Federal Judge Grants Class Action Status to E-Book Pricing Lawsuit

[CReimer]

With wholesale the publishers are not involved in the consumer's price: the publisher sells to Amazon for a fixed price and then Amazon sells it at the end consumer at whatever price it wants. Amazon selling an ebook at loss means that Amazon loses money, but the publisher's cut for that sale is not affected at all.

This is where you're wrong. If the publisher set the retail price at $15, they're expecting to make $10.50 per copy after Amazon takes it cut. But if Amazon discounts the price to $10, the publisher gets $7 after Amazon takes it cut. Amazon wasn't compensating the publisher for the missing $3.50.

Under the old rules, Amazon was allowed to build a monopoly by forcing the publisher pay for the privilege. Why? Because Amazon is "the world's largest market," which is shorthand for, "bend over and say, 'May I have another, sir?!'"

Apple comes along with a proposal to change the rule. The publishers jump at the opportunity to stop subsidizing the Amazon monopoly. More competition is a GOOD THING. Even if that meant in the short term that buyers would pay more for ebooks.

Competition from indie ebook publishers like myself will eventually force the traditional publishers to stop protecting their dead tree monopoly and discount their ebooks to $3 each. Buyers will win out in the end.

 

[samcraig]

This is where you're wrong. If the publisher set the retail price at $15, they're expecting to make $10.50 per copy after Amazon takes it cut. But if Amazon discounts the price to $10, the publisher gets $7 after Amazon takes it cut. Amazon wasn't compensating the publisher for the missing $3.50.

Under the old rules, Amazon was allowed to build a monopoly by forcing the publisher pay for the privilege. Why? Because Amazon is "the world's largest market," which is shorthand for, "bend over and say, 'May I have another, sir?!'"

Apple comes along with a proposal to change the rule. The publishers jump at the opportunity to stop subsidizing the Amazon monopoly. More competition is a GOOD THING. Even if that meant in the short term that buyers would pay more for ebooks.

Competition from indie ebook publishers like myself will eventually force the traditional publishers to stop protecting their dead tree monopoly and discount their ebooks to $3 each. Buyers will win out in the end.

You're mistaken. Even the publishers stated under testimony that with the newer model they would often make less money than under Amazon's model.

 

[CReimer]

Does Microsoft have a monopoly on computer operating systems? They have around 95% market share. There are more computers running windows today than every macOS and iOS device ever sold.

Microsoft got their knuckles rapped for installing Internet Explorer as the default web browser in Windows. Never mind that they didn't prevent users from installing their own web browser.

Prior to that antitrust case, Microsoft didn't spend a dime on Washington lobbyists to plead their case before Congress. After the antitrust case, Microsoft spends $100M+ per year on lobbyists. Since most politicians retire to become lobbyists, Washington benefited from the antitrust more than consumers.

Both Apple and Google spent little on lobbyists until the antitrust department started rumbling. Now they spend millions on lobbyists.

The message is clear: If you're in an industry that makes cash by the buckets, and you're not spreading the love around Congress, the Justice Department will come knocking to shake down your money tree.

 

[CReimer]

You're mistaken. Even the publishers stated under testimony that with the newer model they would often make less money than under Amazon's model.

Yes and no. Amazon offers two royalty tiers to publishers.

The 30% tier allows the publisher to publish their ebooks at other ebook retailers without any restrictions being imposed by Amazon. Hence, they're losing money because their royalty rate is less (30% vs 70%).

The 70% tier allows the publisher to make more money by publishing their ebooks only at Amazon by obeying idiosyncratic rules. That's fine as long as Amazon remains "the world's largest market."

As an indie publisher, I'm on the 30% tier with Amazon. Which is good since Amazon is only 20% of my total ebook sales. Despite being "the world's largest market," I expect that number to shrink to 10% this year.

As some indie authors have found out the hard way, being in the 70% tier can really suck as their ebook sales at Amazon declined over the last few years. Since they are in an exclusive relationship with Amazon, they're kissing sales from other ebook retailers goodbye.

