The news comes just a couple of weeks before Apple is set to face the DOJ in court. In the trial, beginning June 3, the DOJ will argue that Apple conspired with book publishers to fix ebook prices. Apple counters that the system of  agency pricing it arranged with the publishers is the same as what it uses with all other retailers in iTunes, and that the launch of iBookstore created competition in the marketplace.

Under the proposed settlement, announced Wednesday morning, Penguin would pay $75 million to consumers represented by 33 states’ attorneys general and by Hagens Berman, the Seattle-based law firm that filed the class action suit against Apple and publishers in 2011. The settlement still has to be approved by the courts, in a hearing set to take place later this summer.

Penguin’s settlement with the consumers and states is the largest that any publisher has agreed to. HarperCollins, Hachette and Simon & Schuster settled together for a combined $69 million, while Macmillan agreed to a $20 million payout. The settlements, in most cases, result in customers receiving a credit for online book retailers — meaning the publishers will recoup at least some of what they pay out.

The settlement also clears the way for the Penguin-Random House merger to move forward in the second half of this year. Penguin’s parent company Pearson said in a statement, “In anticipation of reaching this agreement, Pearson had made a $40m provision for settlement in its 2012 accounts. An incremental charge will be expensed in Pearson’s 2013 statutory accounts as part of the accounting for the Penguin Random House joint-venture.

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.

Now that Penguin is running ebook trials with two new library distributors — Baker & Taylor and 3M — the publisher has decided it is safe to make new ebooks available for lending again, the AP reported Wednesday. Penguin has been tracking ebook checkouts at libraries to make sure they are not cutting into paid book sales, and found that “the effect of library downloads on commercial revenues has been acceptable.”

“Penguin is proud to make all of our eBooks available to library patrons,” Tim McCall, Penguin’s VP of online sales and marketing, said in a statement. “After careful examination of our pilot programs, we are ready to take the next step and offer what consumers and libraries have been asking for, thus fulfilling our mission to bring new writers to readers.”

In its library trials, Penguin allows an ebook to be lent to only one person at a time, and after a year the library has to buy a new copy of the ebook. The prices for libraries are the same as retail prices. Penguin’s library ebooks aren’t available to Kindle users, because Baker & Taylor and 3M do not yet support the format.

Other publishers also place restrictions on ebook library lending. Random House makes all of its ebooks available to libraries, but at prices as much as three times higher than the retail price. HarperCollins allows its ebooks to be checked out 26 times before the library has to buy a new copy. Hachette only makes new ebooks available to some libraries in a pilot program, and charges more than retail price. Macmillan is running a two-year trial that makes 1,200 older ebooks available to libraries. Simon & Schuster does not make its ebooks available to libraries.

In his new role, Gomez — who was the director of internet marketing at Holtzbrinck before he went to Penguin — will “work with the company’s team of accomplished editors to continue to grow the Byliner Writers Network,” according to the announcement. “He will be responsible for helping Byliner authors communicate more effectively with their readers and fans, and ensure that Byliner remains the premier source for the best stories by the best writers.”

Byliner, which was founded in 2011 by former Outside magazine editor John Tayman, publishes e-singles — works of fiction and nonfiction that are shorter than a full-length book but longer than a magazine article. (To see why I like this format, click here.) The site also hosts a large library of content published elsewhere and lets users follow their favorite writers. Byliner recently launched a subscription service for its e-singles, and it is publishing the New York Times’ ebooks.

“Our goal is to give readers the most satisfying, seamless way to discover and enjoy stories by the writers they love, and to provide Byliner writers with exceptional support and a platform that lets them grow and directly engage their fan bases,” Tayman said in a statement. “Jeff’s unique combination of publishing savvy, leadership ability, and writing background makes him a great fit for us.”

Citing two unidentified sources, Reuters said that the publishers are “set to win unconditional EU regulatory approval.”

Random House and Penguin announced their merger last October, and the U.S. Department of Justice approved it quickly, 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. Penguin Random House would be the largest book publisher in the world, and the merger is designed to help the companies tackle emerging markets and invest in new digital models.

Reuters notes that “the spokesman for competition policy at the European Commission, Antoine Colombani, declined to comment. The EU competition authority has set an April 5 deadline for its decision.”

