwise, the retail price MFN would cause Apple's iBookstore prices 
to drop to match the best available retail price of each e-book, and 
the Publisher Defendants would receive only 70 percent of those reduced 
retail prices. Price competition by other retailers, if allowed to 
continue, thus likely would reduce e-book revenues to levels the 
Publisher Defendants could not control or predict.
    67. In negotiating the retail price MFN with Apple, ``some of [the 
Publisher Defendants]'' asserted that Apple did not need the provision 
``because they would be moving to an agency model with [the other e-
book retailers,]'' regardless. Ultimately, though, all Defendants 
agreed to include the MFN commitment mechanism.
    68. On January 16, 2010, Apple, via Mr. Cue, offered revised terms 
to the Publisher Defendants that again were identical in substance. 
Apple modified its earlier proposal in two significant ways. First, in 
response to publisher requests, it added new maximum pricing tiers that 
increased permissible e-book prices to $16.99 or $19.99, depending on 
the book's hardcover list price. Second, Apple's new proposal mitigated 
these price increases somewhat by adding special pricing tiers for e-
book versions of books on the New York Times fiction and non-fiction 
bestseller lists. For e-book versions of bestsellers bearing list 
prices of $30 or less, Publisher Defendants could set a price up to 
$12.99; for bestsellers bearing list prices between $30 and $35, the e-
book price cap would be $14.99. In conjunction with the revised 
proposal, Mr. Cue set up meetings for the next week to finalize 
agreements with the Publisher Defendants.
    69. Each Publisher Defendant required assurances that it would not 
be the only publisher to sign an agreement with Apple that would compel 
it either to take pricing authority from Amazon or to pull its e-books 
from Amazon. The Publisher Defendants continued to fear that Amazon 
would act to protect its ability to price e-books at $9.99 or less if 
any one of them acted alone. Individual Publisher Defendants also 
feared punishment in the marketplace if only its e-books suddenly 
became more expensive at retail while other publishers continued to 
allow retailers to compete on price. As Mr. Cue noted, ``all of them 
were very concerned about being the only ones to sign a deal with us.'' 
Penguin explicitly communicated to Apple that it would sign an e-book 
distribution agreement with Apple only if at least three of the other 
``major[]'' publishers did as well. Apple supplied the needed 
assurances.
    70. While the Publisher Defendants were discussing e-book 
distribution terms with Apple during the week of January 18, 2010, 
Amazon met in New York City with a number of prominent authors and 
agents to unveil a new program under which copyright holders could take 
their e-books directly to Amazon--cutting out the publisher--and Amazon 
would pay royalties of up to 70 percent, far in excess of what 
publishers offered. This announcement further highlighted the direct 
competitive threat Amazon posed to the Publisher Defendants' business 
model. The Publisher Defendants reacted immediately. For example, 
Penguin USA CEO David Shanks reported being ``really angry'' after 
``hav[ing] read [Amazon's] announcement.'' After thinking about it for 
a day, Mr. Shanks concluded, ``[o]n Apple I am now more convinced that 
we need a viable alternative to Amazon or this nonsense will continue 
and get much worse.'' Another decisionmaker stated he was ``p****d'' at 
Amazon for starting to compete directly against the publishers and 
expressed his desire ``to screw Amazon.''
    71. To persuade one of the Publisher Defendants to stay with the 
others and sign an agreement, Apple CEO Steve Jobs wrote to an 
executive of the Publisher Defendant's corporate parent that the 
publisher had only two choices apart from signing the Apple Agency 
Agreement: (i) accept the status quo (``Keep going with Amazon at 
$9.99''); or (ii) continue with a losing policy of delaying the release 
of electronic versions of new titles (``Hold back your books from 
Amazon''). According to Jobs, the Apple deal offered the Publisher 
Defendants a superior alternative path to the higher retail e-book 
prices they sought: ``Throw in with Apple and see if we can all make a 
go of this to create a real mainstream e-books market at $12.99 and 
$14.99.''
    72. In addition to passing information through Apple and during 
their private dinners and other in-person meetings, the Publisher 
Defendants frequently communicated by telephone to exchange assurances 
of common action in attempting to raise the retail price of e-books. 
These telephone communications increased significantly during the two-
month period in which the Publisher Defendants considered and entered 
the Apple Agency Agreements. During December 2009 and January 2010, the 
Publisher Defendants' U.S. CEOs placed at least 56 phone calls to one 
another. Each CEO, including Penguin's Shanks and Macmillan's Sargent, 
placed at least seven such phone calls.
    73. The timing, frequency, duration, and content of the Publisher 
Defendant CEOs' phone calls demonstrate that the Publisher Defendants 
used them to seek and exchange assurances of common strategies and 
business plans regarding the Apple Agency Agreements. For example, in 
addition to the telephone calls already described in this complaint:
     Near the time Apple first presented the agency model, one 
Publisher Defendant's CEO used a telephone call--ostensibly made to 
discuss a marketing joint venture--to tell Penguin USA CEO David Shanks 
that ``everyone is in the same place with Apple.''
     After receiving Apple's January 16, 2010 revised proposal, 
executives of several Publisher Defendants responded to the revised 
proposal and meetings by, again, seeking and exchanging confidential 
information. For example, on Sunday, January 17, one Publisher 
Defendant's CEO used his mobile phone to call another Publisher 
Defendant's CEO and talk for approximately ten minutes. And on the 
morning of January 19, Penguin USA CEO David Shanks had an extended 
telephone conversation with the CEO of another Publisher Defendant.
     On January 21, 2010, the CEO of one Publisher Defendant's 
parent company instructed his U.S. subordinate via email to find out 
Apple's progress in agency negotiations with other publishers. Four 
minutes after that email was sent, the U.S. executive called another 
Publisher Defendant's CEO, and the two spoke for over eleven minutes.
     On January 22, 2010, at 9:30 a.m., Apple's Cue met with 
one Publisher Defendant's CEO to make what Cue hoped would be a ``final 
go/no-go decision'' about whether the Publisher Defendant would sign an 
agreement with Apple. Less than an hour later, the Publisher 
Defendant's CEO made phone calls, two minutes apart, to two other 
Publisher Defendants' CEOs, including Macmillan's Sargent. The CEO who 
placed the calls admitted under oath to placing them specifically to 
learn if the other two Publisher Defendants would sign with Apple prior 
to Apple's iPad launch.
     On the evening of Saturday, January 23, 2010, Apple's Cue 
emailed his boss, Steve Jobs, and noted that Penguin USA CEO David 
Shanks ``want[ed] an assurance that he is 1 of 4 before signing.'' The 
following Monday morning, at 9:46 a.m., Mr. Shanks called another 
Publisher Defendant's CEO and

[[Page 77101]]

the two talked for approximately four minutes. Both Penguin and the 
other Publisher Defendant signed their Apple Agency Agreements later 
that day.
    74. On January 24, 2010, Hachette signed an e-book distribution 
agreement with Apple. Over the next two days, Simon & Schuster, 
Macmillan, Penguin, and HarperCollins all followed suit and signed e-
book distribution agreements with Apple. Within these three days, the 
Publisher Defendants agreed with Apple to abandon the longstanding 
wholesale model for selling e-books. The Apple Agency Agreements took 
effect simultaneously on April 3, 2010 with the release of Apple's new 
iPad.
    75. The final version of the pricing tiers in the Apple Agency 
Agreements contained the $12.99 and $14.99 price points for 
bestsellers, discussed earlier, and also established prices for all 
other newly released titles based on the hardcover list price of the 
same title. Although couched as maximum retail prices, the price tiers 
in fact established the retail e-book prices to be charged by Publisher 
Defendants.
    76. By entering the Apple Agency Agreements, each Publisher 
Defendant effectively agreed to require all of their e-book retailers 
to accept the agency model. Both Apple and the Publisher Defendants 
understood the Agreements would compel the Publisher Defendants to take 
pricing authority from all non-Apple e-book retailers. A February 10, 
2010 presentation by one Publisher Defendant applauded this result 
(emphasis in original): ``The Apple agency model deal means that we 
will have to shift to an agency model with Amazon which [will] 
strengthen our control over pricing.''
    77. Apple understood that the final Apple Agency Agreements ensured 
that the Publisher Defendants would raise their retail e-book prices to 
the ostensible limits set by the Apple price tiers not only in Apple's 
forthcoming iBookstore, but on Amazon.com and all other consumer sites 
as well. When asked by a Wall Street Journal reporter at the January 
27, 2010 iPad unveiling event, ``Why should she buy a book for * * * 
$14.99 from your device when she could buy one for $9.99 from Amazon on 
the Kindle or from Barnes & Noble on the Nook?'' Apple CEO Steve Jobs 
responded, ``that won't be the case * * * the prices will be the 
same.''
    78. Apple understood that the retail price MFN was the key 
commitment mechanism to keep the Publisher Defendants advancing their 
conspiracy in lockstep. Regarding the effect of the MFN, Apple 
executive Pete Alcorn remarked in the context of the European roll-out 
of the agency model in the spring of 2010:
    I told [Apple executive Keith Moerer] that I think he and Eddy 
[Cue] made it at least halfway to changing the industry permanently, 
and we should keep the pads on and keep fighting for it. I might regret 
that later, but right now I feel like it's a giant win to keep pushing 
the MFN and forcing people off the [A]mazon model and onto ours. If 
anything, the place to give is the pricing--long run, the mfn is more 
important. The interesting insight in the meeting was Eddy's 
explanation that it doesn't have to be that broad--any decent MFN 
forces the model.
    79. Within the four months following the signing of the Apple 
Agency Agreements, and over Amazon's objections, each Publisher 
Defendant had transformed its business relationship with all of the 
major e-book retailers from a wholesale model to an agency model and 
imposed flat prohibitions against e-book discounting or other price 
competition on all non-Apple e-book retailers.
    80. For example, after it signed its Apple Agency Agreement, 
Macmillan presented Amazon a choice: adopt the agency model or lose the 
ability to sell e-book versions of new hardcover titles for the first 
seven months of their release. Amazon rejected Macmillan's ultimatum 
and sought to preserve its ability to sell e-book versions of newly 
released hardcover titles for $9.99. To resist Macmillan's efforts to 
force it to accept either the agency model or delayed electronic 
availability, Amazon effectively stopped selling Macmillan's print 
books and e-books.
    81. When Amazon stopped selling Macmillan titles, other Publisher 
Defendants did not view the situation as an opportunity to gain market 
share from a weakened competitor. Instead, they rallied to support 
Macmillan. For example, the CEO of one Publisher Defendant's parent 
company instructed the Publisher Defendant's CEO that ``[Macmillan CEO] 
John Sargent needs our help!'' The parent company CEO explained, 
``M[acm]illan have been brave, but they are small. We need to move the 
lines. And I am thrilled to know how A[mazon] will react against 3 or 4 
of the big guys.''
    82. The CEO of one Publisher Defendant's parent company assured 
Macmillan CEO John Sargent of his company's support in a January 31, 
2010 email: ``I can ensure you that you are not going to find your 
company alone in the battle.'' The same parent company CEO also assured 
the head of Macmillan's corporate parent in a February 1 email that 
``others will enter the battle field!'' Overall, Macmillan received 
``hugely supportive'' correspondence from the publishing industry 
during Macmillan's effort to force Amazon to accept the agency model.
    83. As its battle with Amazon continued, Macmillan knew that, 
because the other Publisher Defendants, via the Apple Agency 
Agreements, had locked themselves into forcing agency on Amazon to 
advance their conspiratorial goals, Amazon soon would face similar 
edicts from a united front of Publisher Defendants. And Amazon could 
not delist the books of all five Publisher Defendants because they 
together accounted for nearly half of Amazon's e-book business. 
Macmillan CEO John Sargent explained the company's reasoning: ``we 
believed whatever was happening, whatever Amazon was doing here, they 
were going to face--they're going to have more of the same in the 
future one way or another.'' Another Publisher Defendant similarly 
recognized that Macmillan was not acting unilaterally but rather was 
``leading the charge on moving Amazon to the agency model.''
    84. Amazon quickly came to fully appreciate that not just Macmillan 
but all five Publisher Defendants had irrevocably committed themselves 
to the agency model across all retailers, including taking control of 
retail pricing and thereby stripping away any opportunity for e-book 
retailers to compete on price. Just two days after it stopped selling 
Macmillan titles, Amazon capitulated and publicly announced that it had 
no choice but to accept the agency model, and it soon resumed selling 
Macmillan's e-book and print book titles.