 

[bsolar]

This is where you're wrong. If the publisher set the retail price at $15, they're expecting to make $10.50 per copy after Amazon takes it cut. But if Amazon discounts the price to $10, the publisher gets $7 after Amazon takes it cut. Amazon wasn't compensating the publisher for the missing $3.50.

I was talking about the wholesale model, which was the model in place before it got killed by the publishers and Apple with the introduction of the Agency model. In the wholesale model the publishers' cut was fixed and independent from the consumer's price: if the publishers made a deal to sell the ebook to Amazon for 10.50$ Amazon would pay 10.50$ per-sale, no matter the consumer's price Amazon decided to offer.

Under the old rules, Amazon was allowed to build a monopoly by forcing the publisher pay for the privilege. Why? Because Amazon is "the world's largest market," which is shorthand for, "bend over and say, 'May I have another, sir?!'"

Which privilege are you talking about, and pay for what?

Apple comes along with a proposal to change the rule. The publishers jump at the opportunity to stop subsidizing the Amazon monopoly. More competition is a GOOD THING. Even if that meant in the short term that buyers would pay more for ebooks.

The issue is not the publishers or Apple trying to push for a different business model, the problem is the allegedly illegal practices which were employed. Again, the publishers are free to try to break Amazon's monopoly, they are not free to break the law in trying to do so.

 

[Gasu E.]

Amazon might have a monopoly but this is not per-se illegal: if the publishers believe that Amazon got its monopoly through illegal means or believe that it's abusing his strong position they should sue for the relevant illegal acts.

Right. It would make more sense for Apple and Samsung to sue Amazon for selling Kindles at cost. This would be an example of abuse of their monopoly position in eBooks.

 

[samcraig]

I was talking about the wholesale model, which was the model in place before it got killed by the publishers and Apple with the introduction of the Agency model. In the wholesale model the publishers' cut was fixed and independent from the consumer's price: if the publishers made a deal to sell the ebook to Amazon for 10.50$ Amazon would pay 10.50$ per-sale, no matter the consumer's price Amazon decided to offer.



Which privilege are you talking about, and pay for what?



The issue is not the publishers or Apple trying to push for a different business model, the problem is the allegedly illegal practices which were employed. Again, the publishers are free to try to break Amazon's monopoly, they are not free to break the law in trying to do so.

His last post explains it all. He's an independent publisher or publishes with one. Now his animosity is explained

 

[Gasu E.]

I got my $54 back from Barnes and Noble, which I am not complaining about. However, I think this class action lawsuit is BS. I paid for the ebook what I thought it was worth at the POS. If I thought ebooks were too expensive I wouldn't have paid for it and neither would anyone else.

Not that I necessarily agree with the judgement, but your logic is flawed. You might be willing to pay up to $x for a specific item, but you would prefer to pay less. Because of some illegal practice, you may have been forced to pay closer to your maximum than you would have if the market were allowed to work freely. That's $y out of your pocket. I'm sorry if I made an incorrect assumption in believing you would have rather paid less for the exact same item. If I'm wrong about that, please, let's connect; because I would love to be doing business with you.

 

[bsolar]

Yes and no. Amazon offers two royalty tiers to publishers.

The 30% tier allows the publisher to publish their ebooks at other ebook retailers without any restrictions being imposed by Amazon. Hence, they're losing money because their royalty rate is less (30% vs 70%).

The 70% tier allows the publisher to make more money by publishing their ebooks only at Amazon by obeying idiosyncratic rules. That's fine as long as Amazon remains "the world's largest market."

These are the royalty options for direct publishing. As far as I know after the settlements "traditional" publishing should be again under the wholesale model.

----------

Right. It would make more sense for Apple and Samsung to sue Amazon for selling Kindles at cost. This would be an example of abuse of their monopoly position in eBooks.

Amazon selling Kindles at loss could be defended arguing that they recoup the loss with content sales and ads the same way most gaming consoles are sold at loss but recoup the loss and earn money selling games. The issue is more whether selling specific ebooks at loss can be considered predatory pricing instead of a loss-leader.