According to a study by Portent, an internet marketing firm, Google is steadily decreasing the number of manipulative links it will tolerate before it downgrades a site. When Google first introduced Penguin, the algorithm would permit 80 percent of a site’s incoming links to be spammy before it took action; that number then dropped to 65 percent and then 50 percent by the end of 2012 (which is end range of the study).

To come up with the findings, Portent examined thousands of incoming links for 50 major websites, and the effect those links had on sites’ prominence in search listings.

If the findings are correct, the upshot is that companies will have to be even more cautious about search engine optimization (SEO) tactics that rely on external links. These links are one signal that Google uses to decide if a site is popular, which has led some companies to acquire non-organic links through trade, purchase or other means. In one famous example, JC Penney used SEO tricks to appear as the top search listing for a wide range of terms, including “bedding” and “area rugs” before Google took action.

In some cases, it may be unfair for a site to be punished for outside links — particularly, if they have control over the sites that are linking to them. To prevent this, Google offers a “disavow” tool that sites can use to indicate that they don’t want particular links to considered as part of their search score.

According to a new court filing, Apple is demanding more access to Amazon’s top ebook executives — Russ Grandinetti and David Naggar, who both have the title VP of Kindle content — because the executives have said they “will likely testify at trial on the government’s behalf.” Meanwhile, a filing by Amazon said the company sought legal advice in early 2010 in response to what it perceived as the “the existence of an illegal (possibly criminal) price-fixing conspiracy by the five publishers and one or more retailers.”

A trial in the case is possible because Apple, unlike the five publishers that agreed to settle with the Justice Department, continues to hold out. The DOJ accuses it of acting as the hub of an illegal price-fixing scheme in early 2010. The alleged scheme involved Apple offering its new tablet reading device, the iPad, as a way for publishers to introduce agency pricing and shut out Amazon unless the latter agreed to the new prices.

The latest court filings, which came to light last week, are part of a procedural dispute in which Apple insisted it had a right to obtain more testimony and documents from Amazon executives. Amazon, in response, invoked a shield known as attorney-client privilege, which allows parties to withhold information that was obtained while seeking legal advice. Last week, U.S. District Judge Denise Cote sided with Amazon in the dispute and ruled that the information was privileged.

Court filings also reveal that the dispute in question turns on two meetings between senior Amazon executives in early January 2011; one of the meetings took place at a “boathouse” at the Seattle residence of Amazon CEO Jeff Bezos.

The Amazon executives claim the reason for those meetings was to get legal advice “to avoid the very liability that the publisher Defendants and Apple are facing now.” Apple unsuccessfully argued that the meetings shouldn’t be privileged because Amazon was actually plotting business strategy and that it is now using the presence of its lawyers as a pretext to hold back information. Apple also claims its legal discovery of Amazon has already “exposed a glaring hole in the government’s case.”

A big part of the underlying case turns on “most favored nation” clauses and the publishers’ decision to impose so-called “agency pricing,” which saw retailers like Amazon and Apple take a commission from a price set by the publishers. The agency system, which publishers say was necessary to stop Amazon selling their books at a loss, was modified due to Department of Justice settlements with the publishers. Publishers can still set the prices for their ebooks, but most favored nation clauses are forbidden and retailers have broad discounting powers for ebooks.

Judge Cote, in her order denying Apple’s challenge to Amazon’s attorney-client privilege, also ordered executives from publishing house Penguin to participate in the proceedings. You can read Apple’s earlier letter to Judge Cote below.

This post was updated at 12:30 p.m. ET to clarify that a modified form of agency pricing, as described above, is still in effect.