D. Defendants Further the Conspiracy by Pressuring Another Publisher To 
Adopt the Agency Model

    85. When a company takes a pro-competitive action by introducing a 
new product, lowering its prices, or even adopting a new business model 
that helps it sell more product at better prices, it typically does not 
want its competitors to copy its action, but prefers to maintain a 
first-mover or competitive advantage. In contrast, when companies 
jointly take collusive action, such as instituting a coordinated price 
increase, they typically want the rest of their competitors to join 
them in that action. Because collusive actions are not pro-competitive 
or consumer friendly, any competitor that does not go along with the 
conspirators can take more consumer friendly actions and see its market 
share rise at the expense of the conspirators. Here, the Defendants

[[Page 77102]]

acted consistently with a collusive arrangement, and inconsistently 
with a pro-competitive arrangement, as they sought to pressure another 
publisher (whose market share was growing at the Publisher Defendants' 
expense after the Apple Agency Contracts became effective) to join 
them.
    86. Penguin appears to have taken the lead in these efforts. Its 
U.S. CEO, David Shanks, twice directly told the executives of the 
holdout major publisher about his displeasure with their decision to 
continue selling e-books on the wholesale model. Mr. Shanks tried to 
justify the actions of the conspiracy as an effort to save brick-and-
mortar bookstores and criticized the other publisher for ``not 
helping'' the group. The executives of the other publisher responded to 
Mr. Shanks's complaints by explaining their objections to the agency 
model.
    87. Mr. Shanks also encouraged a large print book and e-book 
retailer to punish the other publisher for not joining Defendants' 
conspiracy. In March 2010, Mr. Shanks sent an email message to an 
executive of the retailer complaining that the publisher ``has chosen 
to stay on their current model and will allow retailers to sell at 
whatever price they wish.'' Mr. Shanks argued that ``[s]ince Penguin is 
looking out for [your] welfare at what appears to be great costs to us, 
I would hope that [you] would be equally brutal to Publishers who have 
thrown in with your competition with obvious disdain for your welfare. 
. . . I hope you make [the publisher] hurt like Amazon is doing to [the 
Publisher Defendants].''
    88. When the third-party retailer continued to promote the non-
defendant publisher's books, Mr. Shanks applied more pressure. In a 
June 22, 2010 email to the retailer's CEO, Mr. Shanks claimed to be 
``baffled'' as to why the retailer would promote that publisher's books 
instead of just those published by ``people who stood up for you.''
    89. Throughout the summer of 2010, Apple also cajoled the holdout 
publisher to adopt agency terms in line with those of the Publisher 
Defendants, including on a phone call between Apple CEO Steve Jobs and 
the holdout publisher's CEO. Apple flatly refused to sell the holdout 
publisher's e-books unless and until it agreed to an agency 
relationship substantially similar to the arrangement between Apple and 
the Publisher Defendants defined by the Apple Agency Agreements.

E. Conspiracy Succeeds at Raising and Stabilizing Consumer E-book 
Prices

    90. The ostensible maximum prices included in the Apple Agency 
Agreements' price schedule represent, in practice, actual e-book 
prices. Indeed, at the time the Publisher Defendants snatched retail 
pricing authority away from Amazon and other e-book retailers, not one 
of them had built an internal retail pricing apparatus sufficient to do 
anything other than set retail prices at the Apple Agency Agreements' 
ostensible caps. Once their agency agreements took effect, the 
Publisher Defendants raised e-book prices at all retail outlets to the 
maximum price level within each tier. Even today, two years after the 
Publisher Defendants began setting e-book retail prices according to 
the Apple price tiers, they still set the retail prices for the 
electronic versions of all or nearly all of their bestselling hardcover 
titles at the ostensible maximum price allowed by those price tiers.
    91. The Publisher Defendants' collective adoption of the Apple 
Agency Agreements allowed them (facilitated by Apple) to raise, fix, 
and stabilize retail e-book prices in three steps: (a) they took away 
retail pricing authority from retailers; (b) they then set retail e-
book prices according to the Apple price tiers; and (c) they then 
exported the agency model and higher retail prices to the rest of the 
industry, in part to comply with the retail price MFN included in each 
Apple Agency Agreement.
    92. Defendants' conspiracy and agreement to raise and stabilize 
retail e-book prices by collectively adopting the agency model and 
Apple price tiers led to an increase in the retail prices of newly 
released and bestselling e-books. Prior to the Defendants' conspiracy, 
consumers benefited from price competition that led to $9.99 prices for 
newly released and bestselling e-books. Almost immediately after Apple 
launched its iBookstore in April 2010 and the Publisher Defendants 
imposed agency model pricing on all retailers, the Publisher 
Defendants' e-book prices for most newly released and bestselling e-
books rose to either $12.99 or $14.99.
    93. Defendants' conspiracy and agreement to raise and stabilize 
retail e-book prices by collectively adopting the agency model and 
Apple price tiers for their newly released and bestselling e-books also 
led to an increase in average retail prices of the balance of Publisher 
Defendants' e-book catalogs, their so-called ``backlists.'' Now that 
the Publisher Defendants control the retail prices of e-books--but 
Amazon maintains control of its print book retail prices--Publisher 
Defendants' e-book prices sometimes are higher than Amazon's prices for 
print versions of the same titles.

VII. Violation Alleged

    94. Beginning no later than 2009, and continuing to date, 
Defendants and their co-conspirators have engaged in a conspiracy and 
agreement in unreasonable restraint of interstate trade and commerce, 
constituting a violation of Section 1 of the Sherman Act, 15 U.S.C. 1. 
This offense is likely to continue and recur unless the relief 
requested is granted.
    95. The conspiracy and agreement consists of an understanding and 
concert of action among Defendants and their co-conspirators to raise, 
fix, and stabilize retail e-book prices, to end price competition among 
e-book retailers, and to limit retail price competition among the 
Publisher Defendants, ultimately effectuated by collectively adopting 
and adhering to functionally identical methods of selling e-books and 
price schedules.
    96. For the purpose of forming and effectuating this agreement and 
conspiracy, some or all Defendants did the following things, among 
others:
    a. Shared their business information, plans, and strategies in 
order to formulate ways to raise retail e-book prices;
    b. Assured each other of support in attempting to raise retail e-
book prices;
    c. Employed ostensible joint venture meetings to disguise their 
attempts to raise retail e-book prices;
    d. Fixed the method of and formulas for setting retail e-book 
prices;
    e. Fixed tiers for retail e-book prices;
    f. Eliminated the ability of e-book retailers to fund retail e-book 
price decreases out of their own margins; and
    g. Raised the retail prices of their newly released and bestselling 
e-books to the agreed prices--the ostensible price caps--contained in 
the pricing schedule of their Apple Agency Agreements.
    97. Defendants' conspiracy and agreement, in which the Publisher 
Defendants and Apple agreed to raise, fix, and stabilize retail e-book 
prices, to end price competition among e-book retailers, and to limit 
retail price competition among the Publisher Defendants by fixing 
retail e-book prices, constitutes a per se violation of Section 1 of 
the Sherman Act, 15 U.S.C. 1.
    98. Moreover, Defendants' conspiracy and agreement has resulted in 
obvious and demonstrable anticompetitive effects on consumers in the 
trade e-books market by depriving consumers of the benefits of 
competition among e-book retailers as to both retail prices and retail 
innovations (such as e-book clubs and subscription plans), such that it

