The EU said the merger doesn’t threaten competition. In a press release, the European Commission said of its investigation:

“The Commission assessed the impact of the transaction on the upstream markets for the acquisition of authors’ rights for English language books in the European Economic Area (EEA) and worldwide, and on the downstream markets for the sale of English language books to dealers in the EEA, in particular in the UK and Ireland. The Commission found that on both types of markets the new entity Penguin Random House will continue to face competition from several large and numerous small and medium sized publishers. As regards the sale of English language books, the merged entity will furthermore face a concentrated retail base, such as supermarkets for print books and large online retailers for ebooks, like Amazon. In addition, the Commission’s investigation revealed no evidence that the transaction would lead to risks of coordination among publishers in relation to the acquisition of authors’ rights and the sale of English language books to dealers.”

As I reported last month, Random House and Penguin announced their merger last October and the U.S. Department of Justice approved it in February, followed by Australia and New Zealand. Random House’s parent company Bertelsmann would own 53 percent of the combined company, and Penguin parent company Pearson would hold 47 percent. Random House Penguin’s goal is to enter emerging markets and expand its digital business.

The merger awaits approval by Canada and China.

The DOJ alleges that publishers, fearing Amazon’s practice of selling ebooks at $9.99, conspired with Apple at the launch of the iPad and iBookstore to adopt agency pricing, in which the publisher sets an ebook’s price and pays the retailer a commission. Previously, publishers had used wholesale pricing for ebooks, where the publisher sets a suggested list price and the retailer buys the ebook at a discount (usually 50 percent) and can then sell it at whatever price it wants. The DOJ says that that the alleged collusion led to higher ebook prices for consumers and harmed competition in the ebook marketplace. Publishers maintain that agency pricing created a more diverse marketplace by leveling the playing field and reducing Amazon’s power. (Here’s some background on the case.)

Penguin said in a statement:

Penguin has always maintained, and continues to maintain, that it has done nothing wrong and has no case to answer. Penguin continues to believe that the agency pricing model has encouraged competition among distributors of both ebooks and ebook readers and, in the company’s view, continues to operate in the interest of consumers and authors. But it is also in everyone’s interests that the proposed Penguin Random House company should begin life with a clean sheet of paper.

The DOJ said it is “currently reviewing the proposed joint venture announced by Penguin and Random House Inc., the largest U.S. book publisher. Should the proposed joint venture proceed to consummation, the terms of Penguin’s settlement will apply to it.” Random House was not included in the DOJ’s original lawsuit, because it adopted agency pricing over a year after after the other big-six publishers did.

According to the DOJ’s competitive impact statement (PDF), Penguin has agreed to “substantially the same terms” that the three other settling publishers — HarperCollins, Simon & Schuster and Hachette — agreed to in April: The publisher will terminate its existing agreements with ebook retailers and enter into new ones that, for two years, allow retailers to freely discount its ebooks (with a few limitations). Most-favored nation clauses (which state that no other retailer can charge a lower price) are prohibited for five years. If and when the settlement is approved by Judge Denise Cote of the New York federal court, Random House will be subject to the same terms and will also have to negotiate new retailer contracts.

Like the original settlement, the DOJ’s proposed settlement with Penguin (PDF) is subject to a 60-day public comment period. The DOJ received over 800 public comments on the original settlement, the vast majority of them opposing it. Judge Cote approved it anyway.

Since the original settlement went through, HarperCollins, Simon & Schuster and Hachette have entered new ebook contracts with Amazon and other ebook retailers. They are still setting the prices for their ebooks and paying retailers a commission, but retailers can discount the books as they wish and can sell them at a loss. The DOJ claims that “[the] 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.” (Many of the settling publishers’ ebooks have only dropped in price slightly.)

Penguin is discussing a similar settlement with the European Commission.

The DOJ notes that “of course, the case against the remaining Defendants” — Apple and Macmillan’s parent company Holtzbrinck — will continue.

Like the Department of Justice in the United States, the European Commission, which began its formal antitrust investigation last December, accused Apple and publishers of colluding to fix ebook prices. While ebook sales made up 15 percent of trade book sales in the US in 2011, and — according to this report from yesterday — 12.9 percent of UK book sales for the first six months of 2012, ebooks are still a tiny sliver of total book sales in other European countries.

