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Wednesday, April 11, 2012
U.S. Justice Department Continues to Litigate Against Apple, Publishers Of e-book Price Fixing


The U.S. Department of Justice today reached a settlement with three of the largest book publishers in the United States but it will continue to litigate against Apple and two other publishers for conspiring to push up the prices of e-books.

The civil antitrust lawsuit was filed in U.S. District Court for the Southern District of New York against Apple and three of the largest book publishers in the United States -- Hachette, HarperCollins, Macmillan, Penguin and Simon & Schuster. At the same time, the department filed a proposed settlement that, if approved by the court, would resolve the department's antitrust concerns with Hachette, HarperCollins and Simon & Schuster, and would require the companies to grant retailers - such as Amazon and Barnes & Noble - the freedom to reduce the prices of their e-book titles.

"As a result of this alleged conspiracy, we believe that consumers paid millions of dollars more for some of the most popular titles," said Attorney General Eric Holder. "We allege that executives at the highest levels of these companies - concerned that e-book sellers had reduced prices - worked together to eliminate competition among stores selling e-books, ultimately increasing prices for consumers."

"With today's lawsuit, we are sending a clear message that competitors, even in rapidly evolving technology industries, cannot conspire to raise prices," said Acting Assistant Attorney General Sharis A. Pozen in charge of the Department of Justice's Antitrust Division. "We want to undo the harm caused by the companies? anticompetitive conduct and restore retail price competition so that consumers can pay lower prices for their e-books."

According to the complaint, the five publishers worked together to enter into contracts that eliminated price competition among bookstores selling e-books, increasing prices paid by consumers. Before the companies began their conspiracy, retailers regularly sold e-book versions of new releases and bestsellers for, as described by one of the publisher's CEO, the "wretched $9.99 price point." As a result of the conspiracy, consumers are now typically forced to pay $12.99, $14.99, or more for the most sought-after e-books, the department said.

The department alleges the conspiracy began in the summer of 2009. CEOs from the publishing companies met privately as a group about once per quarter.

The complaint states that the companies accomplished their conspiracy by agreeing to stop the longstanding practice of selling e-books, as they long sold print books, on wholesale to bookstores, and leaving it to the bookstores to set the price at which they would sell the e-books to consumers. Through their conspiracy, the companies imposed a new model under which the publishers seized e-book pricing authority from all of their retail bookstores and raised prices for e-books.

The publishers also agreed with Apple to pay Apple a 30 percent commission for each e-book purchased through Apple's iBookstore and promised, through a retail price-matching most favored nation (MFN) provision, that no other e-book retailer would sell an e-book title at a lower price than Apple.

As stated in the department's complaint, Apple?s then-CEO Steve Jobs said, "the customer pays a little more, but that?s what you [publishers] want anyway." Based on the commitments to Apple, the publishers imposed agency terms, over some objections, on all other e-book retailers. As a result, no e-book retailer is able to compete by using its commission to discount or reduce the price that the publishers set for their e-book titles or offer any special sales promotions to encourage consumers to purchase those e-books. The department said that the intent and effect of the publishers' contracts with Apple was to raise the prices that consumers nationwide pay for e-books.

The ongoing litigation against Apple, Macmillan and Penguin seeks to restore price competition among e-book retailers in the sale of the litigating publishers' e-books. Under the existing agency agreements, Macmillan and Penguin prohibit e-book retailers from exercising any pricing discretion on their titles, and Apple is freed from any price competition with other retailers in selling those e-books.

The court will determine a pretrial schedule for the case against Apple, Macmillan and Penguin once the companies file their responses to the U.S. government's lawsuit.


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