[[Page 77103]]

constitutes an unreasonable restraint on trade in violation of Section 
1 of the Sherman Act, 15 U.S.C. 1.
    99. Where, as here, defendants have engaged in a per se violation 
of Section 1 of the Sherman Act, no allegations with respect to the 
relevant product market, geographic market, or market power are 
required. To the extent such allegations may otherwise be necessary, 
the relevant product market for the purposes of this action is trade e-
books. The anticompetitive acts at issue in this case directly affect 
the sale of trade e-books to consumers. No reasonable substitute exists 
for e-books. There are no technological alternatives to e-books, 
thousands of which can be stored on a single small device. E-books can 
be stored and read on electronic devices, while print books cannot. E-
books can be located, purchased, and downloaded anywhere a customer has 
an internet connection, while print books cannot. Industry firms also 
view e-books as a separate market segment from print books, and the 
Publisher Defendants were able to impose and sustain a significant 
retail price increase for their trade e-books.
    100. The relevant geographic market is the United States. The 
rights to license e-books are granted on territorial bases, with the 
United States typically forming its own territory. E-book retailers 
typically present a unique storefront to U.S. consumers, often with e-
books bearing different retail prices than the same titles would 
command on the same retailer's foreign Web sites.
    101. The Publisher Defendants possess market power in the market 
for trade e-books. The Publisher Defendants successfully imposed and 
sustained a significant retail price increase for their trade e-books. 
Collectively, they create and distribute a wide variety of popular e-
books, regularly comprising over half of the New York Times fiction and 
non-fiction bestseller lists. Collectively, they provide a critical 
input to any firm selling trade e-books to consumers. Any retailer 
selling trade e-books to consumers would not be able to forgo 
profitably the sale of the Publisher Defendants' e-books.
    102. Defendants' agreement and conspiracy has had and will continue 
to have anticompetitive effects, including:
    a. Increasing the retail prices of trade e-books;
    b. Eliminating competition on price among e-book retailers;
    c. Restraining competition on retail price among the Publisher 
Defendants;
    d. Restraining competition among the Publisher Defendants for 
favorable relationships with e-book retailers;
    e. Constraining innovation among e-book retailers;
    f. Entrenching incumbent publishers' favorable position in the sale 
and distribution of print books by slowing the migration from print 
books to e-books;
    g. Making more likely express or tacit collusion among publishers; 
and
    h. Reducing competitive pressure on print book prices.
    103. Defendants' agreement and conspiracy is not reasonably 
necessary to accomplish any procompetitive objective, or, 
alternatively, its scope is broader than necessary to accomplish any 
such objective.

VIII. Request for Relief

    104. To remedy these illegal acts, the United States requests that 
the Court:
    a. Adjudge and decree that Defendants entered into an unlawful 
contract, combination, or conspiracy in unreasonable restraint of 
interstate trade and commerce in violation of Section 1 of the Sherman 
Act, 15 U.S.C. 1;
    b. Enjoin the Defendants, their officers, agents, servants, 
employees and attorneys and their successors and all other persons 
acting or claiming to act in active concert or participation with one 
or more of them, from continuing, maintaining, or renewing in any 
manner, directly or indirectly, the conduct alleged herein or from 
engaging in any other conduct, combination, conspiracy, agreement, 
understanding, plan, program, or other arrangement having the same 
effect as the alleged violation or that otherwise violates Section 1 of 
the Sherman Act, 15 U.S.C. 1, through fixing the method and manner in 
which they sell e-books, or otherwise agreeing to set the price or 
release date for e-books, or collective negotiation of e-book 
agreements, or otherwise collectively restraining retail price 
competition for e-books;
    c. Prohibit the collusive setting of price tiers that can de facto 
fix prices;
    d. Declare null and void the Apple Agency Agreements and any 
agreement between a Publisher Defendant and an e-book retailer that 
restricts, limits, or impedes the e-book retailer's ability to set, 
alter, or reduce the retail price of any e-book or to offer price or 
other promotions to encourage consumers to purchase any e-book, or 
contains a retail price MFN;
    e. Reform the agreements between Apple and Publisher Defendants to 
strike the retail price MFN clauses as void and unenforceable; and
    f. Award to Plaintiff its costs of this action and such other and 
further relief as may be appropriate and as the Court may deem just and 
proper.

Dated: April 11, 2012

For Plaintiff United States Of America:

Sharis A. Pozen,

Acting Assistant Attorney General for Antitrust. Joseph F. Wayland, 
Deputy Assistant Attorney General.

Gene Kimmelman,

Chief Counsel for Competition Policy and Intergovernmental 
Relations.

Patricia A. Brink,

Director of Civil Enforcement, Mark W. Ryan, Director of Litigation, 
mark.w.ryan@usdoj.gov.

John R. Read,

Chief. David C. Kully, Assistant Chief, Litigation III Section, 
david.kully@usdoj.gov.

Daniel Mccuaig,
Nathan P. Sutton,
Mary Beth Mcgee,
Owen M. Kendler,
William H. Jones Ii,
Stephen T. Fairchild,

Attorneys for the United States, Litigation III Section, 450 Fifth 
Street NW., Suite 4000, Washington, DC 20530, Telephone: (202) 307-
0520, Facsimile: (202) 514-7308, daniel.mccuaig@usdoj.gov, 
nathan.sutton@usdoj.gov, mary.beth.mcgee@usdoj.gov, 
owen.kendler@usdoj.gov, bill.jones2@usdoj.gov, 
stephen.fairchild@usdoj.gov.

United States District Court for the Southern District of New York

United States of America, Plaintiff, v. Apple, INC., et al.,
Defendants. Civil Action No. 12-CV-2826 (DLC) ECF Case

Competitive Impact Statement

    Pursuant to Section 2(b) of the Antitrust Procedures and Penalties 
Act (``APPA'' or ``Tunney Act''), 15 U.S.C. 16(b)-(h), Plaintiff United 
States of America (``United States'') files this Competitive Impact 
Statement relating to the proposed Final Judgment against Defendant 
Penguin Group (USA), Inc. and The Penguin Group, a division of Pearson 
PLC, (collectively these two entities are referred to herein as 
``Penguin''), submitted on December 18, 2012, for entry in this 
antitrust proceeding.

I. Nature and Purpose of the Proceeding

    On April 11, 2012, the United States filed a civil antitrust 
Complaint alleging that Apple, Inc. (``Apple'') and five of the six 
largest publishers in the United States (``Publisher Defendants'') 
restrained competition in the sale of electronic books (``e-books''), 
in violation of Section 1 of the Sherman Act, 15 U.S.C. 1. Shortly 
after filing the Complaint, the United States filed a proposed final 
judgment (``Original Judgment'') with respect to Defendants

[[Page 77104]]

Hachette Book Group, Inc. (``Hachette''), HarperCollins Publishers 
L.L.C. (``HarperCollins''), and Simon & Schuster, Inc. (``Simon & 
Schuster''). That Original Judgment settled this suit as to those three 
defendants. Following a thorough Tunney Act review process, the Court 
granted the United States' Motion for Entry of the Original Judgment. 
(Docket No. 119).
    Penguin has now agreed to settle on substantially the same terms as 
those contained in the Original Judgment. A proposed Final Judgment 
with respect to Penguin (``Penguin Final Judgment'' or ``PFJ'') that 
embodies that settlement was filed today. Of course, the case against 
the remaining Defendants--Apple, Inc., Verlagsgruppe Georg von 
Holtzbrinck GmbH, and Holtzbrinck Publishers, LLC d/b/a Macmillan--will 
continue.
    The Penguin Final Judgment is described in more detail in Section 
III below. Because the language of the Penguin Final Judgment closely 
follows the language of the Original Judgment, this Competitive Impact 
Statement incorporates but does not repeat the extensive record 
relating to the Original Judgment.
    The United States and Penguin have stipulated that the Penguin 
Final Judgment may be entered after compliance with the APPA, unless 
the United States withdraws its consent. Entry of the Penguin Final 
Judgment would terminate this action as to Penguin, except to the 
extent that Penguin has stipulated that it will cooperate in the United 
States' ongoing prosecution of the remaining Defendants, and that this 
Court would retain jurisdiction to construe, modify, and enforce the 
Penguin Final Judgment and to punish violations thereof.