Apple Letter Re Amazon Discovery by

(Image by Getty Images / Spencer Platt)

• As previously reported, Financial Times digital subscriptions overtook print subscriptions for the first time in 2012. The FT now has “almost 316,000″ digital subscribers, compared to about 286,000 print subs, and “mobile devices now account for 30% of FT.com traffic and 15% of new subscriptions.” The company said it expects advertising to remain weak, “with profits reflecting further actions to accelerate the shift from print to digital.” Pearson CEO John Fallon denied rumors that the company is selling off the FT.
• The Economist isn’t nearly as far along in the digital transition: Total print and digital circulation was 1.67 million, “of which 150,000 customers bought digital-only copies.”
• At Penguin, ebooks accounted for 17 percent of global book revenues, up from 12 percent in 2011, and “almost 30 percent” in the U.S., compared to 20 percent in 2011. Penguin’s total revenues worldwide were £1.053 billion (USD $1.59 billion), up 1 percent over the previous year. Global app sales were up by 200 percent, but the company didn’t break out app revenues.

“We have closed our investigation and took no action,” a DOJ spokeswoman confirmed.

The merger, which remains under review by other antitrust authorities including the European Commission and the Canadian Competition Bureau, would create the world’s largest publisher. According to the announcement sent by Pearson, “Pearson and Bertelsmann continue to expect the transaction to close in the second half of 2013, after all necessary approvals have been received.”

Pearson’s full announcement:

Pearson and Bertelsmann today announce that they have been notified by the U.S. Department of Justice that it has closed its investigation into the proposed merger of Penguin and Random House, without conditions.

The two companies announced their agreement to combine Penguin and Random House in October 2012. The proposed merger is currently under review by the European Commission, the Canadian Competition Bureau and various other antitrust authorities around the world. Pearson and Bertelsmann continue to expect the transaction to close in the second half of 2013, after all necessary approvals have been received.

Following completion, Bertelsmann will own 53% and Pearson 47% of Penguin Random House. It will encompass all of Random House and Penguin Group’s publishing units in the U.S., Canada, the U.K., Australia, New Zealand, India and South Africa, as well as Penguin’s operations in China and Random House’s publishers in Spain and Latin America. Pearson and Bertelsmann believe that the combined organisation, the world’s leading consumer publishing company, will have a stronger platform and greater resources to invest in rich content, new digital publishing models and high-growth emerging markets.

I got a demo of Bookish at the company’s trendy, book-filled offices in Manhattan’s Flatiron District last week, and had a chance to use the site further on Monday when it was prematurely available online for several hours as it was being tested. Overall, I think the long-delayed Bookish is off to a promising start.

Bookish has the opportunity to shape book discovery and offers publishers a chance to directly engage with readers. It also allows them to tiptoe into direct sales. I’m less intrigued by the original editorial content: I’m not sure it differentiates itself enough from other book-related content on the web to draw users to the site for the first time. Once those users make their way to the site, though, they’ll find a clean, easy-to-use design, and an algorithm that may well find them their next book — even though it’s limited to less than a quarter of the books on the site for now. Here’s my overview of the site.

 The basics: Books and authors

While only three of the big-six publishers are financially backing the site, the other three — Random House, HarperCollins and Macmillan — are making their books available through it, along with 10 other publishers including Scholastic and Houghton Mifflin. In total, that’s 1.2 million unique titles spanning 18 genres (fiction and literature, children’s, cookbooks, and so on), and 400,000 authors have profile pages. The book pages include basic information, a preview of the first chapter, related news and videos, and a roundup of any “must-read” lists that the book has appeared on (for more on those lists, see below). Each book page also includes purchase links (more on that below, too).

Algorithm-generated book recommendations

Online book discovery is a huge problem for publishers, and Bookish tackles it with a recommendation algorithm that lets users input up to four titles to find what to read next. “We’re very much a technology company,” Karen Sun, an MIT grad (and book blogger) who is heading the company’s recommendation engine, told me. “This is probably the largest venture in the book space, in terms of data.” Sun explained that while Amazon and Goodreads primarily deliver book recommendations based on “collaborative filtering” — namely, a user’s purchasing or rating and reviewing history as well as those of other users — Bookish doesn’t have that user or purchase data yet. Instead, it relies on “deep, introspective” data: “Recommendations are based on the books and understanding of the books.” The recommendation looks at features like the authors, editors and illustrators who contributed to a book, the awards a book has won, and genre and publication date, then layers on a machine-learning component that parses user and professional reviews to try to distill themes, concepts and sentiments. Insights from the editorial team are included, too.