The EC reports in its Official Journal (PDF) that “by jointly switching the sale of ebooks from a wholesale model to an agency model with the same key terms on a global basis, the Four Publishers and Apple engaged in a concerted practice with the object of raising retail prices of ebooks in the EEA [European Economic Area, which includes the 27 countries in the European Union plus Iceland, Norway and Liechtenstein],” breaching EEA competition rules.

The EC also calls attention to most-favored nation clauses (MFNs) in Apple’s Agency agreements: “to avoid lower revenues and margins for their ebooks on the iBookstore, the publishers had to pressure other major e-book retailers offering ebooks to their consumers in the EEA to adopt the agency model.”

The Commission notes that Apple and the settling publishers don’t agree with its assessment but have agreed to settle anyway. Macmillan’s parent company Holtzbrinck, which is settling in the EU but not in the United States, said in a statement to The Bookseller, “From the outset, the Holtzbrinck group has strongly denied all charges of collusion in relation to its ebook businesses. That said, we believe it is in the best interests of our European business to proceed towards a settlement and have agreed to this set of draft principles, ready for a period of market consultation.”

Here are the terms of the proposed agreement, which largely mirror those in the ebook settlement in the United States:

• Apple, Simon & Schuster, HarperCollins, Hachette and Macmillan will terminate their agency agreements. Penguin, which is not included in the settlement (the EC is “still investigationg [its] conduct”), also has the option to terminate its agency agreement with Apple; if it doesn’t, Apple will “terminate the agreement in line with the conditions laid down therein.”
• Other retailers, like Amazon, will also have the option to end their agency agreements with the four publishers; if they don’t, the publishers will end them according to the contract terms.
• For two years, the publishers “will not restrict, limit or impede ebook retailers’ ability to set, alter or reduce retail prices for ebooks and/or to offer discounts or promotions.”
• There is some protection for ebook prices under agency agreements, however: “The aggregate value of the price discounts or promotions offered by any retailer should not exceed the aggregate amount equal to the total commissions the publisher pays to that retailer over a 12-month period in connection with the sale of its ebooks to consumers.” In the United States, publishers have the right to negotiate such a clause with retailers. In the EU, however, it appears that the clause is a requirement (i.e., a retailer can’t say no).
• Apple and the four publishers can’t enter ebook contracts with MFN clauses for five years, and “Apple will inform any publisher with which it has an ebook agency agreement that it will not enforce a retail price MFN clause in any such agreement for a period of five years.”

Consumers have a month (starting today) to comment on the proposed settlement. They can send comments “under reference number COMP/39.847/E-BOOKS, either by e-mail (COMP-GREFFE-ANTITRUST@ec.europa.eu), by fax (+32 22950128) or by post, to the following address: European Commission Directorate-General for Competition Antitrust Registry, 1049 Bruxelles/Brussel, BELGIQUE/BELGIË.”

This has been a good week in that quest. Yesterday the European Parliament overwhelmingly voted through a directive that allows anyone to access ‘orphan works’ – cultural works for which no copyright owner can be located. And the day before saw the digital portal Europeana invite everyone, including commercially-minded startups, to freely reuse the metadata associated with its 20 million digitized cultural objects.

The two moves are very much connected. Europeana is made up of contributions from a wide spectrum of museums, galleries and archives, with their digitized content spanning from prehistory to today. But, when it comes to adding recent orphan works to that pool, these institutions currently have their hands tied.

That’s because, in Europe, it’s illegal to digitize orphan works. The law sees anything that was authored as under copyright, with all the restrictions that entails (the situation is similar in the U.S., although libraries and archives get a limited exemption there). And if it’s copyrighted, that means getting in touch with the copyright holder if you want to use it. If no-one knows who that is, then tough luck.

So, by 531 votes to 11 with 65 abstentions, the European Parliament voted on Thursday to recognize orphan works for the first time. Content will be granted that status as long as a diligent search is conducted to try identifying the author. If the author later pitches up, they can then claim compensation for its use, but public institutions would only have to pay a small amount as long as the use was non-commercial.

That doesn’t mean museums, for example, couldn’t sell postcards of an ‘orphan’ photograph (the directive covers audiovisual and printed material) – there’s a special get-out clause for that, although the revenue would have to be fed back into the search and digitization process.

There are similar initiatives underway in E.U. countries such as the U.K. but, as with most things copyright-related, the European Commission and legislators take the lead and national governments follow.