II. Brief Summary of the Events Giving Rise To the Alleged Violation of 
the Antitrust Laws

    As described in detail in the United States' Complaint (Docket No. 
1), and the Competitive Impact Statement relating to the Original 
Judgment (``Original CIS,'' Docket No. 5), Publisher Defendants desired 
to raise retail prices for e-books. (Compl. ] 3.) They were primarily 
upset by Amazon.com, Inc.'s (``Amazon's'') pricing of newly released 
and bestselling e-books at $9.99 or less. (Compl. ]] 32-34.) Publisher 
Defendants feared that Amazon would resist any unilateral attempt to 
force an increase in e-book prices and that, even if an individual 
Publisher Defendant succeeded in such an attempt, that Publisher 
Defendant would lose sales to any competitors that had not forced the 
price of their books to supracompetitive levels. (Compl. ]] 35-36, 46.) 
They met privately to discuss ways to collectively solve ``the $9.99 
problem.'' (Compl. ]] 39-45.) Ultimately, Publisher Defendants agreed 
to act collectively to raise retail e-book prices. (Compl. ]] 47-50.)
    Apple's entry into the e-book business provided a perfect 
opportunity to coordinate the Publisher Defendants' collective action 
to raise e-book prices. (Compl. ] 51.) At the suggestion of two 
Publisher Defendants, Apple began to consider selling e-books under an 
``agency model,'' whereby the publishers would set the prices consumers 
ultimately paid for e-books and Apple would take a 30 percent 
commission as the selling agent. (Compl. ]] 52-54, 63.) Apple 
recognized that, under this scheme, ``the customer'' would ``pay[] a 
little more,'' but that Apple would realize margins far in excess of 
what other retailers then averaged on their sales of newly-released and 
bestselling e-books. (Compl. ] 56.) To achieve this goal, Apple first 
expressly proposed to each Publisher Defendant that it adopt an agency 
pricing model with every outlet that would compete with Apple for 
retail e-book sales, Compl. ] 58, and later replaced that express 
requirement with a unique most favored nation (``MFN'') pricing 
provision that effectively enforced the Publisher Defendants' 
commitment to impose the agency pricing model on all other retailers. 
(Compl. ]] 65-66.) This MFN protected Apple from price competition from 
other retailers, guaranteeing that its 30 percent margin would not be 
disturbed. (Compl. ] 65.) Apple kept each Publisher Defendant informed 
about the status of its negotiations with other Publisher Defendants. 
(Compl. ] 61.) In January 2010, Apple sent to each Publisher Defendant 
substantively identical term sheets that Apple told them were devised 
after ``talking to all the other publishers.'' (Compl. ]] 62-64.) Those 
term sheets formed the basis of the nearly identical agency agreements 
signed by each Publisher Defendant (``Apple Agency Agreements''). The 
purpose of these agreements was to raise and stabilize e-book prices. 
(Compl. ] 66.) Apple CEO Steve Jobs explained to one Publisher 
Defendant that the Apple Agency Agreements provided a path for the 
Publisher Defendants away from $9.99 and to higher retail e-book 
prices. (Compl. ] 71.) He urged the Publisher Defendants to ``[t]hrow 
in with Apple and see if we can all make a go of this to create a real 
mainstream e-books market at $12.99 and $14.99.'' Id. Apple and the 
Publisher Defendants adopted these price points in all of the Apple 
Agency Agreements, which all were signed within a three-day span in 
January 2010. (Compl. ]] 74-75.) As a result of Defendants' illegal 
agreement, consumers have paid higher prices for e-books than they 
would have paid in a market free of collusion. (Compl. ]] 90-93.)

III. Explanation of the Penguin Final Judgment

    The language and relief contained in the Penguin Final Judgment is 
largely identical to the terms included in the Original Judgment. 
Below, we describe, in abbreviated form, the purpose of each provision 
of the Penguin Final Judgment. Penguin's decision to join the other 
settling Publisher Defendants in agreeing to the settlement terms will 
provide prompt, certain, and effective remedies that will continue the 
effort to restore competition to the marketplace. Settlement likely 
will lead to lower e-book prices for many Penguin titles; prices for 
titles offered by HarperCollins, Hachette, and Simon & Schuster fell 
soon after those publishers entered into new contracts as a result of 
the Original Judgment.\2\ The requirements and prohibitions included in 
the Penguin Final Judgment will eliminate Penguin's illegal conduct, 
prevent recurrence of the same or similar conduct, and establish a 
robust antitrust compliance program.
---------------------------------------------------------------------------

    \2\ See, e.g., Scott Nichols, HarperCollins Offering Discounted 
eBooks After Price Fixing Settlement, TechRadar (Sept. 12, 2012), 
https://www.techradar.com/news/portable-devices/portable-media/harpercollins-offering-discounted-ebooks-after-price-fixing-settlement-1096467 (``Bestselling ebooks from the publisher such as 
`The Fallen Angel' and `Solo' can now be found for $9.99 on Amazon, 
Barnes and Noble, and other online retailers.''); Nate Hoffelder, 
Hachette Has Dropped Agency Pricing on eBooks, The Digital Reader 
(Dec. 4, 2012), https://www.the-digital-reader.com/2012/12/04/hachette-has-dropped-agency-pricing-on-ebooks/(``Amazon is 
discounting the ebooks by $1 to $4 from the list price, and both 
Barnes & Noble and Apple are making similar discounts''); Jeremy 
Greenfield, Simon & Schuster Has a New Deal With Amazon, Other 
Retailers, Digital Book World (Dec. 9, 2012), https://www.digitalbookworld.com/2012/looks-like-simon-schuster-has-a-new-deal-with-amazon-other-retailers/(``Ebook prices were lowered for 
Simon & Schuster titles over the weekend on sites like Amazon and 
Nook.com to levels several dollars below what they had been earlier 
in the week.'').
---------------------------------------------------------------------------

A. Required Conduct (Section IV) \3\
---------------------------------------------------------------------------

    \3\ Like the Original Judgment, Sections I-III of the Penguin 
Final Judgment contain a statement acknowledging the Court's 
jurisdiction; definitions; and a statement of the scope of the 
proposed Final Judgment's applicability. As with the settling 
defendants in the Original Judgment, the definition of Penguin has 
been drafted to ensure that the Judgment does not bind subsidiaries 
of Penguin's parent corporation that are not in the book publishing 
business. Additionally, the definition has been modified to avoid 
any doubt that if Penguin and Random House, Inc. combine, as 
recently proposed, the future entity will be subject to the decree. 
See PFJ Sec.  II.K.
---------------------------------------------------------------------------

    The Penguin Final Judgment begins by addressing those agreements 
used

[[Page 77105]]

collusively to raise and stabilize e-book prices across the industry, 
requiring that Penguin terminate its Apple Agency Agreement within 
seven days of this Court's entry. See PFJ Sec.  IV.A. Because this 
agreement included an MFN clause--ensuring that Penguin would remove 
retail pricing control from e-book retailers--Section IV.B requires 
that Penguin's contracts with retailers that restrict retailer pricing 
or include a Price MFN also be terminated. See PFJ Sec.  IV.B. Penguin 
must take the steps required under each contract to terminate beginning 
no later than ten days after the Court enters the Penguin Final 
Judgment. Section IV.B also allows any retailer with such a contract 
the option to terminate its contract with Penguin on 30 days notice. 
See also Original CIS Sec.  III.A.1.
    Further, in order to reduce the risk that Penguin may use future 
joint ventures to eliminate competition among Publisher Defendants, 
Section IV.C requires that Penguin provide advance notice to the 
Department of Justice before forming or modifying a joint venture 
between it and another publisher related to e-books. See also Original 
CIS Sec.  III.A.2. Anticipating this requirement, the Penguin Final 
Judgment notes that Penguin already has provided appropriate notice to 
the United States of its intent to form a joint venture with Random 
House, Inc.
    Finally, to ensure Penguin's compliance with the Penguin Final 
Judgment, Section IV.D requires that Penguin provide, on a quarterly 
basis, each e-book agreement it has reached with any e-book retailer on 
or after January 1, 2012.

B. Prohibited Conduct (Section V)

    In order to ensure that e-book retailers can compete on the price 
of e-books sold to consumers in the future, the Penguin Final Judgment 
also prohibits terms that prevent retail price competition. Sections 
V.A, V.B, and V.C limit Penguin's ability to enter new agreements (and 
enforce old agreements) that contain two components of the Apple Agency 
Agreements: the ban on retailer discounting, and the retail price-
matching MFNs that ensured agency terms were exported to all e-book 
retailers. Sections V.A. and V.B. prevent Penguin, for a two-year 
period, from forbidding retailers to offer price promotions or 
discounts on its e-books. Allowing e-book retailers to negotiate new 
contracts with Penguin, without permitting Penguin, for a set period, 
to prohibit retailers from discounting, will help ensure that new 
contracts will not be set under the collusive conditions that produced 
the Apple Agency Agreements. See PFJ Sec. Sec.  V.A-B. For a five-year 
period, Section V.C also stops Penguin from entering into an agreement 
with an e-book retailer that contains a Price MFN (defined as an MFN 
relating to price, revenue share or commission available to any 
retailer). This will eliminate Penguin's ability to use these MFNs to 
achieve, for a second time, the results of the collusive agreements. 
See also Original CIS Sec.  III.B.1.
    Further, Penguin may not retaliate against or punish an e-book 
retailer based on the retailer's e-book prices or its discounting or 
promotional choices. PFJ Sec.  V.D. Nor may Penguin repeat its previous 
attempt to retaliate by proxy, as this provision bars Penguin from 
encouraging another company to retaliate against an e-book retailer on 
its behalf. However, the anti-retaliation provision does not prohibit 
Penguin from unilaterally entering into and enforcing agency agreements 
with e-book retailers after the two-year proscription, required in 
Sections V.A and V.B, has expired. See also Original CIS Sec.  III.B.2.
    In addition to addressing terms used in the Apple Agency Agreements 
to implement the conspiracy, the Penguin Final Judgment also forbids a 
recurrence of the alleged conspiracy, and prohibits industry practices 
that facilitated it. Section V.E prohibits Penguin from agreeing with 
other Defendants or e-book publishers to raise or set e-book retail 
prices or coordinate terms relating to the licensing, distribution, or 
sale of e-books. Section V.F likewise prohibits Penguin from directly 
or indirectly conveying confidential or competitively sensitive 
information to any other e-book publisher. Banning such communications 
is critical here, where communications among publishing competitors 
were a common practice, and led directly to the collusive agreement 
alleged in the Complaint. See also Original CIS Sec.  III.B.3.

