Apple, Publishers Face DOJ Lawsuit Over Ebook Prices

Apple’s "agency-pricing" model is at the heart of a DOJ lawsuit that alleges Apple worked with publishers, who also threatened Amazon, to keep ebook prices high.

The U.S. Department of Justice€™s Antitrust Division, true to its word, has filed an antitrust lawsuit against Apple and five of the country€™s largest publishers, accusing them of conspiring to limit competition on the pricing of ebooks.

Apple and the publishers, The Wall Street Journal reported April 11, agreed on a pricing model that essentially turned the competitors into allies. Executives from the various companies even met over dinners in private restaurant dining rooms to discuss Apple€™s proposed €œagency-pricing€ model.

€œDefendants€™ ongoing conspiracy and agreement have caused ebook consumers to pay tens of millions of dollars more for ebooks than they otherwise would have paid,€ according to the lawsuit.

Three of the publishers€”Hachette Book Group, Simon & Schuster and HarperCollins Publishers€”have already agreed to settle, a condition of which is that they end their agreement with Apple. The other two publishers involved are Penguin and Macmillan.

Central to the lawsuit is Apple€™s €œagency-pricing€ ebook pricing strategy. While, in the past, publishers charged booksellers roughly half of a book€™s cover price, giving them the freedom to discount as they saw fit, agency pricing allows the publishers to set the price. They then receive 70 percent, Apple receives 30 percent, and no publisher can sell a title for less than its competitors, all agreed. The wrench in the works was Amazon, which is known for its deep discounts.

The publishers told Amazon that they wouldn€™t sell it any books unless it agreed to the agency-pricing model, according to a March 8 Journal report.

As a result, the Journal reported April 11, €œOvernight, many national best-sellers went from $9.99 on Amazon to $12.99 and $14.99.€

U.S. Attorney General Eric Holder, in an April 11 press conference, said that the settlement reached with the three publishers resolved the department€™s concerns with them and requires them to grant retailers, such as Amazon and Barnes & Noble, €œthe freedom to reduce the prices of their ebook titles.€

For two years, they€™ll also be prohibited from constraining retailers€™ ability to offer discounts, as well as be €œprohibited from conspiring or sharing competitively sensitive information with their competitors for five years.

Holder added in a statement:

During regular, near-quarterly meetings, we allege that publishing company executives discussed confidential business and competitive matters€”including Amazon€™s ebook 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 €¦ 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.

On March 8, The Journal reported that the DOJ gave Apple and the publishers warning that the lawsuit was imminent. While the various parties reportedly began engaging in talks, the threat of a lawsuit wasn€™t motivation enough for them to be able to make a settlement.

€œBy no means are we close [to a settlement],€ one unnamed publishing executive told The Journal at the time.

A recent survey from the Pew Internet & American Life Project found Americans to be increasingly reading ebooks, thanks in part to rising sales of e-readers and tablets. While in November 2011 Pew found 17 percent of Americans had read an ebook, by February€”following strong holidays sales of tablets and e-readers€”21 percent of Americans said they€™d read an ebook.

Attorney General Holder added in his statement: €œFor the growing number of Americans who want to take advantage of this new technology, the Department of Justice is committed to ensuring that ebooks are as affordable as possible.€

The majority of writers, it went unsaid, will continue to be paid a pittance.