Apple accused of conspiring with publishers to fix ebook prices
The US Department of Justice (DoJ) is suing the technology giant for allegedly breaching anti-trust laws with five major book publishers – HarperCollins, Hachette, Penguin Group, Macmillan and Simon & Schuster.
According to DoJ filings lodged in a Manhattan Court, in September 2008 and January 2009 the chief executives of the five publishers met for a series of dinners in a private room at an upmarket New York restaurant, where they are alleged to have discussed "business matters".
On a separate occasion, they met with a sixth publisher, again in a private dining room, where the DoJ claims they "discussed the growth of ebooks and complained about Amazon's role in that growth".
Not long after, in 2010, the five publishers accused of colluding with Apple signed up to the so-called "agency model" of pricing, under which they dictate the price of an ebook as long as they give 30pc of the revenues to the retailer.
"Publishers saw the rise on ebooks, and particularly Amazon's price discounting, as a substantial challenge to their traditional business model [and] feared that lower retail prices for ebooks might lead eventually to lower wholesale prices for ebooks [and] lower prices for print books," the DoJ said. To combat this, they "teamed up with Apple, which shared the same goal of restraining retail price competition", it added.
According to the DoJ, their "conspiracy came together as the publisher defendants were jointly devising schemes to limit Amazon's ability to discount ebooks and Apple was preparing to launch its electronic tablet".
The agency model, set up when Apple launched its iPad in 2010 and since widely adopted, was seen as an attempt to ease Amazon's grip on the ebook market. Previously, ebooks were wholesaled to retailers in the same way as printed books, allowing retailers to set the price. However, many retailers sacrificed margin to win market share. This lowered customers' expectations of how much an ebook should cost, and rattled publishers who were ceding control to retailers and had seen ebooks as a way of propping up their margins.
The DoJ lawsuit follows an investigation into the same issue by the European Commission, which has expressed fears that the publishers were engaging in "anti-competitive practices".
HarperCollins, Hachette and Simon & Schuster have settled the claims. Penguin and Macmillan still face litigation. Macmillan has said the DoJ's settlement terms "were too onerous" and denied the company acted illegally.
Penguin said in a statement: "A responsible company does not choose a path of litigation with US Government agencies without carefully weighing the implications of that course of action. Nonetheless, countless hours discussing this issue with colleagues here at Penguin, as well as with our parent company, Pearson plc, have not led any of us to the view that we should settle this matter. Indeed, alone among the publishers party to the investigations that resulted in today’s announcements, we have held no settlement discussions with the DOJ or the states.
"We have held strongly to this view for two, and only two, reasons. The first is that we have done nothing wrong... The second... is that we believed then, as we do now, that the agency model is the one that offers consumers the prospect of an open and competitive market for e-books. We understood that the shift to agency would be very costly to Penguin and its shareholders in the short-term, but we reasoned that the prevention of a monopoly in the supply of e-books had to be in the best interests, not just of Penguin, but of consumers, authors and booksellers as well."