C. Permitted Conduct (Section VI)

    The Penguin Final Judgment also specifically carves out some 
conduct--which normally is permitted under the antitrust laws--that 
Penguin may unilaterally pursue. Section VI.A of the Penguin Final 
Judgment allows Penguin to compensate e-book retailers for services 
that they provide to publishers or consumers and help promote or sell 
more e-books. Section VI.B permits Penguin to negotiate a commitment 
from an e-book retailer that a retailer's aggregate expenditure on 
discounts and promotions of Penguin's e-books will not exceed the 
retailer's aggregate commission under an agency agreement in which 
Penguin sets the e-book price and the retailer is compensated through a 
commission. These provisions allow Penguin to prevent a retailer 
selling its entire catalogue at a sustained loss, while still 
permitting retailers to offer discounts under Sections V.A and V.B. 
Absent the collusion here, the antitrust laws would normally permit a 
publisher unilaterally to negotiate for such protections. See also 
Original CIS Sec.  III.C.

D. Antitrust Compliance (Section VII)

    As outlined in Section VII, Penguin also must designate an 
Antitrust Compliance Officer, who is required to distribute copies of 
the Penguin Final Judgment; ensure training related to the Penguin 
Final Judgment and the antitrust laws; certify compliance with the 
Penguin Final Judgment; and conduct an annual antitrust compliance 
audit. This compliance program is necessary considering the extensive 
communication among competitors' CEOs that facilitated Defendants' 
agreement. See also Original CIS Sec.  III.D.

IV. Alternatives To the Penguin Final Judgment

    The United States considered, as an alternative to the Penguin 
Final Judgment, a full trial on the merits against Penguin. The United 
States believes that the relief contained in the Penguin Final Judgment 
will more quickly restore retail price competition to consumers.

V. Remedies Available To Private Litigants

    Section 4 of the Clayton Act, 15 U.S.C. 15, provides that any 
person who has been injured as a result of conduct prohibited by the 
antitrust laws may bring suit in federal court to recover three times 
the damages the person has suffered, as well as costs and reasonable 
attorneys' fees. Entry of the Penguin Final Judgment will neither 
impair nor assist the bringing of any private antitrust damage action. 
Under the provisions of Section 5(a) of the Clayton Act, 15 U.S.C. 
16(a), the Penguin Final Judgment has no prima facie effect in any 
subsequent private lawsuit that may be brought against the Defendants.

[[Page 77106]]

VI. Procedures Available for Modification of the Penguin Final Judgment

    The United States and Penguin have stipulated that the Penguin 
Final Judgment may be entered by this Court after compliance with the 
provisions of the APPA, provided that the United States has not 
withdrawn its consent. The APPA conditions entry of the decree upon 
this Court's determination that the Penguin Final Judgment is in the 
public interest.
    The APPA provides a period of at least sixty (60) days preceding 
the effective date of the Penguin Final Judgment within which any 
person may submit to the United States written comments regarding the 
Penguin Final Judgment. Any person who wishes to comment should do so 
within sixty (60) days of publication of this Competitive Impact 
Statement in the Federal Register, or the last date of publication in a 
newspaper of the summary of this Competitive Impact Statement, 
whichever is later.
    All comments received during this period will be considered by the 
United States Department of Justice, which remains free to withdraw its 
consent to the Penguin Final Judgment at any time prior to the Court's 
entry of judgment. The comments and the responses of the United States 
will be filed with the Court and published either in the Federal 
Register or, with the Court's permission, on the Department of Justice 
Web site.\4\ Written comments should be submitted to: John Read, Chief, 
Litigation III Section, Antitrust Division, U.S. Department of Justice, 
450 5th Street, NW., Suite 4000,y Washington, DC 20530.
---------------------------------------------------------------------------

    \4\ The United States posts or links to all public materials 
regarding United States v. Apple, Inc. at: https://www.justice.gov/atr/cases/applebooks.html.
---------------------------------------------------------------------------

    The Penguin Final Judgment provides that the Court retains 
jurisdiction over this action, and the parties may apply to the Court 
for any order necessary or appropriate for modification, 
interpretation, or enforcement of the Final Judgment

VII. Standard of Review Under the APPA for the Penguin Final Judgment

    The Clayton Act, as amended by the APPA, requires that proposed 
consent judgments in antitrust cases brought by the United States be 
subject to a sixty-day comment period, after which the court shall 
determine whether entry of the proposed Final Judgment ``is in the 
public interest.'' 15 U.S.C. 16(e)(1). In making that determination, 
the court is directed to consider:
    (A) the competitive impact of such judgment, including termination 
of alleged violations, provisions for enforcement and modification, 
duration of relief sought, anticipated effects of alternative remedies 
actually considered, whether its terms are ambiguous, and any other 
competitive considerations bearing upon the adequacy of such judgment 
that the court deems necessary to a determination of whether the 
consent judgment is in the public interest; and
    (B) the impact of entry of such judgment upon competition in the 
relevant market or markets, upon the public generally and individuals 
alleging specific injury from the violations set forth in the complaint 
including consideration of the public benefit, if any, to be derived 
from a determination of the issues at trial.
    15 U.S.C. 16(e)(1)(A) & (B); see generally United States v. KeySpan 
Corp., 763 F. Supp. 2d 633, 637-38 (S.D.N.Y. 2011) (WHP) (discussing 
Tunney Act standards); United States v. SBC Commc'ns, Inc., 489 F. 
Supp. 2d 1 (D.D.C. 2007) (assessing standards for public interest 
determination).
    In other words, under the Tunney Act, a court considers, among 
other things, the relationship between the remedy secured and the 
specific allegations set forth in the government's complaint, whether 
the decree is sufficiently clear, whether enforcement mechanisms are 
sufficient, and whether the decree may positively harm third parties. 
See United States v. Microsoft Corp., 56 F.3d 1448, 1458-62 (DC Cir. 
1995). The court's inquiry is necessarily a limited one as the 
government is entitled to ``broad discretion to settle with the 
defendant within the reaches of the public interest.'' Id. at 1461; 
accord United States v. Alex. Brown & Sons, Inc., 963 F. Supp. 235, 238 
(S.D.N.Y. 1997) (quoting Microsoft, 56 F.3d at 1460), aff'd sub nom. 
United States v. Bleznak, 153 F.3d 16 (2d Cir. 1998); United States v. 
KeySpan, 763 F. Supp. 2d at 637 (same). With respect to the adequacy of 
the relief secured by the decree, a court may not ``engage in an 
unrestricted evaluation of what relief would best serve the public.'' 
United States v. BNS, Inc., 858 F.2d 456, 462 (9th Cir. 1988) (quoting 
United States v. Bechtel Corp., 648 F.2d 660, 666 (9th Cir. 1981)); see 
also Alex. Brown & Sons, 963 F. Supp. at 238. Instead, the court should 
grant due respect to the United States' ``prediction as to the effect 
of proposed remedies, its perception of the market structure, and its 
view of the nature of the case.'' United States v. Archer-Daniels-
Midland Co., 272 F. Supp. 2d 1, 6 (D.D.C. 2003). After all, the court 
is required to determine not whether a particular decree is the one 
that will best serve society, but whether the settlement is ``within 
the reaches of the public interest.'' Bechtel, 648 F.2d at 666 
(emphasis added) (citations omitted); accord Alex. Brown, 963 F. Supp. 
at 238.\5\
---------------------------------------------------------------------------

    \5\ Cf. BNS, 858 F.2d at 464 (holding that the court's 
``ultimate authority under the [Tunney Act] is limited to approving 
or disapproving the consent decree''); United States v. Gillette 
Co., 406 F. Supp. 713, 716 (D. Mass. 1975) (the court is constrained 
to ``look at the overall picture not hypercritically, nor with a 
microscope, but with an artist's reducing glass''). See generally 
Microsoft, 56 F.3d at 1461 (discussing whether ``the remedies 
[obtained in the decree are] so inconsonant with the allegations 
charged as to fall outside of the `reaches of the public 
interest''').
---------------------------------------------------------------------------

VIII. Determinative Documents

    There are no determinative materials or documents within the 
meaning of the APPA that were considered by the United States in 
formulating the Penguin Final Judgment.

 December 18, 2012

Respectfully submitted,

s/Mark W. Ryan.
Mark W. Ryan,
Lawrence E. Buterman,
Daniel McCuaig,
Stephanie A. Fleming,
Attorneys for the United States,
United States Department of Justice, Antitrust Division, 450 Fifth 
Street, NW., Suite 4000, Washington, DC 20530. (202) 532-4753. 
Mark.W.Ryan@usdoj.gov.

Certificate of Service

I, Stephen T. Fairchild, hereby certify that on December 18, 2012, I 
caused a copy of the United States' Competitive Impact Statement to be 
served by the Electronic Case Filing System, which included the 
individuals listed below.
For Apple:
Daniel S. Floyd,

Gibson, Dunn & Crutcher LLP, 333 S. Grand Avenue, Suite 4600, Los 
Angeles, CA 90070, (213) 229-7148, dfloyd@gibsondunn.com.For Macmillan 
and Verlagsgruppe Georg Von Holtzbrinck GMBH:

Joel M. Mitnick

Sidley Austin LLP, 787 Seventh Avenue, New York, NY 10019, (212) 839-
5300, jmitnick@sidley.com.

For Penguin U.S.A. and the Penguin Group:

Daniel F. McInnis,

Akin Gump Strauss Hauer & Feld, LLP, 1333 New Hampshire Avenue NW., 
Washington, DC 20036, (202) 887-4000, dmcinnis@akingump.com.