 

[MRCow]

Does anyone know how the authors were affected by Amazon's low pricing and whether Apple helped authors get paid more for their work? Why is the focus solely on consumers?

 

[Renzatic]

Enjoy your free books everyone.

Really, you agreed to the price when you bought the books to begin with, absolutely no point why consumers should be getting a refund. It should be a slap on the wrist for Apple, Amazon, and the others, nothing more.

I was surprised that I even got one. Bought four books with it.

I got $3 back. Bought Arkanoid off the app store with it.

 

[bsolar]

Does anyone know how the authors were affected by Amazon's low pricing and whether Apple helped authors get paid more for their work? Why is the focus solely on consumers?

If I remember correctly the Authors' Guild sent an amicus brief to the court stating that authors earn lower royalties under the Agency model even if ebooks' prices got higher than under wholesale, but also express concerns about the dangers of Amazon's monopoly.

So from the bottom line's point of view Apple and the publishers' deals resulted in authors getting paid less (assuming the Author's Guild is credible).

 

[MikhailT]

Does Microsoft have a monopoly on computer operating systems? They have around 95% market share. There are more computers running windows today than every macOS and iOS device ever sold.

Monopoly is not illegal, it never has been. What's illegal is abusing the powers to remain as such by preventing other competitors from taking share away naturally.

Microsoft wasn't punished for being a monopoly, they got punished because they did illegal anti-trust schemes to ensure there would be no competition, such as paying stores to not include other OS, breaking some stuff to avoid other apps from being better than MS apps and so on.

Should it be illegal for companies to break up a monopoly by providing MORE COMPETITION in the market place?

Monopolies are legal. Apple broke the laws by colluding with other companies to prevent Amazon from competing on their own terms.

If Apple and those publishers were doing things differently to reach the same end goal, then it would be legal.

Further, Apple did not HAVE to insist on a 30 percent take on book sales. Just because that's how they modeled their app store didn't mean they were forced to do the same for books.

They didn't, they've shown evidence that it was optional but that's not why they got busted. They got busted by simply colluding with everybody at once. That's why they spent so much time looking at the patterns of how everybody talked to each other.

As I understand it the publishers got together around a table and agreed on the price fixing -- clearly illegal and so they should indeed get slapped around. Apple was not at the table, but they did approach the publishers and essentially say, "hey, in the app business we let you set the price, but we take a 30% commission for selling and distributing the book through our channel." In my mind there is nothing illegal here. Otherwise thy would have already been shut down in their app store. Yet the court basically says, "well, it's okay in the app store, but it's not okay in the book store." This to me makes not sense.

I agree with you that Amazon has no place here. Apple did not want to follow Amazon's model and they went with a model that had worked for them. The customers were not affected by either model because they could choose where to buy the book. The only issue is if the publisher refused to sell through Amazon in order to sell at a higher price through Apple.

However, in all of this I see nothing that Apple did wrong. My biggest concern is that if this ends up going through all the way to the supreme court, at some point someone will say, "based on the precedence set by the book store, the app store is wrong too. Oh and then lets talk about the music store, and the moving store, etc." Essentially this could completely derail the model that Apple is using across all it channels. This could be very bad for all of us.

I'm not sure what you're concerned about, it has nothing to do with the app store model, it's not illegal. The whole thing was about colluding to fix prices with multiple companies to prevent other companies from competing on their own terms. That's illegal and that's what got Apple caught.

The app store models has no price-fixing agreements nor anything of that sort. Apple isn't forcing the developers to match the same prices across other app stores like the Google Play Store, Amazon store.

If Apple made an agreement with Google/Amazon/Microsoft to match the same price across all app stores because it'd mean equal profit share for the developers, than probably that's colluding and illegal since it'd prevent other app stores from competing on their own terms.

 

[CReimer]

His last post explains it all. He's an independent publisher or publishes with one. Now his animosity is explained

My animosity comes from the Justice department bringing this unnecessary case to court and the court for not tossing it out as being meritless.

