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Justice Dept. to sue Apple, other publishers over e-book 'cartel'

Summary: U.S. authorities are following the Europeans' lead by paving the way to sue Apple and other big publishing names, after they were found to be 'fixing' e-book prices.

Zack Whittaker

By for Between the Lines |

Three months after European antitrust authorities announced it would investigate the 'cartel' practices of e-book publishers, including Apple and other big names in the industry, U.S. authorities have warned that it plans to sue over allegations of collusion of e-book pricing.

Apple, along with Simon & Schuster (ZDNet and Simon & Schuster are both owned by CBS), Hachette, HarperCollins, Macmillan and Penguin are in the U.S. Department of Justice's crosshairs after a European Commission investigation found anti-competitive practices.

The Wall Street Journal, speaking to people familiar with the matter, said that several of those involved held talks to settle the antitrust case before it reaches the courts.

A successful suit would result in cheaper e-books for all, in the U.S. and in Europe's 27 member states.

This comes only a day after Apple's third-generation iPad, with its e-book platform on board, was announced at a special event in San Francisco by chief executive Tim Cook.

The case centers around 'agency pricing', where Apple in this case would take a 30 percent cut of each sale, rather than the 'wholesale' method Amazon uses, which would give publishers more flexibility in their pricing, and even offer some e-books at a loss. Apple is thought to have included a clause that would prevent publishers from allowing their rival retailers to sell the same book at a discounted price.

A publishing executive told the Journal that a settlement is "being considered for pragmatic reasons", but that the parties involved are "by no means close".

The publishers had previously denied acting together to raise prices.

Apple's education event in January gave Mac users the tools to create e-books from home or work, and publish them on the iBookstore. Students were also given a new category in the iBookstore to access academic material at a greatly discounted price.

But this was met with initial controversy after it was found that Apple could restrict what authors do with their work, even if the e-book was not allowed into the iBookstore. ZDNet's Ed Bott has more on this.

Image source: Luiz Filipe Carneiro Machado/Flickr. Article source: Wall Street Journal.

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47 comments
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  • and so it began...

    Apple will now suffer the same government harrassement that microsoft endured when it was on top.
    Jean-Pierre-
    Reply Vote

    • As they should

      I am a big fan of MS [i]now[/i]. An innovative, hungry company developing excellent, world-beating software. Windows 7 is (IMO...it goes without saying) the best OS on the planet, Office is second to none, and Windows Phone is a scrappy, delightful little upstart.

      But it is because they are getting seriously challenged by Apple in the computer space by Google in the Internet. And neither of those things would have ever been possible without the antitrust actions taken against them. Live Search would have been set as the default on every Windows PC. iTunes would have been crippled to be even worse garbage than it is today, and those competitors would have been squashed. Now that they're sufficiently large, it is the right time to take the leash of MS and let them compete freely.

      Crippling these big companies gives small, innovative ones openings. Now it is Apple's turn. This will be the major roadblock [i]en route[/i] to a trillion-dollar capitalization for them, so if you own Apple stock, it's time to worry. If you don't, just enjoy the ride.
      x I'm tc
      Reply Vote

      • You are off a bit

        When was the time, when Microsoft was "big" on Internet? They tried hard to push the Internet Explorer on people, but that was just pathetic. They use(d) all sorts of anticompetitive practices to lock people in with Office and their other "suites".

        Competition is of course good.. just mentioning Microsoft is a bit off. :)
        danbi
        Reply Vote

      • So are you saying that price fixing by Apple

        is not an anticompetitive practice, danbi?
        William Farrel
        Reply Vote

      • With all due respect ...

        ... I am not sure even Microsoft could lobotomize the iTunes experience any worse than Apple already has. What a disgusting piece of software it is!
        bitcrazed
        Reply Vote

  • This is only the beginning

    Apple has these policies in Several areas, I can see this spreading to Movies, Music, and possibly Apps.
    slickjim
    Reply Vote

    • Agreed

      And what companies do is done for their immediate benefit. Not society's, even though said companies might make advertisements claiming what they do is for society... but, as with a lot of politics, a lot of marketing is built on half-truths, spin, and lies as well...
      HypnoToad72
      Reply Vote

  • great news!

    while at it I would add M$ to the lawsuit for its dominant position on PCs.
    The Linux Geek
    Reply Vote

    • Hey! Back under the bridge.

      nt
      michaellashinsky@...
      Reply Vote

  • Sue the publishers of books

    Students get royally screwed when they pay out the nose for a new textbook and then have it discontinued next term because of an "addendum" to the same book which amounts to a page or two changed, but the old book is worthless at buy back.
    http404
    Reply Vote

    • Students get royally screwed at every turn

      Plus, if the bulk of the cost is eliminated with electronic substitutes, there is no way prices for the books should be anywhere near the same.

      Since the publishing methods changed, the author should still get 100% of what they usually get, since they did the real work.

