US sues Apple, publishers over e-book prices

Apr 11, 2012 By PETE YOST and LARRY NEUMEISTER , Associated Press
Attorney General Eric Holder is seen at a news conference at the Justice Department in Washington, Wednesday, April 11, 2012. The Justice Department and several states have sued Apple Inc. and major book publishers, alleging a conspiracy to raise the price of electronic books that Attorney General Eric Holder says cost consumers millions of dollars. (AP Photo/Cliff Owen)

(AP) -- The government says avid best-seller readers who use electronic books have been getting ripped off. Tina Fey's "Bossy Pants," Tim Tebow's "Through My Eyes" and Keith Richards' `"Life" - maybe they should have cost less.

The Justice Department and 15 states sued Apple Inc. and major book publishers Wednesday, alleging a conspiracy that raised the price of electronic books. They said the scheme cost consumers more than $100 million in the past two years by adding $2 or $3, sometimes as much as $5, to the price of each e-book.

If there was price fixing, even the e-book version of the hot-selling Walter Isaacson biography of Steve Jobs, the late genius behind Apple computers, may have cost too much.

Attorney General Eric Holder said executives at the highest levels of the companies conspired to eliminate competition among e-book sellers. Justice's antitrust chief, Sharis Pozen, said the executives were desperate to get Amazon.com - the marketer of Kindle e-book readers - to raise the $9.99 price point it had set for the most popular e-book titles, because that was substantially below their hardcover prices.

The federal government reached a settlement with three of the publishers, Hachette, HarperCollins and Simon & Shuster. But it will proceed with its lawsuit in federal court in New York City against Apple and Holtzbrinck Publishers, doing business as Macmillan, and The Penguin Publishing Co. Ltd., doing business as Penguin Group.

Connecticut and Texas, two of the 15 states filing a separate lawsuit, reached agreements with Hachette and HarperCollins to provide $52 million in restitution to consumers, using a formula based on the number of states participating and the number of e-books sold in each state. Other states in the case may sign onto the agreement, and other companies might be persuaded to join.

Susan E. Kinsman of the Connecticut attorney general's office said it's too early to say how consumers can go about getting refunds. But there could be millions of people applying. A recent Pew Research Center survey found that 21 percent of adults said they had read an e-book in the last year.

Since Amazon introduced the Kindle in 2007, e-book sales have surged. They represented just 2 percent of all titles sold in the United States that year, but soared to 25 percent last year. In 2010, about 114 million e-books were sold at a total cost of $441.3 million.

Holder told a Justice Department news conference that "we believe that consumers paid millions of dollars more for some of the most popular titles" as a result of the alleged conspiracy. Pozen said the scheme added an average of $2 to $3 to the prices of individual e-books.

Connecticut Attorney General George Jepsen said the individual book markups went as high as $5 and the total cost to consumers was more than $100 million since April 2010, when the scheme allegedly took effect.

The government lawsuits did not disclose individual titles whose prices were allegedly jacked up. The Fey, Tebow, Richards and Isaacson books all came out in electronic versions from the named publishers after April 2010.

According to Pozen, Apple's Steve Jobs told publishers involved in the alleged conspiracy that "the customer pays a little more, but that's what you want anyway."

The lawsuit said the effort to get e-book prices increased by Amazon.com came as Apple was preparing to launch the iPad. The government said the conspirators agreed that instead of selling books to retailers and letting them decide what retail price to charge, the publishers would convert the retailers into "agents" who could sell their books but not alter the publisher-set retail price. The scheme called for Apple to be guaranteed a 30 percent commission on each e-book it sold, the lawsuit said.

"To effectuate their conspiracy, the publisher defendants teamed up with defendant Apple, which shared the same goal of restraining retail price competition in the sale of e-books," the lawsuit said.

The European Union conducted an investigation that paralleled the U.S. probe. The Union's Joaquín Almunia, vice president of the commission in charge of competition policy, said in Brussels that he welcomes the fact that the five companies are making proposals to reach an early resolution of the EU case. "We are currently engaged in fruitful discussions with them," said Almunia.

Hachette denied it was involved in any conspiracy to illegally fix the price of e-books and said it changed its pricing structure - the central government allegation - to facilitate entry by a new retail competitor, Apple.

"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," said Hachette.

Amazon called the settlement "a big win for Kindle owners, and we look forward to being allowed to lower prices on more Kindle books."

