U.S. Department of Justice Sues Apple of Colluding with Publishers to Fix Price of eBooks

Apple Inc. is accused of conspiring with publishers to fix the prices of eBooks to be read on its iPad device.

The U.S. Department of Justice has officially filed an antitrust lawsuit against Apple Inc. and a handful of major book publishers, including Hachette, HarperCollins, Macmillan and Penguin. Photo: Daily Collegian/Flickr

A lawsuit filed in New York on Wednesday claims Apple had merged with publishers in response to Amazon’s success in selling ebooks for just under $10. It said the alleged price-fixing came as Apple prepared to launch the iPad and was guaranteed a 30% commission on each ebook sold, The Guardian reports.

The list of publishers includes Hachette SA, HarperCollins, Macmillan, Penguin and Simon & Schuster. While Hachette, HarperCollins and Simon & Schuster settled their suits on Wednesday, Apple and Macmillan decided to prove that pricing agreements between Apple and publishers improved competition in a field that had been hitherto dominated by Amazon.

Announcing the lawsuit at a press conference in Washington on Wednesday, US attorney-general Eric Holder also described the meetings, where Apple would each quarter get together with publishers to discuss “confidential competitive matters” and set the prices of their ebooks:

“Beginning in the summer of 2009, we allege that executives at the highest levels of the companies included in today’s lawsuit – concerned that ebook sellers had reduced prices – worked together to eliminate competition among stores selling ebooks, ultimately increasing prices for consumers. As a result of this alleged conspiracy, we believe that consumers paid millions of dollars more for some of the most popular titles.”

He added: “Our investigation even revealed that one CEO allegedly went so far as to encourage an ebook retailer to punish another publisher for not engaging in these illegal practices.”

The complaint, filed by the antitrust division of the US department of justice, read: “Apple facilitated the publisher defendants’ collective effort to end retail price competition by coordinating their transition to an agency model across all retailers.”

With Apple’s iBookstore, ebook authors and sellers must hand over a 30% cut of each sale. Under this system, known as the “agency model”, publishers set the prices, giving Apple and the publishers an incentive to charge more.

The lawsuit reads: “As a result of discussions with the publisher defendants, Apple learned that the publisher defendants shared a common objective with Apple to limit ebook retail price competition, and that the publisher defendants also desired to have popular ebook retail prices stabilise at levels significantly higher than $9.99.”

“Together, Apple and the publisher defendants reached an agreement whereby retail price competition would cease (which all the conspirators desired), retail ebook prices would increase significantly (which the publisher defendants desired), and Apple would be guaranteed a 30% ‘commission’ on each ebook it sold (which Apple desired).”

John Sarget, the chief executive officer of MacMillan, said in a letter to authors, illustrators and agents that the company has not settled because it is “hard to settle a lawsuit when you know you have done no wrong.” He added: “Macmillan did not act illegally. Macmillan did not collude.”

John Makinson, CEO of Penguin, wrote in a statement: “A responsible company does not choose a path of litigation with US government agencies without carefully weighing the implications of that course of action.”

According to Makinson, Penguin chose not to settle for two reasons: “The first is that we have done nothing wrong. The decisions that we took, many them of them costly and difficult, were taken by Penguin alone.”

The second reason, he said, is that “the agency model is the one that offers consumers the prospect of an open and competitive market for ebooks.”

 

A lawsuit filed in New York on Wednesday claims Apple had merged with publishers in response to Amazon’s success in selling ebooks for just under $10. It said the alleged price-fixing came as Apple prepared to launch the iPad and was guaranteed a 30% commission on each ebook sold,

“Together, Apple and the publisher defendants reached an agreement whereby retail price competition would cease (which all the conspirators desired), retail ebook prices would increase significantly (which the publisher defendants desired), and Apple would be guaranteed a 30% ‘commission’ on each ebook it sold (which Apple desired).”

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