The publisher have no choice but to settle because they lack the deep pockets required to fight this case for years. Fortunately, Apple does have the deep pockets to prove that this was case was wrong for granting Amazon a de facto monopoly in the ebook market.

 

[CReimer]

Monopolies are legal. Apple broke the laws by colluding with other companies to prevent Amazon from competing on their own terms.

With a 90% monopoly, Amazon DICTATED their terms to the competition. After all, they WERE "the world's largest market" because no one would dare challenge them. The competition was non-existent. I failed to see how LESS COMPETITION will lead to MORE COMPETITION under these circumstances.

 

[bsolar]

My animosity comes from the Justice department bringing this unnecessary case to court and the court for not tossing it out as being meritless

The case being meritless is your opinion, many others beg to differ. Since Apple was found guilty with the judge citing "compelling evidence" it's most likely not so clear-cut meritless at all.

The publisher have no choice but to settle because they lack the deep pockets required to fight this case for years.

HarperCollins closed the fiscal year 2012 (the year they settled) with $1.19 billion revenues and $86 million EBIT. I guess that if they wanted to fight the case until the end they had all the resources to do so. More likely they decided to settle because they knew the risk of being found guilty was high and because a settlement is safer and cheaper.

Fortunately, Apple does have the deep pockets to prove that this was case was wrong for granting Amazon a de facto monopoly in the ebook market.

As stated above, Apple was found guilty. Let's se what happens in the appeal... In any case granting a monopoly to Amazon is not what makes the case wrong or right. You're again suggesting that the end justifies the means and that hurting Amazon's monopoly is a blanket justification to act against the law.

 

[bsolar]

With a 90% monopoly, Amazon DICTATED their terms to the competition. After all, they WERE "the world's largest market" because no one would dare challenge them. The competition was non-existent. I failed to see how LESS COMPETITION will lead to MORE COMPETITION under these circumstances.

If this is the case the correct, legal course of action is to file a lawsuit against Amazon for abuse of dominant position in the market. It surely is no justification for collusion and price-fixing. "MORE COMPETITION" is no valid justification either.

 

[Glideslope]

Ah, yes, the bizzaro world of Judge Denise Cote, where the Sherman Act is used to grant an ebook monopoly to Amazon.

Yes. It's simply amazing the way in which she conducts her court. It is clearly personal now. She has a direct line to Eric Holder. I wonder how much Amazon stock see holds?

 

[AdonisSMU]

The devaluation of people's intellectual property continues. Books are very time consuming and costly to produce and market. IF people didn't think the book was worth it there was nothing stopping them from not buying it. It's not like there is a monopoly on books or anything even close. Isn't this double jeopardy? So you have to pay the consumers the difference in pricing. did iBooks even make $500million bucks or anything even remotely close during that time frame in total?

I think this judge is a little too personally invested for my tastes. I would've rather seen a judge who didn't appear to be on the take handle these cases.

 

[bsolar]

The devaluation of people's intellectual property continues. Books are very time consuming and costly to produce and market.

Then the model which gives publishers and authors the most revenue is the best? Do you realize that the agency model and the publisher's collusion resulted in less revenues than before for the publisher themselves and the authors, even with higher consumer's prices?

IF people didn't think the book was worth it there was nothing stopping them from not buying it. It's not like there is a monopoly on books or anything even close. Isn't this double jeopardy? So you have to pay the consumers the difference in pricing. did iBooks even make $500million bucks or anything even remotely close during that time frame in total?

Price-fixing result in consumer's prices above the market price: the price without the fixing would have been less. The idea that consumers paying willingly excuse the illegal action make no sense: without the illegal action consumers would not have paid the higher price. If consumers would have paid the higher price without the need of price fixing, why resorting to collusion and price fixing in the first place?

Anyway the reimbursment was agreed by the publishers in their settlements: these damages are paid by the publishers, not by the retailers. iBooks's revenues are not affected: the money comes from the publishers, not from Apple.