Pooling culture

So what do those public institutions do with their cultural collections? A lot of them make it available for viewing or listening through the Europeana portal. 20 million pieces of content is a hefty haul, and all of it comes with metadata.

That metadata is now free to use without restrictions, as it’s been made available under the Creative Commons CC0 Public Domain Dedication. That means it’s open to commercial use, and that, the Commission hopes, will lead to a wave of new apps and games for smartphones, tablets and the web.

Not only that, but the metadata can also now be used in linked open data projects involving, for example, both museums and the tourism sector. In short, it should allow new business models to emerge.

“We have a huge pile of cultural assets on Europeana, so that collection should be grown as much as possible (orphan works or whatever the relevant licensing is) and be exploited as much as possible, and shifting to open data lets us do that,” Ryan Heath, spokesman for digital agenda commissioner Neelie Kroes, told me.

But it’s not just the stimulation of new sectors that’s behind this drive for the opening-up of cultural data.

That’s part of it, for sure, and so is the desire to create a level playing field for businesses and institutions across the EU. To really understand the underlying motivation, though, you need to step back and think about the ‘single market’ idea as a whole.

The European Union exists because of the continent’s fractious history. It has a lot to do with keeping Europe competitive through scale but, on a fundamental level, it is there to stop member states fighting with each other. And the European project can only work if the EU’s half-billion inhabitants feel at least some sense of unity.

And one small but meaningful way to encourage unity is to digitally pool as much of Europe’s cultural history as possible and present it through a single, unified portal. As Heath put it: “We share a heritage and heritage is so important that we should all be able to access all of it for free online.”

I know this seems incredibly trivial at the moment, what with the euro crisis pushing the EU toward banking union and maybe even political – they’re no longer scared to use the word – federation. But, even if the issue of cultural metadata pales next to that kind of seismic subject matter, it’s absolutely part of the same picture.

According to a report by the Financial Times (registration required), Google offered to “make significant changes to its business practices” in order to avoid large fines and drawn out legal proceedings like what behalf Microsoft in the 1990s. The two sides are expected to announce a formal deal in the next few days.

The news comes after a lengthy investigation in which the European Commission had raised questions about four aspects of Google’s business: 1) whether Google favored its own products in search results at the expense of competitors; 2) whether it reproduced content from other websites without permission; 3) whether it used its market share to tell advertisers not to use other search ad services; 4) whether it locked advertisers into its services in a way that didn’t let them move their ad campaigns to rivals.

The FT reported that a breakthrough came after Google agreed that the EC’s proposed remedies would apply not just to computer-based searches but to mobile searches as well. The paper added, however, that regulators would likely continue a separate investigation into whether Google was committing anti-competitive behavior with its Android mobile phones and tabloid operating systems.

Neither side has provided details about how exactly the deal will address the four concerns but an EC spokesman told the New York Times, “The commission considers Google’s proposals as a good basis for further talks and has now reached a good level of understanding.”

In an emailed statement to GigaOM, Google merely said ”We continue to work cooperatively with the European Commission.”

The antitrust investigation came after Microsoft and other companies pressed regulators to address what they claimed was Google’s unfair dominance in the market. Google also faces ongoing antitrust investigations in other countries including Korea, India and Britain.

Reuters reports that Pink Floyd’s Nick Mason and Radiohead’s Ed O’Brien are among the signatories of a letter that accuses European law-makers of selling out musicians in favor of copyright collection societies.

The number and outlook of these societies, which collect and manage royalties on behalf of artists, are blamed by many for stunting the growth of digital distribution in Europe. There are more than 250 societies in various countries which has turned the licensing process into a slow, bureaucratic affair. As the New York Times reports, iTunes is the only legitimate music service available in all 27 EU countries while digital revenue accounts for only 19 percent of the music industry’s total revenue in Europe. In America, digital royalties accounted for nearly half of such revenue in 2010.

In Wednesday’s announcement, the European Commission notes that “online access to cultural content .. does not recognise borders or national restrictions” and proposes measures to create a single licensing market and give rights owners’ more power over the collection process. (Full announcement can be found here).

The musicians, however, argue that the new law will only perpetuate bad elements of the current system.

“You thus legitimise one of the most problematic forms of embezzlement adopted by some collecting societies in Europe,” their letter reads.