[[Page 77107]]

For Hachette:

Walter B. Stuart, IV,

Freshfields Bruckhaus Deringer LLP, 601 Lexington Avenue, New York, NY 
10022, (212) 277-4000, walter.stuart@freshfields.com.

For HarperCollins:

Paul Madison Eckles,

Skadden, Arps, Slate, Meagher & Flom, Four Times Square, 42nd Floor, 
New York, NY 10036, (212) 735-2578, pmeckles@skadden.com.

For Simon & Schuster:

Yehudah Lev Buchweitz,

Weil, Gotshal & Manges LLP (NYC), 767 Fifth Avenue, 25th Fl., New York, 
NY 10153, (212) 310-8000 x8256, yehudah.buchweitz@weil.com.
    Additionally, courtesy copies of this Competitive Impact Statement 
have been provided to the following:

For the State of Connecticut:

W. Joseph Nielsen,

Assistant Attorney General, Antitrust Division, Office of the Attorney 
General, 55 Elm Street, Hartford, CT 06106, (860) 808-5040, 
Joseph.Nielsen@ct.gov.

For the Private Plaintiffs:

Jeff D. Friedman,

Hagens Berman, 715 Hearst Ave., Suite 202, Berkeley, CA 94710, (510) 
725-3000, jefff@hbsslaw.com.

For the State of Texas:

Gabriel R. Gervey,

Assistant Attorney General, Antitrust Division, Office of the Attorney 
General of Texas, 300 W. 15th Street, Austin, Texas 78701, (512) 463-
1262, gabriel.gervey@oag.state.tx.us.
Stephen T. Fairchild,

Attorney for the United States, United States Department of Justice, 
Antitrust Division, 450 Fifth Street, NW., Suite 4000, Washington, DC 
20530, (202) 532-4925, stephen.fairchild@usdoj.gov.

United States District Court

United States Of America, Plaintiff,
    v.
Apple, Inc., et al., Defendants. Civil Action No. 1:12-CV-2826 (DLC) 
ECF Case

[Proposed] Final Judgment as to Defendants the Penguin Group, A 
Division of Pearson PLC, and Penguin Group (USA), Inc.

    Whereas, Plaintiff, the United States of America filed its 
Complaint on April 11, 2012, alleging that Defendants conspired to 
raise retail prices of E-books in violation of Section 1 of the Sherman 
Act, as amended, 15 U.S.C. 1, and Plaintiff and Penguin, by their 
respective attorneys, have consented to the entry of this Final 
Judgment without trial or adjudication of any issue of fact or law;
    And Whereas, this Final Judgment does not constitute any admission 
by Penguin that the law has been violated or of any issue of fact or 
law, other than that the jurisdictional facts as alleged in the 
Complaint are true;
    And Whereas, Penguin agrees to be bound by the provisions of this 
Final Judgment pending its approval by the Court;
    And Whereas, Plaintiff requires Penguin to agree to undertake 
certain actions and refrain from certain conduct for the purpose of 
remedying the loss of competition alleged in the Complaint;
    And Whereas, Penguin has represented to the United States that the 
actions and conduct restrictions can and will be undertaken and that it 
will later raise no claim of hardship or difficulty as grounds for 
asking the Court to modify any of the provisions contained below;
    Now Therefore, before any testimony is taken, without trial or 
adjudication of any issue of fact or law, and upon consent of Penguin, 
it is ordered, adjudged, and decreed:

I. Jurisdiction

    This Court has jurisdiction over the subject matter of this action 
and over Penguin. The Complaint states a claim upon which relief may be 
granted against Penguin under Section 1 of the Sherman Act, as amended, 
15 U.S.C. ' 1.

II. Definitions

    As used in this Final Judgment:
    A. ``Agency Agreement'' means an agreement between an E-book 
Publisher and an E-book Retailer under which the E-book Publisher Sells 
E-books to consumers through the E-book Retailer, which under the 
agreement acts as an agent of the E-book Publisher and is paid a 
commission in connection with the Sale of one or more of the E-book 
Publisher's E-books.
    B. ``Apple'' means Apple, Inc., a California corporation with its 
principal place of business in Cupertino, California, its successors 
and assigns, and its parents, subsidiaries, divisions, groups, 
affiliates, partnerships, and joint ventures, and their directors, 
officers, managers, agents, and employees.
    C. ``Department of Justice'' means the Antitrust Division of the 
United States Department of Justice.
    D. ``E-book'' means an electronically formatted book designed to be 
read on a computer, a handheld device, or other electronic devices 
capable of visually displaying E-books. For purposes of this Final 
Judgment, the term E-book does not include (1) an audio book, even if 
delivered and stored digitally; (2) a standalone specialized software 
application or ``app'' sold through an ``app store'' rather than 
through an e-book store (e.g., through Apple's ``App Store'' rather 
than through its ``iBookstore'' or ``iTunes'') and not designed to be 
executed or read by or through a dedicated E-book reading device; or 
(3) a media file containing an electronically formatted book for which 
most of the value to consumers is derived from audio or video content 
contained in the file that is not included in the print version of the 
book.
    E. ``E-book Publisher'' means any Person that, by virtue of a 
contract or other relationship with an E-book's author or other rights 
holder, owns or controls the necessary copyright or other authority (or 
asserts such ownership or control) over any E-book sufficient to 
distribute the E-book within the United States to E-book Retailers and 
to permit such E-book Retailers to Sell the E-book to consumers in the 
United States. Publisher Defendants are E-book Publishers. For purposes 
of this Final Judgment, E-book Retailers are not E-book Publishers.
    F. ``E-book Retailer'' means any Person that lawfully Sells (or 
seeks to lawfully Sell) E-books to consumers in the United States, or 
through which a Publisher Defendant, under an Agency Agreement, Sells 
E-books to consumers. For purposes of this Final Judgment, Publisher 
Defendants and all other Persons whose primary business is book 
publishing are not E-book Retailers.
    G. ``Hachette'' means Hachette Book Group, Inc., a Delaware 
corporation with its principal place of business in New York, New York, 
its successors and assigns, and its subsidiaries, divisions, groups, 
and partnerships, and their directors, officers, managers, agents, and 
employees.
    H. ``HarperCollins'' means HarperCollins Publishers L.L.C., a 
Delaware limited liability company with its principal place of business 
in New York, New York, its successors and assigns, and its 
subsidiaries, divisions, groups, and partnerships, and their directors, 
officers, managers, agents, and employees.
    I. ``Including'' means including, but not limited to.
    J. ``Macmillan'' means (1) Holtzbrinck Publishers, LLC d/b/a 
Macmillan, a New York limited liability company with its principal 
place of business in New York, New York; and (2) Verlagsgruppe

[[Page 77108]]

Georg von Holtzbrinck GmbH, a German corporation with its principal 
place of business in Stuttgart, Germany, their successors and assigns, 
and their parents, subsidiaries, divisions, groups, affiliates, and 
partnerships, and their directors, officers, managers, agents, and 
employees.
    K. ``Penguin'' means (1) Penguin Group (USA), Inc., a Delaware 
corporation with its principal place of business in New York, New York; 
(2) The Penguin Group, a division of U.K. corporation Pearson plc with 
its principal place of business in London, England; (3) The Penguin 
Publishing Company Ltd, a company registered in England and Wales with 
its principal place of business in London, England; and (4) Dorling 
Kindersley Holdings Limited, a company registered in England and Wales 
with its principal place of business in London, England; and each of 
their respective successors and assigns (expressly including Penguin 
Random House and any similar joint venture between Penguin and Random 
House Inc.); each of their respective subsidiaries, divisions, groups, 
partnerships; and each of their respective directors, officers, 
managers, agents, and employees. Where Section IV.A, IV.B, IV.D, or VII 
imposes an obligation on Penguin to engage in certain conduct by either 
a date certain or by a specified day after entry of this Final 
Judgment, any successor or assign whose acquisition of or combination 
or other relationship with Penguin is consummated after entry of this 
Final Judgment shall meet each such obligation within thirty days after 
consummation. The prohibitions of Section V.A of this Final Judgment 
shall expire for any successor or assign of Penguin on the dates on 
which such prohibitions would have expired for Penguin had the 
acquisition, combination, or other relationship not occurred. Where the 
Final Judgment imposes an obligation on Penguin to engage in or refrain 
from engaging in certain conduct, that obligation shall apply to 
Penguin and to any joint venture or other business arrangement 
established by Penguin and one or more Publisher Defendants.
    L. ``Penguin Random House'' means the joint venture entities, which 
will operate under the name ``Penguin Random House,'' that will be 
formed pursuant to the Contribution Agreement, dated October 29, 2012, 
by and between Pearson plc and Bertelsmann SE & Co. KGaA.
    M. ``Person'' means any natural person, corporation, company, 
partnership, joint venture, firm, association, proprietorship, agency, 
board, authority, commission, office, or other business or legal 
entity, whether private or governmental.
    N. ``Price MFN'' means a term in an agreement between an E-book 
Publisher and an E-book Retailer under which
    1. the Retail Price at which an E-book Retailer or, under an Agency 
Agreement, an E-book Publisher Sells one or more E-books to consumers 
depends in any way on the Retail Price, or discounts from the Retail 
Price, at which any other E-book Retailer or the E-book Publisher, 
under an Agency Agreement, through any other E-book Retailer Sells the 
same E-book(s) to consumers;
    2. the Wholesale Price at which the E-book Publisher Sells one or 
more E-books to that E-book Retailer for Sale to consumers depends in 
any way on the Wholesale Price at which the E-book Publisher Sells the 
same E-book(s) to any other E-book Retailer for Sale to consumers; or
    3. the revenue share or commission that E-book Retailer receives 
from the E-book Publisher in connection with the Sale of one or more E-
books to consumers depends in any way on the revenue share or 
commission that (a) any other E-book Retailer receives from the E-book 
Publisher in connection with the Sale of the same E-book(s) to 
consumers, or (b) that E-book Retailer receives from any other E-book 
Publisher in connection with the Sale of one or more of the other E-
book Publisher's E-books.
    For purposes of this Final Judgment, it will not constitute a Price 
MFN under subsection 3 of this definition if Penguin agrees, at the 
request of an E-book Retailer, to meet more favorable pricing, 
discounts, or allowances offered to the E-book Retailer by another E-
book Publisher for the period during which the other E-book Publisher 
provides that additional compensation, so long as that agreement is not 
or does not result from a pre-existing agreement that requires Penguin 
to meet all requests by the E-book Retailer for more favorable pricing 
within the terms of the agreement.
    O. ``Publisher Defendants'' means Hachette, HarperCollins, 
Macmillan, Penguin, and Simon & Schuster. Where this Final Judgment 
imposes an obligation on Publisher Defendants to engage in or refrain 
from engaging in certain conduct, that obligation shall apply to each 
Publisher Defendant individually and to any joint venture or other 
business arrangement established by any two or more Publisher 
Defendants.
    P. ``Purchase'' means a consumer's acquisition of one or more E-
books as a result of a Sale.
    Q. ``Retail Price'' means the price at which an E-book Retailer or, 
under an Agency Agreement, an E-book Publisher Sells an E-book to a 
consumer.
    R. ``Sale'' means delivery of access to a consumer to read one or 
more E-books (purchased alone, or in combination with other goods or 
services) in exchange for payment; ``Sell'' or ``Sold'' means to make 
or to have made a Sale of an E-book to a consumer.
    S. ``Simon & Schuster'' means Simon & Schuster, Inc., a New York 
corporation with its principal place of business in New York, New York, 
its successors and assigns, and its subsidiaries, divisions, groups, 
and partnerships, and their directors, officers, managers, agents, and 
employees.
    T. ``Wholesale Price'' means (1) the net amount, after any 
discounts or other adjustments (not including promotional allowances 
subject to Section 2(d) of the Robinson-Patman Act, 15 U.S.C. 13(d)), 
that an E-book Retailer pays to an E-book Publisher for an E-book that 
the E-book Retailer Sells to consumers; or (2) the Retail Price at 
which an E-book Publisher, under an Agency Agreement, Sells an E-book 
to consumers through an E-book Retailer minus the commission or other 
payment that E-book Publisher pays to the E-book Retailer in connection 
with or that is reasonably allocated to that Sale.

