U.S. DOJ warns Apple, publishers; threatens to sue, alleging collusion over e-book pricing

“The Justice Department has warned Apple Inc. and five of the biggest U.S. publishers that it plans to sue them for allegedly colluding to raise the price of electronic books, according to people familiar with the matter,” Thomas Catan And Jeffrey A. Trachtenberg report for The Wall Street Journal. “Several of the parties have held talks to settle the antitrust case and head off a potentially damaging court battle, these people said. If successful, such a settlement could have wide-ranging repercussions for the industry, potentially leading to cheaper e-books for consumers. However, not every publisher is in settlement discussions.”

Catan and Trachtenberg report, “The five publishers facing a potential suit are CBS Corp.’s Simon & Schuster Inc.; Lagardere SCA’s Hachette Book Group; Pearson PLC’s Penguin Group (USA); Macmillan, a unit of Verlagsgruppe Georg von Holtzbrinck GmbH; and HarperCollins Publishers Inc., a unit of News Corp., which also owns The Wall Street Journal.”

“The case centers on Apple’s move to change the way that publishers charged for e-books as it prepared to introduce its first iPad in early 2010,” Catan and Trachtenberg report. “As Apple prepared to introduce its first iPad, the late Steve Jobs, then its chief executive, suggested moving [from the ‘wholesale model’] to an ‘agency model,’ under which the publishers would set the price of the book and Apple would take a 30% cut. Apple also stipulated that publishers couldn’t let rival retailers sell the same book at a lower price… The Justice Department believes that Apple and the publishers acted in concert to raise prices across the industry, and is prepared to sue them for violating federal antitrust laws, the people familiar with the matter said.”

Much more in the full article here.

[Thanks to MacDailyNews Reader “Jack Frederick” for the heads up.]

Related articles:
Class-action lawsuit alleges Apple, publishers engaged in ‘price-fixing conspiracy’ to punish Amazon – January 21, 2012
U.S. Justice Department confirms antitrust probe of Apple iBookstore, publishers, e-book industry – December 7, 2011
EU investigates Apple over ‘anti-competitive’ practices in e-book market – December 6, 2011

36 Comments

  1. “according to people familiar with the matter,”

    Ah yes, the famous “people familiar”. This story seems hardly credible. How has Apple colluded if publishers set the price? How is the “agency” model illegal, it’s what publishers traditionally do. It’s Amazon’s model that was setting prices below cost, aka dumping. This is one upside-down world!

      1. an analogy: you can contract to sell your oil at your own set price at Botvinnik’s Bad Ass Refinery & Gas Station, but you cannot sell it to KenC’s Bad Ass Refinery & Gas Station across the street at a lesser price.

        1. As usual the press has it all screwed up.

          Apple required that IF you were going to sell an e-book through Apple that Apple was given the best price. Simply, if you sold the e-book through some other entity for $xx.xx then you had to sell it through Apple for $xx.xx or else not sell it through Apple. All this did was assure that customers who bought through Apple got the best price available.

          Apple did not dictate that you couldn’t sell it for less anywhere else. That is a completely different argument. The publishers had 100% freedom to sell at any price they wanted to do so through anyone else. They just had to offer that best price through Apple too.

          This is a long standing legal concept of “Best Customer”. For example the U.S. Government very, very often imposes the “Best Customer” requirement on it’s vendors and contractors. In general terms, under this concept the vendors and contractors MUST offer the U.S. Government the best terms and price they offer to anyone on the planet. With the U.S. Government constantly implementing this rule, I can’t imagine the DOJ winning anything against Apple about this.

            1. More Commie-Scum-Filth from the Maobama Regime. These people will be landslided in November!!!!! Voting is for the life or death of the US as it has always been this time.

          1. well, if it’s true that  doesn’t force (through contract) that a publisher can’t sell an item on BookStore elsewhere at a lesser price, then, no it’s not collusion. I don’t get that from how the story is written above. Thanks for your clarification.

      2. The publishers can sell elsewhere at a lower price if they sell through Apple at a lower price. Apple wasn’t willing to apply the resources to this publishing effort if the publishers weren’t willing to commit to Apple. Why do all of that work and have the publishers undercut you through another venue?

        I don’t know how this will work out from a legal standpoint. But people have been complaining about the ebook pricing deal since Apple rolled it out. Apple’s detractors widely characterized it as a price increase pushed by Apple. But the reality was that Google was reaming the publishers prior to that time and taking a much larger cut than Apple, to boot. Few people in the media appear to recall that recent history.

  2. The DOJ once again interfering with the free market and capitalism. Supply and demand brother ! Of the price point is to high people won’t buy. I love this type of PR. it drops the price of apple for a quick buy and a great sell after the stench of the BS is all gone.