 

[samcraig]

I think some people don't realize the importance of the issue because they think "meh - it's only a couple of dollars and I wanted the book anyway" or "I paid what I thought was a reasonable price so I don't see any issue" or some variant. And then they say the government shouldn't be involved.

But what if it weren't a couple of dollars and books. What if it was something that caused you to pay higher prices netting hundred or thousands of dollars. I'm guessing the sentiment would be different and those that seemingly don't care or think this is a non issue would be very upset.

Fortunately (or not on how you look at it) the law is the law. The amount matters less than whether or not a company (or companies) broke laws.

 

[CReimer]

You're again suggesting that the end justifies the means and that hurting Amazon's monopoly is a blanket justification to act against the law.

I'm not suggesting that the end justifies the means. I just don't believe Apple broke any laws. From what I read about this aspect of the anti-trust law, it seems more like a gray area that the Department of Justice exploited to make a case against Apple. Collusion is typically used to protect an existing monopoly, not to erode an existing monopoly to introduce more competition.

Seems like the government is punishing the free market for breaking up a monopoly on its own with MORE COMPETITION rather than waiting for the monopoly to become so entrenched that the government has no choice but to intervene for the public good.

 

[CReimer]

If this is the case the correct, legal course of action is to file a lawsuit against Amazon for abuse of dominant position in the market. It surely is no justification for collusion and price-fixing. "MORE COMPETITION" is no valid justification either.

I'm a firm believer in "kill all the lawyers" approach to solving problems. (A figure of speech that came from Shakespeare, which a California lawmaker tried to outlaw after disgruntled clients shot up law offices in the 1990's.) Filing a lawsuit will only put money into the pockets of attorneys, who have the incentive to drag the case out for years, and the whole issue becomes irrelevant when the case gets resolved.

Microsoft is a perfect example of this. The anti-trust lawsuit turned Microsoft into a "has been" company while the rest of the industry moved on, didn't change the monopoly status for Microsoft Windows and Microsoft Office, and consumers were still free to install whatever web browser they wanted. The only real change was Microsoft budgeting $0 to $100M+ per year on Washington lobbyists.

Why did Amazon accept MORE COMPETITION from Apple and the publishers than file a lawsuit to protect their "legal" monopoly?

 

[buckwheet]

Eliminate class action lawsuits completely. Only the scummy lawyers make money. I get invites to be part of class action lawsuits all the time. Just got notice in the mail the other day that after being sued for 7 years, a company which I used to own shares in settled for $60 million, 33% of which will go to the lawyers. Class action lawsuits just make the price of all products go up. Plaintiffs get a few dollars, maybe a $100 if they are lucky, while scummy lawyers get millions and some even get in the hundreds of millions in jackpot class action lawsuits like tobacco. Lawyers are lower than the lowest form of parasite.

Absolutely! If someone added up the total impact of legal fees (and various forms of insurance against litigious bulls**t) on the price we pay for basically EVERYTHING, I'm sure the average citizen would be absolutely astounded. Taxes are an irritation, but at least they're (generally) used to contribute to our quality of life. Legal fees are 99% wasted, having been put in place largely to defend us against nothing other than FURTHER LEGAL FEES. It's outrageous...

 

[CReimer]

Price-fixing result in consumer's prices above the market price: the price without the fixing would have been less. The idea that consumers paying willingly excuse the illegal action make no sense: without the illegal action consumers would not have paid the higher price. If consumers would have paid the higher price without the need of price fixing, why resorting to collusion and price fixing in the first place?

The only reason ebook prices are so high is because publishers are trying to protect their declining print publishing business. That will change as indie authors take charge of the ebook publishing business.

http://blog.smashwords.com/2014/03/sizing-self-publishing-market-10.html

An indie author can make $2.40 on a $3.99 ebook. For a traditional author to make $2.40 on a ebook, the publisher must price the ebook at $13 to $20.

http://blog.smashwords.com/2014/03/indie-ebook-author-community-to-earn.html

This lawsuit against Apple and the publishers is a sideshow to the big changes that are coming to the ebook industry.