III. Applicability

    This Final Judgment applies to Penguin and all other Persons in 
active concert or participation with Penguin who receive actual notice 
of this Final Judgment by personal service or otherwise.

IV. Required Conduct

    A. Within seven days after entry of this Final Judgment, Penguin 
shall terminate any agreement with Apple relating to the Sale of E-
books that was executed prior to Penguin's stipulation to the entry of 
this Final Judgment.
    B. For each agreement between Penguin and an E-book Retailer other 
than Apple that (1) restricts, limits, or impedes the E-book Retailer's 
ability to set, alter, or reduce the Retail Price of any E-book or to 
offer price discounts or any other form of promotions to encourage 
consumers to Purchase one or more E-books; or (2) contains a Price MFN, 
Penguin shall notify the E-book Retailer, by January 8, 2013, that the 
E-book Retailer may terminate the agreement with thirty-days notice and 
shall, thirty days after the E-book Retailer provides such notice, 
release the E-book Retailer from the agreement. For each such agreement 
that the E-book

[[Page 77109]]

Retailer has not terminated within ten days after entry of this Final 
Judgment, Penguin shall, as soon as permitted under the agreement, take 
each step required under the agreement to cause the agreement to be 
terminated and not renewed or extended.
    C. Penguin shall notify the Department of Justice in writing at 
least sixty days in advance of the formation or material modification 
of any joint venture or other business arrangement relating to the 
Sale, development, or promotion of E-books in the United States in 
which Penguin and at least one other E-book Publisher (including 
another Publisher Defendant) are participants or partial or complete 
owners. Such notice shall describe the joint venture or other business 
arrangement, identify all E-book Publishers that are parties to it, and 
attach the most recent version or draft of the agreement, contract, or 
other document(s) formalizing the joint venture or other business 
arrangement. Within thirty days after Penguin provides notification of 
the joint venture or business arrangement, the Department of Justice 
may make a written request for additional information. If the 
Department of Justice makes such a request, Penguin shall not proceed 
with the planned formation or material modification of the joint 
venture or business arrangement until thirty days after substantially 
complying with such additional request(s) for information. The failure 
of the Department of Justice to request additional information or to 
bring an action under the antitrust laws to challenge the formation or 
material modification of the joint venture shall neither give rise to 
any inference of lawfulness nor limit in any way the right of the 
United States to investigate the formation, material modification, or 
any other aspects or activities of the joint venture or business 
arrangement and to bring actions to prevent or restrain violations of 
the antitrust laws.
    The notification requirements of this Section IV.C shall not apply 
to ordinary course business arrangements between Penguin and another E-
book Publisher (not a Publisher Defendant) that do not relate to the 
Sale of E-books to consumers, or to business arrangements the primary 
or predominant purpose or focus of which involves: (i) E-book 
Publishers co-publishing one or more specifically identified E-book 
titles or a particular author's E-books; (ii) Penguin licensing to or 
from another E-book Publisher the publishing rights to one or more 
specifically identified E-book titles or a particular author's E-books; 
(iii) Penguin providing technology services to or receiving technology 
services from another E-book Publisher (not a Publisher Defendant) or 
licensing rights in technology to or from another E-book Publisher; or 
(iv) Penguin distributing E-books published by another E-book Publisher 
(not a Publisher Defendant). The notification requirements of this 
Section IV.C shall also not apply to the formation of Penguin Random 
House, review of which is pending before the Department of Justice.
    D. Penguin shall furnish to the Department of Justice (1) by 
January 8, 2013, one complete copy of each agreement, executed, 
renewed, or extended on or after January 1, 2012, between Penguin and 
any E-book Retailer relating to the Sale of E-books, and, (2) 
thereafter, on a quarterly basis, each such agreement executed, 
renewed, or extended since Penguin's previous submission of agreements 
to the Department of Justice.

V. Prohibited Conduct

    A. For two years, Penguin shall not restrict, limit, or impede an 
E-book Retailer's ability to set, alter, or reduce the Retail Price of 
any E-book or to offer price discounts or any other form of promotions 
to encourage consumers to Purchase one or more E-books, such two-year 
period to run separately for each E-book Retailer, at Penguin's option, 
from either:
    1. the termination of an agreement between Penguin and the E-book 
Retailer that restricts, limits, or impedes the E-book Retailer's 
ability to set, alter, or reduce the Retail Price of any E-book or to 
offer price discounts or any other form of promotions to encourage 
consumers to Purchase one or more E-books; or
    2. the date on which Penguin notifies the E-book Retailer in 
writing that Penguin will not enforce any term(s) in its agreement with 
the E-book Retailer that restrict, limit, or impede the E-book Retailer 
from setting, altering, or reducing the Retail Price of one or more E-
books, or from offering price discounts or any other form of promotions 
to encourage consumers to Purchase one or more E-books.
    Penguin shall notify the Department of Justice of the option it 
selects for each E-book Retailer within seven days of making its 
selection.
    B. For two years after Penguin's stipulation to the entry of this 
Final Judgment, Penguin shall not enter into any agreement with any E-
book Retailer that restricts, limits, or impedes the E-book Retailer 
from setting, altering, or reducing the Retail Price of one or more E-
books, or from offering price discounts or any other form of promotions 
to encourage consumers to Purchase one or more E-books.
    C. Penguin shall not enter into any agreement with an E-book 
Retailer relating to the Sale of E-books that contains a Price MFN.
    D. Penguin shall not retaliate against, or urge any other E-book 
Publisher or E-book Retailer to retaliate against, an E-book Retailer 
for engaging in any activity that Penguin is prohibited by Sections 
V.A, V.B, and VI.B.2 of this Final Judgment from restricting, limiting, 
or impeding in any agreement with an E-book Retailer. After the 
expiration of prohibitions in Sections V.A and V.B of this Final 
Judgment, this Section V.D shall not prohibit Penguin from unilaterally 
entering into or enforcing any agreement with an E-book Retailer that 
restricts, limits, or impedes the E-book Retailer from setting, 
altering, or reducing the Retail Price of any of Penguin's E-books or 
from offering price discounts or any other form of promotions to 
encourage consumers to Purchase any of Penguin's E-books.
    E. Penguin shall not enter into or enforce any agreement, 
arrangement, understanding, plan, program, combination, or conspiracy 
with any E-book Publisher (including another Publisher Defendant) to 
raise, stabilize, fix, set, or coordinate the Retail Price or Wholesale 
Price of any E-book or fix, set, or coordinate any term or condition 
relating to the Sale of E-books.
    This Section V.E shall not prohibit Penguin from entering into and 
enforcing agreements relating to the distribution of another E-book 
Publisher's E-books (not including the E-books of another Publisher 
Defendant) or to the co-publication with another E-book Publisher of 
specifically identified E-book titles or a particular author's E-books, 
or from participating in output-enhancing industry standard-setting 
activities relating to E-book security or technology.
    F. Penguin (including each officer of each parent of Penguin who 
exercises direct control over Penguin's business decisions or 
strategies) shall not convey or otherwise communicate, directly or 
indirectly (including by communicating indirectly through an E-book 
Retailer with the intent that the E-book Retailer convey information 
from the communication to another E-book Publisher or knowledge that it 
is likely to do so), to any other E-book Publisher (including to an 
officer of a parent of a Publisher Defendant) any competitively 
sensitive information, including:
    1. its business plans or strategies;
    2. its past, present, or future wholesale or retail prices or 
pricing

[[Page 77110]]

strategies for books sold in any format (e.g., print books, E-books, or 
audio books);
    3. any terms in its agreement(s) with any retailer of books Sold in 
any format; or
    4. any terms in its agreement(s) with any author.
    This Section V.F shall not prohibit Penguin from communicating (a) 
in a manner and through media consistent with common and reasonable 
industry practice, the cover prices or wholesale or retail prices of 
books sold in any format to potential purchasers of those books; or (b) 
information Penguin needs to communicate in connection with (i) its 
enforcement or assignment of its intellectual property or contract 
rights, (ii) a contemplated merger, acquisition, or purchase or sale of 
assets, (iii) its distribution of another E-book Publisher's E-books, 
or (iv) a business arrangement under which E-book Publishers agree to 
co-publish, or an E-book Publisher agrees to license to another E-book 
Publisher the publishing rights to, one or more specifically identified 
E-book titles or a particular author's E-books.

