Breaking: U.S. Sues Apple, Publishers Over eBook Price-Fixing

(Mis)Uses of Technology

from the fresh-news dept

Wed, Apr 11th 2012 7:20am — Leigh Beadon

Ever since the Justice Department announced that they were investigating Apple and several publishers over allegations that Apple's agency model for ebook pricing violates antitrust law, we've been waiting for the other shoe to drop. Last night, Reuters reported that a lawsuit was imminent, and now Bloomberg has the news that the government has filed a lawsuit against Apple, Hachette, HarperCollins, Macmillan, Penguin and Simon & Schuster in New York district court.

Details are still scarce, but sources say Apple and Macmillan refused to participate in settlement talks while some of the other publishers are still hoping to avoid a drawn out legal battle, and may settle soon. Update: Bloomberg is now reporting that S&S, HarperCollins and Hachette have settled. It will be interesting to see what kind of defense Apple brings, because the evidence of collusion doesn't look good for them at all. Despite Authors Guild president Scott Turow's self-serving claim that this will somehow hurt culture, this is good news for readers: busting Apple's and the publishers' iron grip on ebook prices will likely reduce them across the board.

Here is this the government's complete filing (pdf and embedded below).

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Filed Under: agency, antitrust, collusion, ebook, publishing
Companies: apple, hachette, harpercollins, macmillan, penguin, simon & schuster

68 Comments

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Anonymous Coward, 11 Apr 2012 @ 7:26am

You know the word Breaking means that you are the/an original news source.
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Leigh Beadon (profile), 11 Apr 2012 @ 7:28am

Re:
You know the word Breaking means that you are the/an original news source.

It also means "this story is in the process of coming to light as we speak" - which it is.
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Anonymous Coward, 11 Apr 2012 @ 7:32am

Re:
Here you go:

http://dictionary.reference.com/browse/Breaking_news
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Anonymous Coward, 11 Apr 2012 @ 7:32am

I suppose if you want to define it that way, but it's better to define it consistently because if used precariously it can skew search results.
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Anonymous Coward, 11 Apr 2012 @ 7:33am

Re: Re:
Ok, I concede, it means that too. Traditionally Mike here on Techdirt has used it the other way but I guess it doesn't matter too much.
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Anonymous Coward, 11 Apr 2012 @ 7:34am

Re:
(sorry, in response to Leigh Beadon (profile), Apr 11th, 2012 @ 7:28am )
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Ima Fish (profile), 11 Apr 2012 @ 7:35am

"Apple... refused to participate in settlement talks"

Apparently the reality distortion field is still operational at Apple.
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Ima Fish (profile), 11 Apr 2012 @ 7:36am

Re:
I've heard of Grammar Nazis and spelling Nazis, but you're the very first Term of Art Nazi I've never seen.
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Leigh Beadon (profile), 11 Apr 2012 @ 7:41am

Re: Re:
Semantics Nazi :) Which, honestly, is much more productive than grammar or spelling - I appreciate a good examination of the true, detailed meaning of a word!
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Anonymous Coward, 11 Apr 2012 @ 7:49am

Re: Re: Re:
These days I think when it comes to referencing articles and trying to search for them, it helps to keep the use of words consistent. Otherwise, it can make it more difficult to later find an article.
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Anonymous Coward, 11 Apr 2012 @ 7:51am

Re: Re: Re: Re:
(I know, one may argue it's silly to revolve our language use around search engines...)
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Anonymous Coward, 11 Apr 2012 @ 7:54am

Re: Re: Re:
Wow, you symantic-nazi'd a reply about symantic-nazi'ing. How....meta.
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jhn, 11 Apr 2012 @ 7:55am

Sorry, "Apple's iron grip"? Apple doesn't set ebook prices at all. That's the whole point of agency pricing.

Do you hope to break the iron grip of publishers on their own titles?
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Glen, 11 Apr 2012 @ 7:55am

Re:
They are too busy suing Google and the phone manufactures to actually want to negotiate.
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Anonymous Coward, 11 Apr 2012 @ 7:55am

Re:
Apple's bank account should put a small dent in the deficit.
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Anonymous Coward, 11 Apr 2012 @ 7:57am

Re: Re: Re: Re:
My intent really isn't to be a semantic nazi, I guess I'm just being a search engine reference nazi.
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Anonymous Coward, 11 Apr 2012 @ 7:58am

Hold it. I thought it was Amazon who had an iron grip on ebook prices? WTF.
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Leigh Beadon (profile), 11 Apr 2012 @ 7:58am

Re:
To clarify: I mean Apple's iron grip in the sense that they don't let the books sell cheaper anywhere else.
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Jake (profile), 11 Apr 2012 @ 8:00am

Re:
Yes "Apple's iron grip", they may not set the prices, but by not allowing ebooks to be offered for less elsewhere, they are artificially propping up the prices.
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Bo Red, 11 Apr 2012 @ 8:01am

Moore's Law Suits ...
soon to come.

So sue me.
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Leigh Beadon (profile), 11 Apr 2012 @ 8:06am

Re: Re:
on further inspection, that sentence was very badly worded (and had actually reverted to an earlier version than what i meant to publish) so I've altered it slightly to clarify
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G. Odd, 11 Apr 2012 @ 8:07am

I Said "Look! Superman!"
NOT "Look! Sue her man"!