After reading the federal complaint, the Consumer Federation of America called it "a `slam-dunk' case of collusive, anti-competitive behavior."

At Apple, spokesman Tom Neumayr declined to comment on the lawsuit.

Macmillan CEO John Sargent said in a letter to authors, illustrators and agents that the company has not settled because it is "hard to settle a lawsuit when you know you have done no wrong."

Sargent said there were months of discussions with the Justice Department over a possible settlement, but the government's proposed terms "were too onerous" and "could have allowed Amazon to recover the monopoly position it had been building before our switch to the agency (pricing) 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." he said.

Sargent denied he colluded with competitors to change Macmillan's pricing. "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," he wrote.

"We have done nothing wrong," said Penguin Group's chairman and CEO, John Makinson. "The decisions that we took, many them of them costly and difficult, were taken by Penguin alone."

At the heart of the e-book pricing debate is the industry's ongoing concern about Amazon. Publishers see the "agency model" as their best, short-term hope against preventing the online retailer from dominating the e-book market and driving down the price of books to a level unsustainable for publishers and booksellers.

What the agency model achieved was to shift the power for setting retail prices on e-books from the retailer - in this case primarily Amazon - to the alleged conspirator publishers, who then exerted pressure on Amazon to comply with the higher prices. The alleged scheme applied to New York Times bestselling titles, all titles that have gone on sale in the current year and mass market paperback titles.

Amazon's $9.99 price for best-sellers was such a deep discount from list prices of $20 and more that it was widely believed Amazon was selling the e-books at a loss to attract more customers and force competitors to lower their prices. Amazon also has been demanding higher discounts from publishers and stopped offering e-books from the Independent Publishers Group, a Chicago-based distributor, after they couldn't agree to terms.

When Apple launched its tablet computer two years ago, publishers saw two ways to balance Amazon's power: Enough readers would prefer Apple's shiny tablet over the Kindle to cut into Amazon's sales, and the agency model would stabilize prices.

Apple's iBookstore has yet to become a major force, but publishers believe the new price model has reduced Amazon's market share from around 90 percent to around 60 percent, with Barnes & Noble's Nook in second at 25 percent. The iBookstore is believed to have 10 percent to 15 percent.

Macmillan's Sargent has been at the heart of the dispute. In early 2010, as publishers were trying to get Amazon to agree to Apple's pricing system, Amazon pulled all the listings for Macmillan books, including titles like Jonathan Franzen's "The Corrections" and Barbara Ehrenreich's "Nickle and Dimed." Sargent refused to back down and Amazon eventually gave in.

New e-books from Macmillan and the other publishers investigated by the Justice Department often are priced initially between $12.99 and $14.99, with Amazon making a point of noting that the price was set by the publisher. Ironically, publishers usually make less money off the agency model than the traditional one because they receive a smaller percentage of the proceeds.

Random House Inc. was the only "Big Six" publisher not to agree to the agency model in 2010 and was not part of the lawsuit. But it did agree to terms with Apple last year. Spokesman Stuart Applebaum said Random House would have no comment Wednesday.

According to federal court papers, the settlement agreement with three publishers said that for two years they will not restrict, limit or impede an e-book retailer's ability to set, alter or reduce the retail price of any electronic book. It said the retailers will be able to offer price discounts and other forms or promotions to encourage consumers to buy one or more electronic books.

The 15 states in the state complaint are Texas, Connecticut, Alaska, Arizona, Colorado, Illinois, Iowa, Maryland, Missouri, Ohio, Pennsylvania, South Dakota, Tennessee, Vermont and West Virginia. Puerto Rico also joined that lawsuit, which was filed in federal court in Austin, Texas.

Explore further: China's Alibaba plans IPO for week of September 8

4.7 /5 (7 votes)
add to favorites email to friend print save as pdf

Related Stories

Amazon strikes twin electronic book deals: WSJ

Apr 01, 2010

Amazon.com is letting two more major publishers raise prices of electronic books for Kindle readers in deals struck just days before Apple releases rival iPad computer tablets, the Wall Street Journal reported.

Recommended for you

China's Alibaba plans IPO for week of September 8

5 hours ago

Chinese e-commerce giant Alibaba plans to hold its initial public offering on the US stock market the week of September 8, the Wall Street Journal reported Saturday, citing a person familiar with the matter.

