DOJ Says Ebook Price Fixing Agreed at 'Highest Levels' of Apple, Publishers

NEWS ANALYSIS: The U.S. Attorney General claims that executives at the "highest levels" of Apple and ebook publishers collaborated in the use of a pricing model designed to prevent Amazon and others from discounting books and costing consumers millions in illegally inflated prices.

U.S. Attorney General Eric Holder said the government will prove it in its lawsuit against Apple and major book publishers that €œexecutives at the highest levels€ of these companies €œworked together€ to reduce competition and raise the prices of ebooks purchased by millions of consumers.

The U.S. Department of Justice filed suit in the U.S. District Court for the Southern District of New York against Apple and five book publishers alleging that they conspired to prevent Amazon from discounting electronic books.

In a Washington press conference on April 11, Holder said Apple conspired with the book publishers to set the price they wanted for books, add 30 percent for Apple€™s share and then agree not to allow any other retailer to sell books for less than that price. Named in the suit besides Apple are book publishers Hachette, HarperCollins, Macmillan, Penguin and Simon & Schuster.

€œBeginning 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,€ Holder said in his remarks at the DOJ press conference. €œAs a result of this alleged conspiracy, we believe that consumers paid millions of dollars more for some of the most popular titles.€

The pricing scheme, called the €œAgency Model,€ effectively allows the book publishers to set the prices for their products rather than allowing retailers to set prices. The practice is similar to the manner in which Apple prices iPads and iPhones by demanding that retailers sell their products at a specific price or be penalized. In its complaint, the DOJ summarizes the alleged conspiracy:

"€œTogether, Apple and the Publisher Defendants reached an agreement whereby retail price competition would cease (which all the conspirators desired), retail e-book prices would increase significantly (which the Publisher Defendants desired), and Apple would be guaranteed a 30 percent €˜commission€™ on each e-book it sold (which Apple desired).€"

What the publishers were trying to avoid was Amazon€™s selling price of $9.99 per ebook, which the publishers were afraid would erode the price of paper books and which Apple didn€™t like because it wouldn€™t make the huge profit margins to which it had become accustomed.

Wayne Rash

Wayne Rash

Wayne Rash is a freelance writer and editor with a 35 year history covering technology. He’s a frequent speaker on business, technology issues and enterprise computing. He covers Washington and...