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US sues Apple and book publishers for ebook price fixing

Updated Collusion alleged
Thu Apr 12 2012, 10:03

THE UNITED STATES government has sued Apple and several publishing firms for alleged ebook price fixing.

The US Department of Justice (DoJ) filed a lawsuit in US District Court for the Southern District of New York against Apple and book publishers Hachette, Harper Collins, Macmillan, Penguin and Simon & Schuster.

The complaint accused the firms of colluding to keep ebook prices high, and US Attorney General Eric Holder said that they had agreed to shut out online sales competition.

"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 stabilise retail prices," said Holder.

"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."

These are serious antitrust charges, and Holder said that the DoJ has discussed settlements with three of the firms - Hachette, Harper Collins and Simon & Schuster - and that they have agreed to a proposed settlement.

Any settlements have to be approved by the court, but if it does it would give other retailers like Amazon the chance to charge lower prices.

"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," said Holder. "The settlement also requires the companies to terminate their anticompetitive most-favored-nation agreements with Apple and other e-books retailers."

Acting Assistant Attorney General Sharis Pozen added that the firms complained about the "wretched $9.99 price point", obviously referring to Amazon.

Pozen is ready for a fight here, it seems. "Let me be clear, when companies get together and conspire to enter into agreements that eliminate price competition, it crosses the line. This kind of agreement is illegal and anticompetitive. That's when the Antitrust Division will take action, as we have done today," she added.

"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."

We have asked all of the firms involved to comment, and so far Apple has declined.

Harper Collins has provided us with the details of its settlement, and its reasons for adopting the controversial agency model.

"After Harper Collins adopted the agency model in 2010, the e-book market exploded, giving consumers more choices of devices, formats and prices that would never have existed but for the agency model," it said. Its examples include the Ibookstore, which is Apple's storefront for digital books and the Barnes & Noble Nook store.

"Prices for dedicated e-readers declined from almost $400 to under $100, and competition exploded in the device market, making the e-book reading experience less expensive," it added. "Dynamic pricing of Harper Collins' e-books, including some titles priced under $2, was introduced to maximise the sales and reach of our authors and their books

However, the path to true ebook sales satisfaction was not an easy one, and the firm said that it had faced legal challenges on a number of fronts. With this in mind it has put its hands up and taken the settlement option.

"Harper Collins faced legal challenges on five separate fronts, including the DOJ investigation which was resolved today. The e-book market has grown over the last two years from a small e-ink market, dominated by one platform, to a $1bn market with several competing platforms," it added.

"Harper Collins made a business decision to settle the DOJ investigation in order to end a potentially protracted legal battle." µ



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