Tablet sales slow as PCs find footing

5 hours ago

Tablets won't eclipse personal computers as fast as once thought, according to studies by market tracker International Data Corporation (IDC).

Chinese e-commerce rivals challenge Alibaba (Update)

Aug 29, 2014

China's biggest property developer, Wanda Group, and Internet giants Baidu and Tencent unveiled a new e-commerce venture Friday in a challenge to industry leader Alibaba Group ahead of its U.S. stock offering.

User comments : 19

Adjust slider to filter visible comments by rank

Display comments: newest first

Telekinetic
5 / 5 (1) Apr 11, 2012
"According to Pozen, Apple's Steve Jobs told publishers involved in the alleged conspiracy that "the customer pays a little more, but that's what you want anyway."
"Come and get me!", said Jobs.
210
1 / 5 (3) Apr 11, 2012
You have a farm. It has chickens. The chickens are upset that a fox is raiding the hen house for all its worth. This Amazon Fox is getting away with murder. The chickens get together, form an alliance. The farmer, Farmer Uncle Sam, never does anything the whole 19 years that the Amazon Fox is making a killing....does nothing!
The Chickens find a guard dog named Pappa Steve. Steve is a PROFESSIONAL. HE KICKS ROYAL ASS AND TAKES NAMES!
Still can't find Uncle Sam...who is quite literally M.I. fricking A.
So the Amazon Fox, runs to tired-ass Uncle Sam and gets upset cause he can't pull his crap no more... To save face, Uncle Sam jerks the chain of the 250 Pound guard dog, Pappa Steve. Some of the chickens bail, heck, that is what 'chicken' means - no biggy.
But this is NOT anti-trust! This is a failure on par with 'dot.Com' and 'toxic asset' WallStreet governance and shows that the Justice department was asleep at the wheel or paid off!
Apple, stay N court till US is BROKE!
word-
Yellowdart
not rated yet Apr 12, 2012
Well 210, Amazon was given selling rights by publishers in the first place, so in essence they, the chickens, let the fox in the hen house. There is and was no murder. The e-books being sold at a low price were starting to cripple the hard copy sales, which is why the publishers started losing money.

Same problem with the music industry, but I don't see you whining about how Jobs did the same thing there with mp3's for 99cents.

What the government is about to slam Apple for and hopefully the publishers is for collusion, basically price fixing, also known as a cartel. Apple saying they will sell it at the publishers price so long as they get 30% was a move to cut out other competition and to keep their hard copies from diminishing.

We don't need cartels in business, and on another note, nor does the government need to be one either in the market.
210
not rated yet Apr 12, 2012
Well 210, Amazon was given selling rights by publishers in the first place, so in essence they, the chickens, let the fox in the hen house. There is and was no murder.

And you got married to a bad....cousin...so that means you have to STAY chained to an infection on the face of humanity? They leave you or you leave them...and you, YOU know that, oh yeah!

" I don't see you whining about how Jobs did the same thing there with mp3's for 99cents. "
Ask your momma about whining, she had you so I know she's had a lot of practice at it -you dont have to have iTunes to get music, you went over to Microslop and got a Zune, remember?
" Apple saying they will sell it at the publishers price so long as they get 30% " That is one point where the lawsuit will FAIL; Apple did not always charge 30%! It was 40%, oh yeah! Apple lowered their cut and did it before the iPad was created/conceived. But setting a price that kills poor competitors is BIZ!
,,Amazon IS A cartel..look it up!
word-
Yellowdart
1 / 5 (1) Apr 12, 2012
so that means you have to STAY chained to an infection on the face of humanity?


No you don't have to stay chained so long as you have fulfilled your contract/agreement.

you dont have to have iTunes to get music, you went over to Microslop and got a Zune, remember?


No you don't have to, besides I bought a Zen. You still miss the point. Jobs entirely pulled a Amazon to get iPods sold. 99 cents a song is way less expensive for a $12-15 cd. He was fine to do that, just like Amazon was fine to sell e-books at a low cost as they never violated publishers agreements. They took a software loss to promote hardware.

Yellowdart
1 / 5 (1) Apr 12, 2012
That is one point where the lawsuit will FAIL; Apple did not always charge 30%! It was 40%, oh yeah! Apple lowered their cut and did it before the iPad was created/conceived. But setting a price that kills poor competitors is BIZ!


It doesn't matter whether the price fix is higher or lower, or in setting a lower price as a business to gain market share, mainly because there is independent risk that you won't recover the loss you take.

