Penguin pushes back against Justice Department suit

By Brendan Sasso - 04/11/12 05:54 PM ET

Publishing company Penguin Group issued a statement on Wednesday disputing the Justice Department's lawsuit alleging that they conspired with Apple and other publishers to fix the price of e-books.

John Makinson, Penguin's chairman and CEO, said his company did nothing wrong and its model for e-book pricing offers the best market for consumers.

Penguin, along with Apple and Macmillan, is expected to fight the government's antitrust lawsuit. But three other publishers — Hachette, HarperCollins and Simon & Schuster — agreed to the government's terms and will avoid litigation.

According to the Justice Department's complaint, the five publishers were unhappy that competition from Amazon was driving down the price of e-books. Amazon had set the price of all of its e-books at $9.99.

Executives from the publishing companies began meeting in the summer of 2009 in "private dining rooms of upscale Manhattan restaurants" to discuss confidential business information, according to the government's case.

As a result of those discussions, the publishers agreed to adopt a new business model, the Justice Department alleges. Under the new model, the publishers, not bookstores, would set the retail price of e-books.

When Apple launched its iBookstore along with the release of its first iPad, the publishers agreed to give Apple 30 percent of the revenue from the e-books it sold. Additionally, they gave Apple the "most-favored nation" status, which guaranteed that no other retailer could sell an e-book for less than Apple.

The agreements drove up the price of e-books by about $2 to $3 per book, costing consumers millions of dollars, according to the Justice Department.

But Makinson said the government's complaint "contains a number of material misstatements and omissions, which we look forward to having the opportunity to correct in court."

He said the "agency model," which allows the publishers to set the retail prices of books, "offers consumers the prospect of an open and competitive market for e-books."

He argued that without the new pricing scheme, Amazon would have continued to dominate the e-book market.

“A responsible company does not choose a path of litigation with US Government agencies without carefully weighing the implications of that course of action," Makinson said.

But he added that not fighting the Justice Department in court "would have been a disservice in the long term to our staff and our shareholders, but also to the writers, booklovers, retailers and agents whom we serve.”