Penguin Offers Changes to Settle EU E-Books Antitrust Probe

Pearson Plc’s Penguin offered to overhaul pricing models for digital books to settle a European Union antitrust probe into whether they blocked competition.

Penguin won’t “restrict, limit or impede” e-book retailers’ discounts or their ability to “set, alter or reduce retail prices for e-books” for two years, according to details of the proposed changes as published in the EU’s Official Journal today. Apple Inc., the world’s biggest technology company, and four publishers previously offered similar remedies to allay European concerns.

The EU said Penguin, together with the four publishers and Apple, “may have breached EU antitrust rules that prohibit cartels and restrictive practices by jointly switching the sale of e-books from a wholesale model to agency contracts containing the same key terms,” the Brussels-based European Commission said in a statement. The companies “may have engaged in a concerted practice with the object of raising retail prices of e-books” or blocking lower prices in Europe, it said.

The EU’s antitrust regulator is giving competitors and customers until May 19 to comment on the proposed remedies, which could then become legally binding in a settlement that would end the investigation without imposing fines or determining that the companies violated competition rules. The commission said it will conduct another such market test “if substantial changes to the commitments are subsequently made.”

Book Publisher

Penguin said that “subject to the market test currently under way, it has reached an agreement with the European Commission to settle its investigation,” according to an e-mailed statement today.

“Penguin’s position that it has done nothing wrong remains unchanged and the company continues to believe that the agency pricing model operates in the best interests of consumers and authors,” the company said in the statement. “While we disagree with some elements of the commission’s analysis, we are settling as a procedural matter to clear the decks in anticipation of our proposed merger with Random House.”

Bertelsmann SE’s Random House publishing unit agreed in October to merge with Pearson’s Penguin to create by far the largest book publisher in the U.K. and the U.S. The deal received EU backing earlier this month. The joint venture, named Penguin Random House and to be based in New York, will be 53 percent-owned by Bertelsmann, with Pearson holding the remainder, the companies said in October.

Agency Agreements

Facing EU pressure, Apple last year promised to terminate so-called agency agreements with the four companies, CBS Corp.’s Simon & Schuster, News Corp.’s HarperCollins, Verlagsgruppe Georg von Holtzbrinck GmbH’s Macmillan unit and Lagardere SCA’s Hachette Livre, and Pearson. Under Apple’s pricing strategy, the iPad maker takes a fixed percentage of e-book prices set by the publishers.

If a company breaks such commitments, the commission can impose a fine of as much as 10 percent of its annual global sales, without having to find an infringement of the antitrust rules.

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