Justice department files lawsuit against Apple, book publishers

In April 2012, the US Department of Justice (DoJ) filed an antitrust lawsuit against Apple and five major publishers. At issue is the switch to an agency pricing model for e-books that lets the publisher set prices for e-books, a change that occurred when Apple began selling e-books for the iPad in 2010. The price-fixing charges relate to the fact that all of the publishers more or less simultaneously (within a three day period in January 2010) changed their pricing model for all retailers, not just Apple, in an attempt to raise prices for digital books. At the time, the market was dominated by Amazon, which sold e-books at a discounted price ($9.99) in order to boost sales of its Kindle e-reader device.

HarperCollins, Hachette, and Simon & Schuster have reached a settlement with the DoJ, agreeing to terminate their pricing agreements with Apple and “refrain from limiting any retailer’s ability to set e-book prices for two years.” Apple and Macmillan have refused to engage in settlement talks and deny that they colluded to raise prices for e-books. Another publisher, Penguin, is also preparing to fight the charges in court. Apple and Macmillan argue that the pricing agreements actually increased competition in the e-book industry, which has continued to be dominated by Amazon and Barnes & Noble. (Apple has about a 10% share of the market.)

A separate class-action lawsuit, filed against the same defendants in 2011, alleges that the publishers forced Amazon to switch to the agency model of pricing, or risk losing access to their titles. Macmillan did pull a number of its popular books from Amazon’s website before the company finally agreed to the change. The complaint also claims that prices for e-books have risen by as much as 50% with the change to the agency model and that in spite of lower production and shipping costs, many e-books are more expensive than their hard-copy versions.

For its part, the Justice department wants a settlement that would allow Amazon.com and other retailers to return to the wholesale pricing model, where retailers set prices. It also wants to end Apple’s so-called “most-favored nation” clause, which requires publishers to provide the company with the lowest prices provided to its competitors. In effect, Apple allowed the publishers to set their own retail prices for e-books on the iPad (giving Apple a 30% cut) with the guarantee that prices would be raised for all other book retailers too.

Seventeen states and territories have entered the fray, filing their own lawsuits in the case. There are estimates that consumers may have overpaid by billions of dollars for some of the most popular books. With allegations of private publisher meetings in New York City restaurants and concerted efforts to solve “the $9.99 problem,” as well as the decision by Apple, Macmillan, and Penguin to fight the charges in court, this story is far from over.

Lesley Epperson

Lesley Epperson covers the semiconductor and electronic component industries for Hoover's. After all those chips, she often needs to engage in a less esoteric pursuit: hunting down the perfect margarita.

Read more articles by Lesley Epperson.

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