Their accusations partly relate to rules that allow the societies to hold on to royalties for years at a time. In the past, some copyright societies have been accused of high overhead, placing musicians’ money in bad investments or even embezzling it altogether.

(Image by Dmitriy Shironosov via Shutterstock)

In many countries, printed books and other content artefacts enjoy reduced VAT rate exemptions for cultural reasons. But digital equivalents are mostly not exempted.

This year, France moved e-books outside the country’s standard 19.6 percent VAT bracket, putting them on a footing with physical books’ seven percent rate. Luxembourg also reduced e-book tax from its 15 percent countrywide rate to just three percent.

But the European Commission has now begun investigating the countries for potentially breaching “infringing EU law”, saying:

“This situation is creating serious distortions of competition that are damaging to economic operators in the other 25 Member States since digital books can easily be purchased in a State other than the one where the consumer resides…

“Local actors in the electronic book market have complained that some of the dominant players in this market have reorganised their distribution channels to benefit from these reduced rates, which has apparently had a serious effect on the sale of books (both digital and traditional) in the other Member States in the first quarter of 2012.”

The EC’s technocratic action creates a rare anomaly in which it appears to be acting against consumers’ wish to buy books as cheaply as possibly across borders – something EC digital agenda commissioner Neelie Kroes’ agenda has specifically set out to achieve in her aim to create a single European digital content market.

And it is an issue that is more widespread than just books. Digital newspapers, for example, typically do not benefit from the special VAT reductions applied to their printed forebears, putting them at a price disadvantage with old-line products.

The EU allowed member states to reduce book VAT in 2006. This week, however, the EC said: “Downloading of digital books … is not included in this list and cannot therefore be taxed at the reduced rate.” In truth, the EU’s 2006 mandate did not specifically disallow digital book reductions, and was absent of any distinction between physical and digital at all. No wonder individual countries are deciding, for themselves, “a book is a book”, regardless of medium.

This kerfuffle may be short-term. The European Commission says it will put forward proposals by the end of 2013 for making printed and digital book rates equivalent. For now, however, individual countries that act sooner may be deemed lawbreakers.

Late on Monday, just before the expiration of a deadline imposed in May by the European Commission, news hit that Eric Schmidt had sent a letter to the EC competition chief Joaquin Almunia. In it, he is said to have responded to a number of questions about Google’s behavior in the search market — offering what is described as a “settlement offer.”

Sounds like a step forward, right?

But hang on a minute: this is complicated stuff. So let’s try parsing this for a second.

In this case we’re talking about four main areas of Google’s activity that the regulator is concerned about:

• That Google prefers to link to its own services, like Images and Maps, instead of those provided by rivals
• That it copies material from rival services for its own travel and restaurant listings
• That it tries to tie sites to exclusive advertising agreements
• That it stops advertisers from exporting campaigns to other platforms

So what is Google actually proposing to alleviate these worries? We don’t know: the details of Google’s letter have yet to go public, and the only thing that European officials have said is that they are in receipt of the letter. So, despite speculation by legal experts who think Google could be offering to hold arbitration talks with any offended parties, we are still in the dark.

And even if Google is briefing some people on what it’s putting forward, its own opinion of what it’s saying may not tally with what Almunia’s office will make of it. The Mountain View company has shown recently that it has a habit of responding within the letter of the law but not necessarily the spirit: for example with a terse response to objections over its controversial new privacy policy in February.

There are plenty of reasons to think that Google’s proposals here may be substantive.

It wants to head off threats from other areas, such as investigations into Motorola Mobility and data usage. And then there’s the threat of a fine that could run into the billions of dollars. It doesn’t seem to want war, even if it’s on a countdown to conflict.

But fixing some of these problems could cut to the heart of its business, and that may not be something it is prepared to do. And let’s remember that European antitrust fines, even large ones, don’t always work. So before we all jump on the settlement bandwagon, let’s wait to see what Google’s really offering — because it may not be what we were thinking.

The release says tying IE to to the OS “distorts competition on the merits between competing web browsers insofar as it provides Internet Explorer with an artificial distribution advantage which other web browsers are unable to match”.

If this sounds a blast from the past, you’ll forgive the commission for partying like it’s 1999. Europe’s original complaint – against bundling Windows Media Player and for monopolizing the server market – was only won for sure by the bloc under appeal in 2007, eight years after its initial investigation began. It’s that ruling’s premise on which the latest case is being brought.