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  • The Department of Justice Officially Files Suit Against Apple and Five Publishers



    The United States Department of Justice brought down a Thor-like gavel on Apple and five publishers today as they officially filed an antitrust lawsuit over allegations of e-book price-fixing.

    The DoJ along with 15 states claim Apple and publishers colluded in attempt to raise the price of e-books costing consumers and estimated $100 million over two years by adding between $2 and $5 to the price of each e-book.

    Attorney General Eric Holder claims executuves at the highest levels of each company conspired to eliminate competition in the e-book market. DoJ antitrust chief Sharis Pozen confirmed previous speculation that publishers were desperate to get Amazon to raise the pricepoint of e-books above the popular $9.99 the company had set for the most popular titles. The low price significantly undercut the price of the publisher’s hardcover and paperback equivalents.

    The five companies named in the lawsuit include Hachette, Harper Collins, Simon & Shuster, Macmillan, and The Penguin Publishing Co. Ltd. The first three have already reached a settlement with the DoJ. Apple, Macmillan and Penguin appear to be planning to fight the charges, at least initially.

    With the settlement, and if the lawsuit is successful, the DoJ will have effectively eliminated the “Agency Model” of selling books. Through this model the conspirators agreed that they wouldn’t sell books to retailers thereby letting the retailer decide what retail price to charge. Instead they would make the retailers “agents” who could sell the books, but would not be able to alter the publisher-set retail price. The scheme then called for Apple to receive a 30% commission on each e-book it sold. The paradox with the Agency model though is publishers most often ended up earning less money from each book sold as Apple took 30% of the revenue off the top.

    Apple earned a special place in the DoJ’s hearts as well with a clause in the Terms and Conditions that stated books sold via iBooks couldn’t be sold cheaper anywhere else. Apple reportedly removed this clause from the terms and conditions earlier this week after learning of the DoJ’s intent to sue.

    The terms of the settlement Hachett, Harper Collins, and Simon & Shuster reached with the DoJ states the companies agree 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.”

    Before Apple and the five publishers introduced the Agency Model Amazon had 90% of the e-book market share. Today Amazon’s piece of the e-book market is estimated around 60%, with Barnes and Noble’s Nook pulling in 25% and Apple’s iBookstore pulling in between 10% and 15%.

    The collusion worked, but with it now gone Amazon could potentially regain lost market share. Whatever the outcome, it looks like consumers might be the beneficiaries of a gruesome e-book price war.

    Source: The Huffington Post
    This article was originally published in forum thread: The Department of Justice Officially Files Suit Against Apple and Five Publishers started by Phillip Swanson View original post
    Comments 6 Comments
    1. rickuk's Avatar
      rickuk -
      The low price significantly undercut the price of the publisher’s hardcover and paperback equivalents. Considering that its cheaper to produce a e-book than a paperback book, Apple and the publishers were just being greedy and trying to rip everyone off

      Thumbs up for Amazon sticking up for the buyers
    1. Mrteacup's Avatar
      Mrteacup -
      I don't understand why they should get sued for this.. Who is suffering from the price being different? Consumers can buy amazon ones so apple can lose but apple gains cause they are pricing higher.

      As long as someone isn't getting ripped off here then i dot think its sue worthy. There's upsides and downsides to high and low prices..
    1. Cokeman's Avatar
      Cokeman -
      Quote Originally Posted by Mrteacup View Post
      I don't understand why they should get sued for this.. Who is suffering from the price being different? Consumers can buy amazon ones so apple can lose but apple gains cause they are pricing higher.

      As long as someone isn't getting ripped off here then i dot think its sue worthy. There's upsides and downsides to high and low prices..
      Yes the consumer can buy Amazon's, but do to the way Apple & the Publishers set this up, Amazon was forced to raise the price to the same as Apple. Apple knew they could not give books away. They also knew there was no way they could convince the publishers to loose 30% of the top. So they had to find a way to force the prices up. The Publishers jumped on it for 2 reasons.
      1. Amazon will now have to raise the prices...we make more money.
      2. Apple is going to take 30%...we make less, But Amazon sells more books than Apple.

      The consumer is the one getting ripped off.
    1. unison999's Avatar
      unison999 -
      Quote Originally Posted by rickuk View Post
      The low price significantly undercut the price of the publisher’s hardcover and paperback equivalents. Considering that its cheaper to produce a e-book than a paperback book, Apple and the publishers were just being greedy and trying to rip everyone off

      Thumbs up for Amazon sticking up for the buyers
      I think we all know Amazon's motive is not for the buyers, but consumers benefit so I am not complaining.
    1. Breezer23's Avatar
      Breezer23 -
      Apple doesn't care about it's mindless consumers? I don't buy it?
    1. zrevai's Avatar
      zrevai -
      You should read the recent past issue of Wired featuring an interview with Amazons CEO. In it he flat out says they have been and always will be a "low profit margin company" that they started out with almost no profit margin and haven't changed that since Amazon was started. In contrast Apple has enormous profit margins on everything. Great article and worth reading if you can.