DoJ turning Apple to sauce over fixed ebook pricing

The U.S. government has filed an antitrust lawsuit against Apple Inc. and book publishers that conspired together to raise the price of ebooks. When Apple launched the iPad, it included a key app called iBooks that allowed people to read ebooks on their iPad. Apple’s commission for each book sold was 30 percent and the price fixing was to combat the success was having with its Kindle and ebooks priced at $9.99.

The Department of Justice Attorney General Eric Holder spoke at a press conference regarding the e-books decision.

In recent years, we have seen the rapid growth – and the many benefits – of electronic books.  E-books are transforming our daily lives, and improving how information and content is shared.  For the growing number of Americans who want to take advantage of this new technology, the Department of Justice is committed to ensuring that e-books are as affordable as possible.

As part of this commitment, the Department has reached a settlement with three of the nation’s largest book publishers – and will continue to litigate against Apple, and two additional leading publishers – for conspiring to increase the prices that consumers pay for e-books.

Earlier today, we filed a lawsuit in U.S. District Court for the Southern District of New York, against Apple and five different book publishers – Hachette, HarperCollins, Macmillan, Penguin and Simon & Schuster.   In response to our allegations, three of these publishers – Hachette, HarperCollins and Simon & Schuster – agreed to a proposed settlement.   If approved by the court, this settlement would resolve the Department’s antitrust concerns with these companies, and would require them to grant retailers – such as Amazon and Barnes & Noble – the freedom to reduce the prices of their e-book titles.   The settlement also requires the companies to terminate their anticompetitive most-favored-nation agreements with Apple and other e-books retailers.

In addition, the companies will be prohibited for two years from placing constraints on retailers’ ability to offer discounts to consumers.   They will also be prohibited from conspiring or sharing competitively sensitive information with their competitors for five years.   And each is required to implement a strong antitrust compliance program.   These steps are appropriate – and essential in ensuring a competitive marketplace.

He gets into the alleged history of this anti-competitive behavior, that makes for an interesting story.

Beginning in the summer of 2009, we allege that executives at the highest levels of the companies included in today’s lawsuit – concerned that e-book sellers had reduced prices – worked together to eliminate competition among stores selling e-books, 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.

During regular, near-quarterly meetings, we allege that publishing company executives discussed confidential business and competitive matters – including Amazon’s e-book retailing practices – as part of a conspiracy to raise, fix, and stabilize retail prices.   In addition, we allege that these publishers agreed to impose a new model which would enable them to seize pricing authority from bookstores; that they entered into agreements to pay Apple a 30 percent commission on books sold through its iBookstore; and that they promised – through contracts including most-favored-nation provisions – that no other e-book retailer would set a lower price.   Our investigation even revealed that one CEO allegedly went so far as to encourage an e-book retailer to punish another publisher for not engaging in these illegal practices.

Acting Attorney General Sharis Pozen then went into further details found in their investigation which required cooperation between state attorneys general and the European Commission.

I would just like to give you a flavor of the egregiousness of the alleged behavior, which took place at the highest levels of these publishing companies by providing you with some statements from our complaint.

We allege that CEOs of the publishers bemoaned the “wretched $9.99 price point.”   One executive said that, “the goal is less to compete with Amazon as to force it to accept a price level higher than 9.99.”   And yet another said, “we’ve always known that unless other publishers follow us, there’s no chance of success in getting Amazon to change its pricing practices.”   Our complaint also quotes Apple’s then-CEO Steve Jobs as saying, “the customer pays a little more, but that’s what you [he’s referring to the publishers here] want anyway.”

As you can see, we allege that these executives knew full well what they were doing.   That is, taking steps to make sure the prices consumers paid for e-books were higher.

Unlike a class action lawsuit where it’s just the lawyers that win, will consumers see some benefit from the results of this lawsuit?

We believe the proposed settlement involving the three publishers–Hachette, HarperCollins and Simon & Schuster–will begin to undo the harm caused by the companies’ anticompetitive conduct, and will restore price competition so that consumers can pay lower prices for their e-books.

This remedy will restore competition to this important industry and benefit consumers.

By requiring the companies to allow retailers the freedom to lower the prices of their e-book titles, it will provide for a more open and fair marketplace.

It may be too soon to tell until the litigation is concluded.

As the Attorney General mentioned, three of the companies–Apple, Macmillan and Penguin–have chosen to litigate this case.   We will pursue vigorously our claims against those companies to ensure that consumers get the full benefits of the competition they deserve.

Categories : Business, Featured
Posted by Jason Hamilton | April 11, 2012  |  No Comment

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