U.S. Department of Justice Sues Apple and Publishers over E-Book Pricing

[MacRumors]

Following up on last month's threat to file suit over the Apple-backed agency model of e-book pricing, the U.S. Department of Justice today sued Apple and a number of book publishers over the practice, Bloomberg briefly reports. Settlement talks had been ongoing, but Apple and the publishers were reportedly unwilling to meet the Department of Justice's demands.

The U.S. filed a price- fixing antitrust lawsuit against Apple Corp. and Hachette in New York district court over eBook pricing. The government also sued HarperCollins, Macmillan and Penguin, according to court papers.

Settlement talks had centered around dismantling the agency model, which sees publishers set retail pricing and vendors receive a percentage of the sales price. Apple had pushed for the agency model in an attempt to dilute Amazon's power in the book market, where it had offered vast discounts, even sometimes selling books at a loss, in order to attract customers who would make other purchases through the site.

But the Department of Justice believes that the agency model as implemented by the publishers at Apple's behest amounts to collusion, with contracts between Apple and the publishers including language that prevented the publishers from offering lower pricing to competitors than they did to Apple. Contrary to the government's claims of an anti-competitive impact from the agency model, Apple and several of the publishers have argued that the move has fostered competitiveness by limiting Amazon's stranglehold on the book market. Consequently, the two sides have been unable to reach a settlement.

Update: Bloomberg reports that the Department of Justice has reached a settlement with Simon & Schuster, Hachette, and HarperCollins over the issue. Once finalized, the settlement would leave Apple, Macmillan and Penguin as defendants in the case.

Macmillan CEO John Sargent has published an open letter to the publisher's authors, illustrators and agents outlining why it will fight the lawsuit.

It is always better if possible to settle these matters before a case is brought. The costs of continuing--in time, distraction, and expense-- are truly daunting.

But the terms the DOJ demanded were too onerous. After careful consideration, we came to the conclusion that the terms could have allowed Amazon to recover the monopoly position it had been building before our switch to the agency model. We also felt the settlement the DOJ wanted to impose would have a very negative and long term impact on those who sell books for a living, from the largest chain stores to the smallest independents.

Sargent notes that Macmillan makes less money under the agency model than it did under the previous wholesale model, but that it made the change to support competitiveness in the market, not stifle it.

Addressing the Department of Justice's claim that publishers and Apple colluded to fix pricing, Sargent also describes the circumstances under which he made the final decision to move to the agency model, calling it the "loneliest decision" he has ever made.

The government's charge is that Macmillan's CEO colluded with other CEO's in changing to the agency model. I am Macmillan's CEO and I made the decision to move Macmillan to the agency model. After days of thought and worry, I made the decision on January 22nd, 2010 a little after 4:00 AM, on an exercise bike in my basement. It remains the loneliest decision I have ever made, and I see no reason to go back on it now.

Update 2: The Department of Justice has released a transcript of a press conference statement from Attorney General Eric Holder regarding the lawsuit.

Update 3: Connecticut Attorney General George Jepsen today announced that a group of sixteen states have followed the Department of Justice's lead and filed their own lawsuit against Apple and publishers. The complaint claims that consumers were overcharged by at least $100 million due to the alleged price fixing.

Update 4: The Verge has a thorough analysis of the highlights from the Department of Justice's filing.

Article Link: U.S. Department of Justice Sues Apple and Publishers over E-Book Pricing

 

[SeniorGato1]

great news for the consumer!

 

[miles01110]

I honestly never really understood the government's argument on this one. Publishers already have a monopoly on book pricing anyways since one book is (usually) only available from one publisher. How can they collude with one another to keep the price of a book only one party has a monopoly on artificially high?

 

[WannaGoMac]

Finally. I know I will be marked down on this site for saying this but...before Apple entered the ebook business, prices were coming DOWN. After Apple entered the ebook business, prices all went up and have stayed flat at the new price point.

 

[milbournosphere]

It's nice to see my government working for me. Hopefully the matter will be resolved quickly. E-book pricing models are starting to get a little scary...

 

[dethmaShine]

Well deserved.

 

[Xenomorph]

great news for the consumer!

Indeed. I've stayed away from purchasing any e-book so far. Why would I pay $15 for a digital copy when I can order the same book online for $7?

I guess you're paying for the convenience of having all the digital copies in the palm of your hand, but digital distribution was supposed to make things cheaper!!!

If I can buy a hundreds of games on Steam for a fraction of the cost of what the boxed copies would have cost me, I'd think books (and movies) would be even cheaper.

Same with online movies.
Why buy a movie on iTunes for $15-$20, when I can pick it up on Blu-Ray at Walmart for $10 (which includes the HD Blu-ray, DVD, and sometimes even a free digital copy)?

 

[jonnysods]

Thank you big brother.

