Thursday, 12 April 2012 15:08

US DoJ goes after Apple, publishers - alleges conspiracy to fix prices

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As expected, the US Department of Justice has commenced legal action against Apple and several publishers alleging conspiracy to fix prices. Some of the publishers have already settled.

The US Department of Justice (DoJ) has commenced action against Apple, Hachette, HarperCollins, Macmillan, Penguin, and Simon and Schuster, alleging that the conspired to fix the prices charged for ebooks.

Hachette, HarperCollins, and Simon and Schuster have settled with the DoJ, and will allow retailers including Amazon to set their own prices for ebooks. They will also pay millions of dollars in restitution to those who purchased ebooks at prices affected by the arrangements.

The DoJ claims that publishers were concerned about the rise in ebook sales and Amazon's discounted pricing (especially the idea that $US9.99 might become the price the public came to expect to pay for a book), and so they conspired to raise ebook prices "and otherwise limit competition in the same of e-books."

Apple also wanted to restrain price competition for ebook sales, according to the DoJ filing.

The "conspiracy" centres around the abandonment of the prevailing wholesale model (where booksellers were free to set their own retail prices, even if that meant selling below cost), and adopting instead the agency model (where publishers set retail prices and Apple simply takes a 30% cut of the revenue).

Page 2: Customers should pay "a little more."

 


"As a result, the publishers could end price competition among retailers and raise the prices consumers pay for e-books through the adoption of identical pricing tiers. This change in business model would not have occurred without the conspiracy among the Defendants," the filing stated.

"Millions of e-books that would have sold at retail for $[US]9.99 or for other low prices [by other retailers] instead sold for the prices indicated by the price schedules included in the Apple Agency Agreements - generally, $[US]12.99 or $[US]14.99."

The DoJ filing also says "Apple's entry into the e-book business provided a perfect opportunity for collective action [by the publishers] to implement the agency model and use it to raise retail e-book prices."

"Apple soon concluded, though, that competition from other retailers - especially Amazon - would prevent Apple from earning its desired 30 percent margins on e-book sales" and was therefore open to the publishers' offer of agency agreements, even though "Apple realized that, as a result of the scheme, 'the customer' would 'pay[] a little more.'"

Apple is also said to have insisted on the "most favoured nation" clause that ensured the publishers would lower the price of any ebook in the iBookstore if necessary to match that of any other retailer, while leaving Apple with its 30% cut.

The publishers actions are also alleged to have been at least in part a response to Amazon striking deals with authors for ebook editions of their work, cutting out traditional publishers.

Page 3: What the DoJ wants.

 


The DoJ alleges Apple and the publishers "have engaged in a conspiracy and agreement in unreasonable restraint of interstate trade and commerce, constituting a violation of Section 1 of the Sherman Act".

It seeks a prohibition on "the collusive setting of price tiers that can de facto fix prices", a ruling that the Apple Agency Agreements and similar agreements (apart from anything else, the inclusion of a 'most favoured nation' clause would be enough to bring an agreement under the scope of the request) are null and void, costs, and the usual "further relief as may be appropriate and as the Court may deem just and proper."

Apple has not commented on the case, Macmillan and Penguin reportedly intend to contest the allegations.

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Stephen Withers

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Stephen Withers is one of Australia¹s most experienced IT journalists, having begun his career in the days of 8-bit 'microcomputers'. He covers the gamut from gadgets to enterprise systems. In previous lives he has been an academic, a systems programmer, an IT support manager, and an online services manager. Stephen holds an honours degree in Management Sciences and a PhD in Industrial and Business Studies.

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