But you CAN NOT get together with the whole industry and fix production, price. That is a cartel. It's illegal in just about every country.

Random House is not being sued, because they entered into their own agreement with Apple, independent of the others.

Apple and the publishers will entirely be screwed here if there is any documentation reflecting collusion with the industry as a whole to fix price, production, and or directly push out other competition.

Yellowdart
1 / 5 (1) Apr 12, 2012
And you got married to a bad....cousin...so that means you have to STAY chained to an infection on the face of humanity?


Let me add to my original point that the reason they went with Apple's idea, is because they are still obligated to Amazon with whatever their initial agreement with Amazon is. Amazon may have 10 years worth of selling rights or more for instance. So yes they are chained until then, or until Amazon agrees to a change in contract.

But if Apple gains market share, at a price they want their e-books sold for, it's a round about way of avoiding their Amazon agreements. So they are being accused of collusion with Apple.

If Amazon has a cartel going in some market, I would hope that the justice department pursues them as well. -word.
210
not rated yet Apr 12, 2012

If Amazon has a cartel going in some market, I would hope that the justice department pursues them as well. -word.

Yellowdart, in this world, at this time, YOU cannot have your cake and eat it too!
Go to the Amazon website and type in cooking oil, baby car seats, books, toys, garden tools, etc.Amazon IS A CARTEL - got into online publishing first day. Set the price and wrecked the market for It's competitors...but you, you're okay with that. Now Amazon is in a fight with the very people they crushed & here comes YOU and DOJ. Amazon played HARD BALL with everyone they met, just like Oracle has always done, Microslop has done, IBM did it too, they all got slapped on the wrist-passed the fines on to their customers. You want to make Apple to look like the BIGGGG baddie, when in fact they are playing Robin Hood, yes, they are robbing, oh, how badddd! Amazon did it by price fixing and gouging, where was your outrage then? Happy ignorance! That's why I can't hear you..!

word
210
not rated yet Apr 12, 2012

It doesn't matter whether the price fix is higher or lower, or in setting a lower price as a business to gain market share, mainly because there is independent risk that you won't recover the loss you take.
But you CAN NOT get together with the whole industry and fix production, price. That is a cartel. It's illegal in just about every country.

Price does matter, or else THERE WOULD BE NO FIGHT! Money always matters, well, on this planet anyway.
If Apple had colluded with ever book maker on this planet, there would be thousands of names on the DOJ suit, there are NOT and U know that! Further, Apple offered books on the iPOD & had the 40/60 split then! It went 30/70 for Apps first, and it was there for authors makin books! Amazon had 90% of D market and forced prices lower than it cost to make them and NOW, NOW you and DOJ are complainin...how dare you. You did not even know Amazon was/is a cartel worst than Walmart. Apples fighting and should where was DOJ N the day!?
210
1 / 5 (1) Apr 12, 2012
[

you dont have to have iTunes to get music, you went over to Microslop and got a Zune, remember?


No you don't have to, besides I bought a Zen. You still miss the point. Jobs entirely pulled a Amazon to get iPods sold. 99 cents a song is way less expensive for a $12-15 cd. He was fine to do that, just like Amazon was fine to sell e-books at a low cost as they never violated publishers agreements. They took a software loss to promote hardware.

Wow, you bought a 'zenie' u must B proud.
The criminal Amazon, like AL Capone, could NOT violate the"publishers agreement" since they FORCED the publisher to MAKE the agreement, DUHH! The guy with 90% of the books/booze tells you with a gun at your head to sell books his way! And here is DOJ & Yellowdart thumpin their chest at How terrible and icky that Apple must be because they have the 100 Carat gold-plated BALLS to face down the Capone-Amazon Cartel that yellowdart only learned about 15 minutes ago! Sheesh!
packrat
not rated yet Apr 14, 2012
All I care about is the fact that an e-book should not cost as much as a paperback or hardback book. There is much less cost involved in selling an electronic file compared to printing a book. Advertising costs would stay the same probably but they lose all the materials, handling, and shipping costs.
I think that's why many of the newer authors are selling their stuff directly now. I've bought a few e-books directly from the authors and you get a much better price as a general rule.
Caliban
not rated yet Apr 16, 2012
All I care about is the fact that an e-book should not cost as much as a paperback or hardback book.


That's right, p.r., and that's just the kind of self-serving, self-interested thinking that resulted in the current state of affairs in which we find ourselves.