      All the differences come in on the manufacturing side - so they should be the ones hit by the new paradigm... (sorry for hinting at the larger issue...) But who said "ethics" are needed? Just blind the public in any way possible and one can sidestep anything...
      HypnoToad72
      Reply Vote

      • True on the prices

        Heck, I have seen some e-books that were priced MORE than the paperback/hardback versions, and I was like "What the hell?"

        No transportation costs, no store shelf space costs, very little bandwidth costs.... yeah, there is something wrong when an e-book is more than a dead tree version.
        Lerianis10
        Reply Vote

    • Exactly!

      Where was the Justice Department before Apple came on the scene?
      athynz
      Reply Vote

  • About Time!

    Apple isn't the little guy anymore, and as such their anti-competitive practices need to be looked at very closely. Why can I buy books from my iBooks app but not my Kindle app? As a publisher why can't I choose my own credit card processor for in-app purchases? Why can't I buy apps from Amazon and install them on my iPad? All of the policies Apple has in place to prevent these types of practices are anti-competitive and anti-consumer.

    They do not have these policies in place to protect the consumer from fraud or to ensure quality control, they are in place to milk the consumer's wallet, don't fool yourself into thinking Apple has anything but its own interests in mind.
    clcrockett
    Reply Vote

    • Wrong

      This is about e-books pricing. Has nothing to do with proprietary apps or the iPad ecosystem.

      Here, I'll quote it for you again:

      [i]"The case centers around agency pricing, where Apple in this case would take a 30 percent cut of each sale, rather than the wholesale method Amazon uses, which would give publishers more flexibility in their pricing, and even offer some e-books at a loss. Apple is thought to have included a clause that would prevent publishers from allowing their rival retailers to sell the same book at a discounted price."[/i]

      In other words, Apple need to remove their greed clause and go to e-book pricing similar to other systems like Amazon. Lots of people complained about this BS when it was first implemented and Apple didn't listen. Now they will.
      ScorpioBlack
      Reply Vote

      • Just the Beginning

        This is just the beginning, once they begin investigating Apple they'll expand the complaints.
        clcrockett
        Reply Vote

      • Our Brave Digital License World

        I can see the DOJ's point if there is a favored nations clause in the licensing agreement between Apple and the publishers.

        Still, Apple is going up against Amazon who could use profits from real book or seltzer-maker sales to subsidize their e-book license sales. They can also negotiate with publishers from a position of strength regarding the sales of paper books and being one of two big-volume retailers standing in the US.

        Nothing stops the publisher from lowering prices permanently or temporarily, a decrease which gets propagated among all its agents, but because this is all digital, every one's incentive to clear out inventory is gone. About the only incentives remaining are market share on a publisher level or trying to sell off licenses to the uninformed for titles that are about to be updated.

        Other than a business where publishers sell a block of time-constrained licenses to the e-book seller and take back unsold licenses with a "restocking" fee, I don't see how the DOJ will get the effect they want.

        Apple still doesn't like that business because Amazon uses its other sales to keep its license costs low until Apple, who is providing free content, gives up, and then Amazon gets the benefits of that "natural" monopoly. I suppose as that happens, Apple asks the DOJ to investigate "license dumping" but maybe we save everyone time and the taxpayers money by saying that at this moment, the agency model and most favored nations clauses are the more likely roads to competition.

        Amazon isn't stuck, they certainly can offer amenities, such as Amazon points redeemable for goods or services, for every e-book it sells. That would be an effective price reduction.
        DannyO_0x98
        Reply Vote

      • Citing Amazon as an example

        of ethical book pricing is laughable and totally destroys the author's credibility. The citation if the total nonissue of the iBook author license with a reference to Ed Bott's propaganda piece on the same buries his credibility six feet under in a pine box
        baggins_z
        Reply Vote

  • but I thought all the haters said Apple will fade under Android Onslaught?

    why is the DOJ even bothering as all the (anti apple) experts plus dozens of posters for years since 2008 said Apple's end was in sight, the dozens of Android manufacturers by all rules of commerce will relegate Apple iOS devices quickly to dismal market share and it will be Mac vs Pc again. Thousands of articles have screamed about Android's growing market share, soon Android tablets by dozens of manufacturers will wipe out iPad ...

    recently too analysts and writers have been pounding that Win 8 will ALSO destroy apple.

    so why does DOJ bother... ? just wait it out, apple is headed towards insignificant market share .. right?

    what the heck happened?

    so haters.. what is it? apple DOMINANT or apple headed towards irrelevance?

    lol.
    Davewrite
    Reply Vote

    • ...

      [i]why is the DOJ even bothering as all the (anti apple) experts plus dozens of posters for years since 2008 said Apple's end was in sight[/i]

      The same was said of MS... what does that have to do with anything here? It is the DOJ's job to investigate these things, just as it was with MS.
      Badgered
      Reply Vote
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