DOJ Alleges Shady Backdoor Dealings In Apple, Publisher Case
April 13, 2012

DOJ Alleges Shady Backdoor Dealings In Apple, Publisher Case

Michael Harper for

Apple, along with 5 of the nation´s largest publishers have had an antitrust lawsuit filed against them. The US filed the suit on Wednesday, alleging they have conspired to limit competition in the e-book market by adjusting their prices. The outcome of this case could have long-lasting implications for the fast-growing industry of e-book publishing.

The Department of Justice (DOJ) is alleging the CEOs of these companies (which include publishers Simon & Schuster, Hachette Book Group, Macmillan and HarperCollins) intentionally met with each other to discuss how to respond to Amazon´s deep discounts, referring to their prices as “the wretched $9.99 price point.” The civil antitrust lawsuit also details some possibly shady backdoor dealing, saying these CEOs met regularly in private dining rooms in upscale restaurants in Manhattan.

The DOJ says Apple and the five publishers agreed to lift the prices or many best-selling e-books to $12.99 and $14.99, then band together to impose this price model on Amazon. Attorney General Eric Holder told the Wall Street Journal, “As a result of this alleged conspiracy, we believe that consumers paid millions of dollars more for some of the most popular titles.”

When Apple released its iPad in 2010, it also entered into the e-book industry. To set prices of these books, Apple uses a pricing model called “agency pricing," wherein publishers can charge whatever price they want for the books. Apple only asks for a 30% cut of the deal and a promise to not sell the same titles to competitors for less in return.

Until then, publishers would charge booksellers about half of the cover price for the book, allowing the sellers to discount if they preferred.

In order to sell more of its Kindle e-readers, Amazon began to sell many titles below cost, with best-sellers priced at $9.99. Publishers weren´t too keen on this strategy, worrying they wouldn´t be able to sell physical copies at higher prices.

The publishers also worried Amazon would gain too much control of the market.

Agency pricing is at the center of this lawsuit. Publishers insist this pricing model is good for the industry, putting the pricing power back in the hands of the publishers. The DOJ, on the other hand, insists the publishers, along with Apple, is forcing consumers to pay too much for their e-books.

Authors, however, are now caught in a dangerous and awkward limbo, as those who buy their books and sell their books face legal action and possible restrictions. The e-book format has been kind to authors, as copies of their titles have been more accessible than ever.

In a quote from the LA Times, best selling mystery novelist Michael Connelly put it this way: "I'm in a bit of an awkward position because this has pitted my publisher against the retailer that far and away sells more of my books than any other.”

“I don't want to bite the hand that feeds me, and both of these hands feed me."

Still the legal proceedings move on, as 16 states have filed their own lawsuits against Apple, Macmillan, Penguin and Simon & Schuster, seeking restitution for consumers who bought the e-books.

This settlement will allow publishers to determine how much retailers can discount their titles, ensuring retailers can´t lose money on e-book sales.