    1. So why isn’t the DOJ doing something about the price gouging at the gas pump? Exxon-Mobil and other big oil companies are still posting record profits at the expense of every US citizen.

      1. No they aren’t. The US government is posting record profits at the expense of every US citizen.

        The government makes something like 10 times as much per gallon of gas as the oil companies do.

        The oil companies make $0.06 while the government makes $1.00 a gallon in taxes– and that’s not even counting all the taxes.

        Why aren’t you demanding the government stop ripping us off?

    2. Free Market: Yay +1 I agree.
      Capitalism: Yay +1 I completely agree…

      But when you get together to set prices and stipulate what those prices have to be for your competitors, uh, someone just to the “free” out the market. Not good.

      1. You’re dead wrong. Apple didn’t set the price. Apple only required that the publishers offer them as low a price as they gave to Amazon/anyone else. Now, if the publishers got together and set a particular price, that’s another thing entirely. But Apple’s agreement here is completely legit. I hope that Apple takes this to court. The Holder no-Justice department will just get slapped down again, just like they got slapped down 9-0 by the Supremes recently.

    3. I agree. Bring back slavery. At least the slaves had a
      steady job,food and a roof over their heads and they
      economically established this country. Child labor
      was great to provide a second income for the
      household. Capitalism forever!!!

  3. So remember kids: Amazon-style near-monopolies are perfectly fine, but allowing publishers to set their own prices is an antitrust violation!

    Amazon sure must have paid off some high-level officials if this report is accurate.

  4. This is going to be extremely difficult to prove. The end result of switch to the “agency model” may or may not have been higher pricing, but to imply that higher pricing was in fact the end goal of this agreement is a bit far-fetched.

    Since Amazon was the first to the finishing line with their Kindle service, they practically established some ground rules for the game, in which they dictated pricing and publishers didn’t have much choice. When Apple came around, it let publishers determine the pricing, and collected flat-rate commission on sales. To prove that there was collusion would require obtaining clear and unambiguous evidence that the price-fixing was the ultimate goal. Apple approached publishers with a certain model; not vice-versa. Apple makes little to nothing on those commissions (iTunes Store / App Store / Mac App Store / iBook Store comfortably break even, but aren’t meaningful moneymakers to Apple).

    If I were one of those “conspiracy theory” types, I’d wonder if Google (or perhaps MS) were behind this push…

      1. Good luck with that… Apple is fairly well known in political circles as one of the few companies that avoids as much as possible bribing elected representatives (or those running for office). Unfortunately, when you run the largest company on Earth, every single politician in office expects you to offer them a bribe, otherwise, they either vote against you, or instigate some inquiry or hearing on some committee which they chair…

        As I said yesterday, I’m still trying to figure out how is this legalised corruption system in America (uncontrolled, unlimited “donations” to elected officials and campaigns) ethical, right and good for the nation. What I’m trying to figure out the most is how is this bribery considered “free speech”? I know it is often said that “money speaks”, but I always thought that was an idiom in English language and didn’t have a literal meaning…

  5. This is just big government paid of by special interest intimidating Aplle.

    Reminds of the same BS they were trying to pull on behalf of Monopolist Adobe.

    Antitrust my ass. Apple saved the Publishing industry and bookstores from Amazon wiping it out.

    Hey DOJ… up yours!!!

  6. Let me get this straight.

    Apple allowed publishers to set their prices for e-books and took 30% of whatever that price was for the privilege of hosting the content, keeping it current (I received a notice from Apple that one of the books I purchased had additional content available for download), and marketing it. Apple has the same relationship with developers for every application in its app store.

    Apple is a party to this – why?

  7. What is 30% of “Free”? If they charge for their iBook then Apple gets their cut of the sale. (I believe the government does the same thing when they charge a tax.) If the publishers choose to charge the same fee as other publishers, isn’t that so they can “match” the market prices? Every market has to do this or they have to be offering something unique enough to support the higher fee. This is the way capitalism works. Would a $1.00 a cup lemon aid stand sell anything if the one across the street sold theirs for $.50 a cup? Idiots.

  8. What is it with guys names Eric and Apple. Eric Holder is an embarassment as Attorney General. There is nothing illegal about the “agency model”. Apple didn’t tell publishers what to charge or to raise or lower prices. And the stipulation not to sell to others at prices lower than those charged to Apple was to prevent future potential collusion on the part of publishers, as happened with record companies when they gave other online stores sweet pricing deals to undermine iTunes in an attempt to force concessions from Apple. Whew… long sentence.

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