DOJ sues Apple, publishers on e-book pricing
The US Justice Department sued Apple and five publishing firms alleging a conspiracy to raise prices and limit competition for e-books, and immediately announced a partial settlement in the case.
As the antitrust suit was unveiled, officials said three of the publishers agreed to end the scheme to force retailers such as Amazon to accept a new pricing plan that ended their ability to offer discounts for electronic books.
Hachette Book Group, HarperCollins and Simon & Schuster reached a settlement but the case will proceed against Apple and the other two — Macmillan and Penguin Group — “for conspiring to end e-book retailers’ freedom to compete on price,” the Justice Department said.
Attorney General Eric Holder said that as a result of the conspiracy, “consumers paid millions of dollars more for some of the most popular titles,” and competition was eliminated.
Sharis Pozen, head of the Justice Department’s antitrust division, said the scheme was aimed at ending a discounting effort by Amazon, which sold most e-books at $9.99 until the new pricing plan was forced on the retail giant.
The move almost instantly raised the prices consumers paid for e-books, she said.
The settlement “will begin to undo the harm caused by the companies’ anticompetitive conduct, and will restore price competition so that consumers can pay lower prices for their e-books,” she added.
The suit filed in US District Court in New York said a conspiracy dating back to 2009 involved “schemes to limit Amazon’s ability to discount e-books,” hurting consumers by pushing up prices.
Named in the suit with Apple were CBS Corp.’s Simon & Schuster; Hachette Book Group, part of France’s Lagardere; London-based Pearson’s Penguin Group; Macmillan, a unit of Verlagsgruppe Georg von Holtzbrinck; and News Corp. unit HarperCollins.
Amazon hailed the settlement and said it would mean lower prices for e-books for its Kindle reader.
“This is a big win for Kindle owners, and we look forward to being allowed to lower prices on more Kindle books,” said Amazon spokesman Drew Herdener.
Apple spokesman Tom Neumayr declined to comment.
But Macmillan chief executive John Sargent said his firm would fight the settlement because the terms “were too onerous” and would allow Amazon “to recover the monopoly position it had been building before our switch to the agency model.”
Hachette said in a statement it “reluctantly” joined the settlement but added that “we remain confident that we did not violate the antitrust laws.”
It said the new pricing plan came about because “two years ago, Amazon effectively had a monopoly on the sale of e-books and e-readers, and was selling products below cost in an effort to exclude competitors.”
The lawsuit comes amid probes on both sides of the Atlantic over the efforts to limit discounting on electronic books, which had been dominated by Amazon until Apple launched its iPad in 2010.
In Brussels, EU competition chief Joaquin Almunia said an offer to settle the probe had come from Apple and four publishers being probed.
“We are currently engaged in fruitful discussions… without prejudice to the outcome of these talks,” he said.
The US lawsuit said the publishers conspired with Apple to end the longstanding “wholesale model” in which e-books were sold to retailers, which had the power to set their own prices.
They replaced this with a so-called “agency model” where publishers would set prices charged by retailers for the e-books. Under the arrangement, Apple was guaranteed a 30 percent commission on each e-book sold.
Prior to the introduction of Apple’s iPad, online retail giant Amazon sold electronic versions of many new best sellers for $9.99.
After the agency model was adopted, the prices rose to $12.99 and higher, the suit said, and price competition among retailers was “unlawfully eliminated.”
Legal scholar Keith Hylton of the Boston University School of Law said the pricing mode is “a common practice in which the maker of a good controls the price at which a retailer will sell the good” and “is not illegal per se.”
The Consumer Electronics Association denounced the suit as meddling in the marketplace, saying it “marks another sad milestone in our government’s war on American companies.”
“Sadly, we’ve seen this before with absurd legal US government challenges to Google, Intel, Microsoft and Qualcomm — world-class American innovators,” the group said. “Each time, no real harm was found, but our government’s attacks enabled others to extract billions in fines or foolish remedies.”