I'm glad they don't waste time with time wasting issues such as collusion of gas prices at the pumps, and they deal with important things like book prices.

 

[Small White Car]

This whole issue is like the laptop debate: What's better...a bigger or a smaller screen? - A smaller screen is easier to carry, a bigger screen gives you more pixels. There's no 'right' answer there.

Likewise, Amazon's method gives lower prices but is worse for writers and Apple's method is better for content creators but leads to higher prices. *

What's the 'right' answer there? Much like with the laptop they both have equal pros and cons.





* In both cases the publishing houses are a sponge sucking up money from the writers. I foresee their influence waning in the coming years, though, so I think it's worth ignoring them in this whole debate. Their end will come about no matter which method prevails.

 

[drewyboy]

I know i'm probably in the minority here, but seriously, why can't I pay an extra $5 over printed price to get a printed & epub bundle?! And YES EPUB. I don't want kindle's crap or apple's crap. Give me EPUB.

Edit: Dear Down ranker, please explain yourself on why using an open format that DOES NOT require the proprietary software is a bad thing? Do you like being locked into a single companies format? Do you like being only able to view that book on that companies app? I know I don't. What happens if said companies fails? You're one screwed pooch with a library of ebooks you can't read.

 

[rmatthewware]

great news for the consumer!

Not if it hurts the publishers. It's already a declining business. If publishers lose sales, they'll be less likely to publish newer authors. Everything you see will be written by Stephen King or Stephenie Meyer

 

[bobenhaus]

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Image

Following up on last month's threat to file suit over the Apple-backed agency model of e-book pricing, the U.S. Department of Justice today sued Apple and a number of book publishers over the practice, Bloomberg briefly reports. Settlement talks had been ongoing, but Apple and the publishers were reportedly unwilling to meet the Department of Justice's demands.Settlement talks had centered around dismantling the agency model, which sees publishers set retail pricing and vendors receive a percentage of the sales price. Apple had pushed for the agency model in an attempt to dilute Amazon's power in the book market, where it had offered vast discounts, even sometimes selling books at a loss, in order to attract customers who would make other purchases through the site.

But the Department of Justice believes that the agency model as implemented by the publishers at Apple's behest amounts to collusion, with contracts between Apple and the publishers including language that prevented the publishers from offering lower pricing to competitors than they did to Apple. Contrary to the government's claims of an anti-competitive impact from the agency model, Apple and several of the publishers have argued that the move has fostered competitiveness by limiting Amazon's stranglehold on the book market. Consequently, the two sides have been unable to reach a settlement.

Article Link: U.S. Department of Justice Sues Apple and Publishers over E-Book Pricing

We all knew this was coming. Looks like the tiger is starting to get tamed. Forcing E-Book prices got apple in trouble. They dont want to compete. Sad.

 

[Amazing Iceman]

It seems that Amazon now has a good team of Lobbyists.

 

[NMF]

I honestly never really understood the government's argument on this one. Publishers already have a monopoly on book pricing anyways since one book is (usually) only available from one publisher. How can they collude with one another to keep the price of a book only one party has a monopoly on artificially high?

Because stores can sell physical books at whatever price they want. Barnes & Noble can have a sale where a certain book is 25% off, etc. With eBooks the publishers are setting the price, essentially cutting out the middle man. This is great for the publisher but terrible for the consumer. This is the reason why most Kindle books are more expensive than their physical counterparts.

 

[Amazing Iceman]

I honestly never really understood the government's argument on this one. Publishers already have a monopoly on book pricing anyways since one book is (usually) only available from one publisher. How can they collude with one another to keep the price of a book only one party has a monopoly on artificially high?

Refer to my reply, #14 in the thread.

 

[TMay]

Finally. I know I will be marked down on this site for saying this but...before Apple entered the ebook business, prices were coming DOWN. After Apple entered the ebook business, prices all went up and have stayed flat at the new price point.

Before Apple became involved, Amazon was "dumping" ebooks at prices below cost to gain market share.

This is what "dumping" looks like in the steel market...

http://www.mcclatchydc.com/2009/12/30/81483/china-loses-steel-dumping-case.html

"In a unanimous decision, the three Democrats and three Republicans on the ITC determined that subsidized steel from China has damaged U.S. steelmakers. The Chinese steel, the panel determined, had been dumped — sold at artificially low prices to undercut fair competition."

What part of Amazon's action doesn't look like "dumping", i.e., subsidizing to undercut fair competition, e.g., Apple, Wal Mart, et al.

 

[miles01110]

Because stores can sell physical books at whatever price they want. Barnes & Noble can have a sale where a certain book is 25% off, etc. With eBooks the publishers are setting the price, essentially cutting out the middle man. This is great for the publisher but terrible for the consumer. This is the reason why most Kindle books are more expensive than their physical counterparts.