VI. Permitted Conduct

    A. Nothing in this Final Judgment shall prohibit Penguin 
unilaterally from compensating a retailer, including an E-book 
Retailer, for valuable marketing or other promotional services 
rendered.
    B. Notwithstanding Sections V.A and V.B of this Final Judgment, 
Penguin may enter into Agency Agreements with E-book Retailers under 
which the aggregate dollar value of the price discounts or any other 
form of promotions to encourage consumers to Purchase one or more of 
Penguin's E-books (as opposed to advertising or promotions engaged in 
by the E-book Retailer not specifically tied or directed to Penguin's 
E-books) is restricted; provided that (1) such agreed restriction shall 
not interfere with the E-book Retailer's ability to reduce the final 
price paid by consumers to purchase Penguin's E-books by an aggregate 
amount equal to the total commissions Penguin pays to the E-book 
Retailer, over a period of at least one year, in connection with the 
Sale of Penguin's E-books to consumers; (2) Penguin shall not restrict, 
limit, or impede the E-book Retailer's use of the agreed funds to offer 
price discounts or any other form of promotions to encourage consumers 
to Purchase one or more E-books; and (3) the method of accounting for 
the E-book Retailer's promotional activity does not restrict, limit, or 
impede the E-book Retailer from engaging in any form of retail activity 
or promotion.

VII. Antitrust Compliance

    Within thirty days after entry of this Final Judgment, Penguin 
shall designate its general counsel or chief legal officer, or an 
employee reporting directly to its general counsel or chief legal 
officer, as Antitrust Compliance Officer with responsibility for 
ensuring Penguin's compliance with this Final Judgment. The Antitrust 
Compliance Officer shall be responsible for the following:
    A. Furnishing a copy of this Final Judgment, within thirty days of 
its entry, to each of Penguin's officers and directors, and to each of 
Penguin's employees engaged, in whole or in part, in the distribution 
or Sale of E-books;
    B. furnishing a copy of this Final Judgment in a timely manner to 
each officer, director, or employee who succeeds to any position 
identified in Section VII.A of this Final Judgment;
    C. ensuring that each person identified in Sections VII.A and VII.B 
of this Final Judgment receives at least four hours of training 
annually on the meaning and requirements of this Final Judgment and the 
antitrust laws, such training to be delivered by an attorney with 
relevant experience in the field of antitrust law;
    D. obtaining, within sixty days after entry of this Final Judgment 
and on each anniversary of the entry of this Final Judgment, from each 
person identified in Sections VII.A and VII.B of this Final Judgment, 
and thereafter maintaining, a certification that each such person (a) 
has read, understands, and agrees to abide by the terms of this Final 
Judgment; and (b) is not aware of any violation of this Final Judgment 
or the antitrust laws or has reported any potential violation to the 
Antitrust Compliance Officer;
    E. conducting an annual antitrust compliance audit covering each 
person identified in Sections VII.A and VII.B of this Final Judgment, 
and maintaining all records pertaining to such audits;
    F. communicating annually to Penguin's employees that they may 
disclose to the Antitrust Compliance Officer, without reprisal, 
information concerning any potential violation of this Final Judgment 
or the antitrust laws;
    G. taking appropriate action, within three business days of 
discovering or receiving credible information concerning an actual or 
potential violation of this Final Judgment, to terminate or modify 
Penguin's conduct to assure compliance with this Final Judgment; and, 
within seven days of taking such corrective actions, providing to the 
Department of Justice a description of the actual or potential 
violation of this Final Judgment and the corrective actions taken;
    H. furnishing to the Department of Justice on a quarterly basis 
electronic copies of any non-privileged communications with any Person 
containing allegations of Penguin's noncompliance with any provisions 
of this Final Judgment;
    I. maintaining, and furnishing to the Department of Justice on a 
quarterly basis, a log of all oral and written communications, 
excluding privileged or public communications, between or among (1) any 
of Penguin's officers, directors, or employees involved in the 
development of Penguin's plans or strategies relating to E-books, and 
(2) any person employed by or associated with another Publisher 
Defendant, relating, in whole or in part, to the distribution or sale 
in the United States of books sold in any format, including an 
identification (by name, employer, and job title) of the author and 
recipients of and all participants in the communication, the date, 
time, and duration of the communication, the medium of the 
communication, and a description of the subject matter of the 
communication (for a collection of communications solely concerning a 
single business arrangement that is specifically exempted from the 
reporting requirements of Section IV.C of this Final Judgment, Penguin 
may provide a summary of the communications rather than logging each 
communication individually); and
    J. providing to the Department of Justice annually, on or before 
the anniversary of the entry of this Final Judgment, a written 
statement as to the fact and manner of Penguin's compliance with 
Sections IV, V, and VII of this Final Judgment.

VIII. Compliance Inspection

    U. For purposes of determining or securing compliance with this 
Final Judgment, or of determining whether the Final Judgment should be 
modified or vacated, and subject to any legally recognized privilege, 
from time to time duly authorized representatives of the Department of 
Justice, including consultants and other persons retained by the 
Department of Justice, shall, upon written request of an authorized 
representative of the Assistant Attorney General in charge of the 
Antitrust Division, and on reasonable notice to Penguin, be permitted:
    1. Access during Penguin's office hours to inspect and copy, or at 
the option of the United States, to require Penguin to provide to the 
United States hard copy or electronic copies of all books, ledgers, 
accounts, records, data,

[[Page 77111]]

and documents in the possession, custody, or control of Penguin, 
relating to any matters contained in this Final Judgment; and
    2. to interview, either informally or on the record, Penguin's 
officers, employees, or agents, who may have their individual counsel 
present, regarding such matters. The interviews shall be subject to the 
reasonable convenience of the interviewee and without restraint or 
interference by Penguin.
    V. Upon the written request of an authorized representative of the 
Assistant Attorney General in charge of the Antitrust Division, Penguin 
shall submit written reports or respond to written interrogatories, 
under oath if requested, relating to any of the matters contained in 
this Final Judgment as may be requested. Written reports authorized 
under this paragraph may, in the sole discretion of the United States, 
require Penguin to conduct, at their cost, an independent audit or 
analysis relating to any of the matters contained in this Final 
Judgment.
    W. No information or documents obtained by the means provided in 
this Section shall be divulged by the United States to any person other 
than an authorized representative of the executive branch of the United 
States, except in the course of legal proceedings to which the United 
States is a party (including grand jury proceedings), or for the 
purpose of securing compliance with this Final Judgment, or as 
otherwise required by law.
    X. If at the time information or documents are furnished by Penguin 
to the United States, Penguin represents and identifies in writing the 
material in any such information or documents to which a claim of 
protection may be asserted under Rule 26(c)(1)(G) of the Federal Rules 
of Civil Procedure, and Penguin marks each pertinent page of such 
material, ``Subject to claim of protection under Rule 26(c)(1)(G) of 
the Federal Rules of Civil Procedure,'' then the United States shall 
give Penguin ten calendar days notice prior to divulging such material 
in any civil or administrative proceeding.

IX. Retention of Jurisdiction

    This Court retains jurisdiction to enable any party to apply to 
this Court at any time for further orders and directions as may be 
necessary or appropriate to carry out or construe this Final Judgment, 
to modify any of its provisions, to enforce compliance, and to punish 
violations of its provisions.

X. No Limitation on Government Rights

    Nothing in this Final Judgment shall limit the right of the United 
States to investigate and bring actions to prevent or restrain 
violations of the antitrust laws concerning any past, present, or 
future conduct, policy, or practice of Penguin.

XI. Expiration of Final Judgment

    Unless this Court grants an extension, this Final Judgment shall 
expire five years from the date of its entry.

XII. Public Interest Determination

    Entry of this Final Judgment is in the public interest. The parties 
have complied with the requirements of the Antitrust Procedures and 
Penalties Act, 15 U.S.C. ' 16, including making copies available to the 
public of this Final Judgment, the Competitive Impact Statement, and 
any comments thereon and the United States' responses to comments. 
Based upon the record before the Court, which includes the Competitive 
Impact Statement and any comments and response to comments filed with 
the Court, entry of this Final Judgment is in the public interest.
Date: -----------------------------------------------------------------

    Court approval subject to procedures set forth in the Antitrust 
Procedures and Penalties Act, 15 U.S.C. 16
-----------------------------------------------------------------------
United States District Judge

[FR Doc. 2012-31339 Filed 12-28-12; 8:45 am]
BILLING CODE P