DoJ sues Apple, publishers in e-book price fixing antitrust suit

Summary:The DoJ is suing Apple and five major e-book publishers as it begins an antitrust investigation into the alleged collusion of e-book price fixing.

The U.S. Department of Justice is suing Apple and five major international publishers for allegedly conspiring to fix --- and subsequently increasing --- the price of e-books in a bid to push Amazon and other e-book sellers.

Bloomberg said an antitrust suit has been filed in a New York district court. Attorney General Eric Holder confirmed the news a short while ago in a speech in Washington D.C., and outlined how the publishers would settle, but not without a catch.

Holder outlined how the publishers would be limited from practicing certain business conditions as per their individual settlements:

"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."

Macmillan, Penguin, Lagardere’s Hachette Livre, News Corp.-owned HarperCollins, and CBS-owned Simon & Schuster (ZDNet is also owned by CBS) are also being sued for their involvement with Apple’s e-book “cartel”.

Simon & Schuster, Hachette, and HarperCollins settled their suits with the Justice Dept. today, two sources confirmed. But Apple and Macmillan reportedly refused to engage with the U.S. authorities and deny the allegations made. Penguin is also willing to take the matter to court.

Macmillan's chief executive John Sargent defended the move to not settle, confirming that the company had been in talks with the Justice Dept. "for months":

"It is always better if possible to settle these matters before a case is brought. The costs of continuing—in time, distraction, and expense— are truly daunting."

"But the terms the DOJ demanded were too onerous. After careful consideration, we came to the conclusion that the terms could have allowed Amazon to recover the monopoly position it had been building before our switch to the agency model. We also felt the settlement the DOJ wanted to impose would have a very negative and long term impact on those who sell books for a living, from the largest chain stores to the smallest independents."

He added:

"The government’s charge is that Macmillan’s CEO colluded with other CEO’s in changing to the agency model. I am Macmillan’s CEO and I made the decision to move Macmillan to the agency model."

A spokesperson for Apple did not comment, and the other publishers were not available at the time of writing.

The case revolves around the 'agency' model, which Apple uses in its iBookstore offerings, which e-book authors and sellers must hand over in this case a 30 percent  cut of each sale. It allows publishers to set the prices, rather than the vendors.

Amazon's ‘wholesale’ pricing model which gives e-book authors and sellers greater flexibility to price what they like for their work --- even at a loss.

The Justice Dept. is investigating how Apple changed the way publishers charged for e-books on the iBookstore.

The 'agency' model started in 2010 after publishers wanted Amazon to increase the prices of e-books on its online store. Amazon said that anything above $9.99 was "too high", but gave in after many books were pulled from its retail site.

From the filing:

"As a result of discussions with the Publisher Defendants, Apple learned that the Publisher Defendants shared a common objective with Apple to limit e-book retail price competition, and that the PublisherDefendants also desired to have popular e-book retail prices stabilize 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 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)."

The U.S. investigation began after UK competition authorities raided the publishers in April. The UK’s Office for Fair Trading closed its investigation and handed it to the European Commission.

Companies which break European antitrust and competition law can face fines of up to 10 percent of their global annual turnover.

The Commission was willing to settle with companies which wanted to, but the EU Competition Commissioner Joaquin Almunia warned earlier this month that the companies involved “know very well” under which conditions the European authorities were willing to settle.

“If our conditions cannot be met in a satisfactory way, we will continue our investigation,” he said, speaking to reporters.

Image credit: David Carnoy/CNET.

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Topics: Security, Apple, Hardware, Mobility

About

Zack Whittaker writes for ZDNet, CNET, and CBS News. He is based in New York City.

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