DOJ Files Complaint Against Apple, Publishers

DOJ Files Complaint Against Apple, Publishers

Yesterday, April 11th, the Department of Justice officially filed a complaint against Apple, Inc. and five publishers on the grounds that they violated antitrust laws by conspiring to lower the price of e-books. As covered here earlier, Apple adopted an “agency model” of pricing that allowed publishers to set the prices of e-books in return for a 30% share of the profits. Once the agency model was adopted, Amazon was forced to follow suit; the result was an increase in the price of new and popular e-books, which Amazon had been selling at $9.99 in order to boost sales of its bestselling Kindle e-reader, to $12.99, $14.99 or $16.99.

The complaint details at length exactly how the fierce price competition in the e-book market in late 2009 motivated the price fixing. Apple and the publishers apparently moved quickly and had signed agreements to move from the traditional wholesale model to the agency model by January 2010. These agreements went into place in April of 2010 and were almost instantly felt by the rest of the players in the e-book market. Also feeling the effects were consumers; a letter from the Consumer Federation of America, dated April 9th, states that in 2012 alone, the price increases will result in overcharges to consumers in excess of $200 million. The number used in the complaint from the DOJ is $100 million of overcharges to date.

On the same day as the complaint was released, the DOJ also settled with Hachette Books, Simon & Shuster, and Harper Collins. This settlement strengthens the antitrust case (which has been filed as related to cases brought by 16 other states on similar charges) against Apple, Macmillan, and Penguin substantially. However, the DOJ is not seeking monetary damages, only a decree that a conspiracy to fix prices did occur, an injunction against collusion, and costs of the scheme. Private lawyers will determine the damages in the class action, seeking to “…pry the ill-gotten profits from Apple and the publishers and return them to consumers.”

While the complaint is welcome news for e-book vendors such as Amazon and consumers of e-books, the publishing industry is almost certainly disappointed. As more and more products move into the digital realm, the roles of brick-and-mortar producers and merchants are increasingly in question. The outcome of the case against Apple and the remaining publishers surely will be a milestone in the ongoing battle between those who stand to benefit from “digital disintermediation” and those who are fighting it tooth and nail.

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