You want it cheaper, at any cost --and completely ignore the fact that this costs people their jobs, their benefits, wrecks families, puts people out of their homes, decreases diversity and competition in the"free market".

And don't forget that --GASP-- it costs shareholders their oh-so-richly-deserved dividends.

What kind of little freak are you, anyway? And why do you want us all to shop only at WalMartAmazon?
Yellowdart
1 / 5 (1) Apr 17, 2012
Amazon IS A CARTEL - got into online publishing first day. Set the price and wrecked the market for It's competitors...but you, you're okay with that.


That's not a cartel. Please see the definition of a cartel.

Amazon was not the first to online publishing. E-books have been around since the 70s easily. It wasn't until Sony and Amazon provided more user friendly tablets in the last 5 years that they took off for the general consumer though.

You will have to explain how they have wrecked the market, because the diversity of e-readers, and the availability of e-books has significantly grown. Sony, Amazon, B&N, android devices are all taking up market share. And further, you can use libraries which rent e-books as well.

So the market has only grown, and Amazon has lost market share because of it. The only people who have gotten hurt, are the publishers who didn't for see the competition between e-books, and their hardbacks.
Yellowdart
1 / 5 (1) Apr 17, 2012
You want to make Apple to look like the BIGGGG baddie, when in fact they are playing Robin Hood,


Umm Robin Hood stole from the rich to give to the poor. Apple, in their collusion, jacked prices up on the poor, just to gain their share of the rich spoils...That ain't robin hood kiddo.
Yellowdart
not rated yet Apr 17, 2012
If Apple had colluded with ever book maker on this planet, there would be thousands of names on the DOJ suit, there are NOT and U know that!


It doesn't have to require all players, to be a cartel or to be collusion. You sound a bit hysterical, calm down.

The criminal Amazon, like AL Capone, could NOT violate the"publishers agreement" since they FORCED the publisher to MAKE the agreement, DUHH!


Where is the evidence of such "force"? It's the publishers choice. They could just have easily gone to Apple, MS, Walmart, or any other major retailers with their e-books from the get go if t hey didn't like Amazon.
Yellowdart
1 / 5 (1) Apr 17, 2012
You want it cheaper, at any cost --and completely ignore the fact that this costs people their jobs, their benefits, wrecks families, puts people out of their homes, decreases diversity and competition in the"free market".


Um, youll need to prove that. If one only pays $2 for an e-book, that saves 10-15 dollars over a hardback. This means $10-15 gets spent elsewhere. So jobs aren't lost, families aren't wrecked.

You don't save the paper industry while starving the digital/computer age, just because the job market will shift to new demands.

Yellowdart
1 / 5 (1) Apr 17, 2012
I think that's why many of the newer authors are selling their stuff directly now. I've bought a few e-books directly from the authors and you get a much better price as a general rule.


You see similar issues in the music industry. Not only did the mp3 come at a cost savings to consumers, and a loss to the major recording studios, but in coupling with the internet it is driving the middle man out of the market because self promotion is more viable than before. Anybody can post their music online now with minimal equipment. And of course the dinosaur recording industry hates it.

210
not rated yet Apr 18, 2012
Amazon IS A CARTEL - got into online publishing first day. Set the price and wrecked the market for It's competitors...but you, you're okay with that.


That's not a cartel. Please see the definition of a cartel.

Amazon was not the first to online publishing. E-books have been around since the 70s easily. It wasn't until Sony and Amazon provided more user friendly tablets in the last 5 years that they took off for the general consumer though.


70's...the 1970's...OKAY, I knew I was wastin' my time...will anybody who owned a tablet or laptop or an app or cellphone in the 1970's please post a picture of it??, please.

word
Yellowdart
1 / 5 (1) Apr 18, 2012
70's...the 1970's...OKAY, I knew I was wastin' my time...will anybody who owned a tablet or laptop or an app or cellphone in the 1970's please post a picture of it??, please.


The dynabook was the concept in the 70s. A laptop/tablet aimed at actually children meant to carry digital media. In 1992 Sony released the data discman for e-reading purposes, and in 1998 B&N was selling the e-Rocket. All Amazon did was much like Apple did in the portable music genre. They brought a streamlined product to the market at the right time.

The point of this is to simply refute your assertion that Amazon was the first to get into digital online publishing. The reality of that is far from the truth.