A user who liked The Help, for instance, receives recommendations for Hotel on the Corner of Bitter and Sweet by Jamie Ford — another women’s fiction title that features race relations — and The Guernsey Literary and Potato Peel Pie Society, a book that, like The Help, includes an aspiring female author. Type in Malcolm Gladwell’s The Tipping Point and the engine pulled up four similar “big ideas” books, but also two Spanish-language titles that were out of place even if the subject matter was similar (and you’ll see a Spanish-language edition of The Room in the recommendations for The Help above).

For now, Bookish’s recommendation engine works with only about 250,000 of the 1.2 million books on the site. Sun says the engine will improve over time, and will eventually integrate reader reviews and user actions — other books users have looked at and rated on the site.

E-commerce: Essential, but…

Each book on the site can be purchased in print or digital formats directly through Bookish or from another retailer — there are affiliate links to Amazon, Barnes & Noble, Books-A-Million, IndieBound, Apple and Kobo.

Distributor Baker & Taylor is handling all of Bookish’s direct sales. For now, ebooks purchased through Bookish are only available in EPUB and PDF formats, for reading on iPad, Android, Nook and desktop — no Kindle.

Bookish seems to want to stress that it’s not cutting into other retailers’ sales, even though a serious direct-sales outlet is something that book publishers desperately need.

“We want to be able to say you can buy [a book] here and it’s reasonably priced. We’re not trying to steal sales away from other places,” CEO Khazaei told me. Publishers probably don’t care about taking sales from Amazon, but they may not want to sour relationships with retailers like Barnes & Noble and the independent bookstores represented by IndieBound.

Bookish’s print and ebook prices appeared to match those offered by Amazon, though I wasn’t able to test many titles. Khazaei told me that “I don’t know how the pricing decisions are made, really,” Khazaei said. “I assume [Baker & Taylor] is tracking [prices on other sites] but we just leave it in their hands.” While the site seems like an obvious place for publishers to run special sales on both print and digital books, that doesn’t seem to be a priority for now. Update: Khazaei stressed to me that his lack of involvement with pricing is required by the Department of Justice in order to be compliant with antitrust regulations. (The DOJ sued Hachette, Penguin and Simon & Schuster, along with Macmillan and HarperCollins, last year for allegedly colluding to set ebook prices; Hachette, Penguin and S&S all settled.)

Original editorial content along with the algorithm

Bookish has seven full-time editors who each manage different genres and update those sections daily with original book coverage. The site is also soliciting pieces from well-known authors and other public figures. In one ongoing feature, for instance, editors from The Onion review books. Other editorial features at launch include a column by Eat, Pray, Love author Elizabeth Gilbert and an interview between bestselling thriller authors Michael Connelly and Michael Kortya. In addition to that content, the site’s editors are curating columns and lists of books like “The Biggest BFF Breakups in YA Books” and “Big Ideas.”

Advertising, revenue and partnerships

Bookish is collaborating with USA Today’s books website. Its original editorial content will be syndicated on USA Today’s website, and the technology that Bookish uses to let readers view the first chapter of a book and to offer book recommendations will also be included on USA Today’s site. In exchange, Bookish will feature USA Today’s book bestseller lists on bookish.com.

In addition to book sales, Bookish will get revenue from advertising. For now the site’s ad slots are taken up with books from the three launch partners, but eventually the company will expand advertising to other publishers and to companies from outside the book business. Prior to its launch two years ago, Bookish had announced an advertising and content syndication deal with AOL Huffington Post, but that’s off the drawing board for now. A company spokeswoman told me Bookish is “in discussions about continuing to work with AOL in the future.”

Not a focus: Social, self-publishing

Other publishers can sign an agreement with Bookish to add their titles to the site. (Khazaei told me Bookish doesn’t charge publishers anything to join, but they presumably have to fulfill a number of requirements to be included.) However, self-published authors can’t add their books. “The focus right now is on traditionally published titles,” Khazaei said.

Also at launch, the social features that are a key part of Goodreads’ mission are absent from Bookish. Users can’t friend or follow each other — the focus is on a reader’s individual interests. I found that refreshing: Just because you’re Facebook friends with someone doesn’t mean that he or she shares your book preferences, and I prefer the algorithm-driven approach.