I'm still not following. Why does it matter who I buy it from?

 

[Frobozz]

This should prove interesting. While I obviously love Apple, I think it's appropriate for the Justice department to investigate such matters. But, in this case, I have seen anything but collusion. At a big-player level I have the opportunity to buy the same book as an e-book from Amazon, B&N, or Apple. I can also get a soft cover or hard cover from Amazon or B&N. They all have different price points and some places will always be lower than others. Surely they can't be complaining that this prevents competitiveness?

 

[Amazing Iceman]

Because stores can sell physical books at whatever price they want. Barnes & Noble can have a sale where a certain book is 25% off, etc. With eBooks the publishers are setting the price, essentially cutting out the middle man. This is great for the publisher but terrible for the consumer. This is the reason why most Kindle books are more expensive than their physical counterparts.

Apple's has been trying to control book prices, such as school books, so these don't cost too much money. It's insane to have to pay almost $100 for a school book.

The book industry is very complex, with very mixed interests; everyone wants to make money. So whoever saw this as a threat to their interests decided to poke the DOJ until they got what they want it: this lawsuit.

Let's see what happens next.

 

[FloatingBones]

The WSJ had a good article -- and good comment chain -- on this issue about a month ago in Steve Jobs, Price Fixer? The money quote from that article:

No one knows the next chapter in the future of books, but lawyers in the Antitrust Division of the Justice Department claim to know precisely how this industry in transition must be structured and operated, down to the correct price for an e-book. The government's certainty is the basis of a threatened price-fixing lawsuit against Apple and top book publishers.

Also, there's a question of the motivations for this Executive Branch action:

Steve Jobs was at the center of one of the better known disconnects between Silicon Valley and Washington. President Obama had asked him for a one-on-one meeting in 2010. Jobs told the president he was "headed for a one-term presidency" because Washington was smothering the innovation that had been the country's growth engine. According to his biography, when Jobs organized a dinner of Internet executives with Mr. Obama, he concluded, "The president is very smart, but he kept explaining to us reasons why things can't get done." He added, "It infuriates me."

Jobs was called many things when he was alive, good and bad. We can only imagine what he would say in response to "price fixer" being added to the list by an overreaching, innovation-suppressing government.

 

[cateye]

Ugh, some of you have such a fundamentally poor grasp of consumer economics law it's a little scary. No, it's a lot scary.

Retailers and suppliers are not allowed to agree on pricing contractually. Full stop. They can make what are called "brand agreements" related to positioning of certain product levels relative to another, but what Apple tried to enforce with what they call an "agency model" (which it actually isn't) is pure collusion and patently illegal. It doesn't matter how much Apple may argue toward consumer altruism -- the law specifically forbids it, and it is the role of the justice department to uphold those laws.

Also: Amazon's lobbying efforts are minuscule compared to Apple's, just fyi. Amazon has created an impressive lobbying machine at the state and local level related to their issues with states' efforts to enforce sales tax on interstate/online commerce, but their lobbying efforts at the national level are miniscule.

Anyway, carry on.

 

[MH01]

Thank you big brother.

I'm glad they don't waste time with time wasting issues such as collusion of gas prices at the pumps, and they deal with important things like book prices.

Their profit margin on taxes on GAS is MUCH higher then they are getting on the books

You can hardly go to war based on taxes from book sales.... probably lucky if most of the drivers read.

 

[Vegasman]

Apple's has been trying to control book prices, such as school books, so these don't cost too much money.

Really!? That is the Apple goal? Reduce the price of books?

It could be a side effect in the case of school books. But it is not what they are trying to do.

 

[HitchHykr]

Indeed. I've stayed away from purchasing any e-book so far. Why would I pay $15 for a digital copy when I can order the same book online for $7?

I guess you're paying for the convenience of having all the digital copies in the palm of your hand, but digital distribution was supposed to make things cheaper!!!

If I can buy a hundreds of games on Steam for a fraction of the cost of what the boxed copies would have cost me, I'd think books (and movies) would be even cheaper.

Same with online movies.
Why buy a movie on iTunes for $15-$20, when I can pick it up on Blu-Ray at Walmart for $10 (which includes the HD Blu-ray, DVD, and sometimes even a free digital copy)?

I think part of the problem is the nature of the media. For example if there are 100k printed copies of a book that isn't selling the publisher/stores need to get rid of them because the inventory cost them money so you see the fire sales. In digital format it really doesn't cost the publisher much at all so there's no need for fire sales for that format.

 

[Boston007]

This is good

It's amazing the hypocrisy Apple fanboys have.

If this were Amazon being investigated by the Dept of Justice, all the fanboys would be saying
GOOD, ebook prices too high, Amazon taking advantage of customers.

But because it's APPLE, the fanboys say
Terrible, Apple is the best with ebooks, this is WRONG!