Macmillan Settles DOJ Case

Macmillan ceo John Sargent told the publishers' community Friday morning they company is settling the lawsuit brought by the Department of Justice: "We settled because the potential penalties became too high to risk even the possibility of an unfavorable outcome." As Sargent explains, each time another company settled with DOJ, that increased Macmillan's potential liability, to the point where the risk became untenable.

As a result of the settlement, "retailers will now be able to discount Macmillan e-books for a limited time," even beyond the limited 10 percent discounting on ebooks priced at $13.99 and above that they introduced last year. "This change will take effect quickly." In Sargent's 2012 year-end letter he had said they "completed the court-ordered mediation process with the DOJ without any progress toward settlement" and were not persuaded by the Penguin settlement to change their position. The company had settled with the EU, in part because it would "not materially affect the market there for us."

In today's statement Sargent reiterates his "old fashioned belief that you should not settle if you have done no wrong. As it turns out, that is indeed old fashioned." He explained that mounting liability the company faced became greater than its actual equity value:

"Our company is not large enough to risk a worst case judgment. In this action the government accused five publishers and Apple of conspiring to raise prices. As each publisher settled, the remaining defendants became responsible not only for their own treble damages, but also possibly for the treble damages of the settling publishers (minus what they settled for). A few weeks ago I got an estimate of the maximum possible damage figure. I cannot share the breathtaking amount with you, but it was much more than the entire equity of our company."

Additionally, as Sargent details, in originally deciding to fight the suit, they were concerned that "the settlement called for a level of e-book discounting we believed would be harmful to the industry. We felt that if only three of the big six publishers were required to discount and we stood firm, those problems might be avoided."

After Penguin settlement and that agreement covered Random House as well, "it became clear that all five of the other big six publishers would be allowing the whole agent’s commission to be used as discount." Macmillan's books "would have a pricing disadvantage for two years" if they didn't settle, and at that point, their agreeing to settle "would have no impact on the overall marketplace" because the die was already cast.

Sargent notes "I like to believe that we would win at trial. But outcomes are hard to predict with certainty, particularly in a civil case with a low burden of proof. And so we agreed to settle with no admission of guilt." In the end, he is "disappointed it ended this way. But this round will shortly be over, and it is time for us to move on to the next."

With Macmillan's settlement, that leaves Apple as the lone defendant against the government's case. In the 2012 year-end letter, Sargent had said that they had already eliminated the MFN clause from a new set of contracts and he asserted that "all the new contracts are compliant with the government's requests in their complaint."
Full Sargent letter