You @$$! kids never listen. It's time for a recall.
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Anonymous Coward, 11 Apr 2012 @ 8:12am

I wonder if prices will really drop... I'm sure they'll take this opportunity to make MORE money off us, since the deals will be dead in the water. It opens the door wide open for higher prices... a la MAFIAA.
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Mike42 (profile), 11 Apr 2012 @ 8:13am

It would be nice not to be charged $40 for an e-book of a 200 page, 30-year-old programming book which I can get used for $0.05+shipping.
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John Doe, 11 Apr 2012 @ 8:28am

ebooks are too expensive
ebooks are way to expensive for what you get. You get a file with DRM that can only be loaned for 2 weeks but cannot be donated, resold or given to friends.

Oh wait, you can do those things by simply breaking the DRM. I have just recently gotten started reading ebooks with the Hunger Games trilogy. My wife and I both read them but of course only paid for one copy. Now that we are done with them, I have given the DRM'less copies to my sister-in-law.

Do I feel like a pirate? Not in the least. I only did with the digital book what I could freely do with a physical book. In reality, the digital world does not have any of the limitations of the physical world, yet we allow the government and content creators to put more restrictions on it than the physical world has. What up with that?
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droslovinia, 11 Apr 2012 @ 8:32am

Re: things
Yes. they keep it right next to the "Don't let Amazon rule the universe" switch.
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Torg (profile), 11 Apr 2012 @ 8:36am

Re: Re: Re: Re: Re:
Actually, I like this idea. Most of the rest of our culture already revolves around search engines. It makes sense to try to adjust our language accordingly.
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cubis, 11 Apr 2012 @ 8:39am

Re: ebooks are too expensive
The difference is that you are making copies of the e-book and would not be doing that with a physical book.
With a physical book, when you give it to someone else, you no longer have it.
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Eponymous Coward (profile), 11 Apr 2012 @ 8:40am

Re: ebooks are too expensive
The real victims here are the bit-binders, the intrepid folk who take the time to sew together the individual bits that make up an ebook. Automated, mechanized bit-binding already threatens this artisanal trade, and without the price-fixing support of the publishers, we may soon see many bit-binderies going the way of the dodo.

Jens Krustensen, fourth generation bit-binder, weighed in on this touchy subject, saying:
"People don't realize how difficult bit-binding is, or how essential it is that we get paid fairly for our work. Sure, anyone can sew a zero to another zero, but it takes 4 years of training, plus another seven of apprenticeship, before you can sew those ones to each other. That kind of training takes a lot of money. These newfangled mechanized bit-binders are shiny, but what happens when you're halfway through Moby Dick and all the ones start to fall out? Our culture is too important to entrust it to these foolish 'advances', if you can even call them that."

Please continue to pay inflated prices for DRM-hobbled ebooks. If we don't, the bit-binder could become as rare a sight as a tallow-chandler, and the world will weep.
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Anonymous Coward, 11 Apr 2012 @ 8:47am

Re: Re: Re: Re: Re: Re:
The way most web pages are organized makes them very search engine unfriendly. Search engines sort of have to adjust to how we organize our websites and our websites are organized partly based on how information was traditionally organized before these new developments (ie: books, with reference pages, etc...). But in the age of search, it makes a lot more sense to organize data around search engines instead of trying to adapt search engines to how data has traditionally been organized before the digital age.
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sehlat (profile), 11 Apr 2012 @ 8:51am

The ONLY defense that might work for Apple.
Blame everything on Steve Jobs and suggest the government sue him. (Not his estate.) HIM.
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Mesonoxian Eve (profile), 11 Apr 2012 @ 8:52am

It's just a shame the FTC is only stopping at e-book price fixing, and not including:
-Cable rentals at $4.99 for 24 hours
-Songs at $0.99 each
-DVD and Bluray prices
-Apps requiring a subscription on top of a subscription (Yes, this includes you, Microsoft 360 Division)

Hell, let's just summarize the list as: the entire entertainment industry.

I'll leave out the government bribery charges, for now.
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Simon, 11 Apr 2012 @ 8:53am

Apple's agency model
What Apple were really saying to Amazon with this deal was "how dare you have a different business model to us".
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AdamF (profile), 11 Apr 2012 @ 9:03am

Why Apple?
Could somebody, please, explain to me why Apple is being sued?

I can see where publishers getting together, fixing prices, and refusing to sell to some retailers (Amazon) would violate the law; but why Apple?
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Anonymous Coward, 11 Apr 2012 @ 9:05am

Macmillan Responds
http://www.macmillan-speaks.com/2012/04/11/a-message-from-john-sargent-3/

BS imo but ymmv. ;)
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akp, 11 Apr 2012 @ 9:10am

I'm a huge Apple fangirl, but I'm glad to see this getting some attention at the federal level.

I've always thought it was wrong for the publishers to be able to set the retail price for ebooks. It should be the same as for paper books (and incidentally most other physical goods): A wholesale price and an MSRP. If the retailer (Amazon, Apple, B&N) want to sell those goods at a lower margin, or a loss, that's the retailer's choice.

Somehow the publishers don't mind wholesaling millions of books to price clubs and letting them be sold for 50% the MSRP... why should they care about a similar pricing structure for ebooks?

Apple making the deal letting the publishers do whatever they want severely hurt other ebook retailers, and that's not right. They did it purely to strongarm their way into the ebook market when they were behind.

I hope this lawsuit will bring sanity back to the ebook business.
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Baldaur Regis (profile), 11 Apr 2012 @ 9:13am

Always happy to see Apple sued
Apple gets 30% of everything sold through its stores - of course it wants to keep the agency model of book pricing (as opposed to the wholesale method). Everything reported in the press to date screams collusion, so at least one question was answered: why were ebooks costing as much as hardbacks?

Apple will eventually settle - after all, what's a few million bucks? - and the book publishers will learn what it's like to live and work in the 21st century.
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akp, 11 Apr 2012 @ 9:13am

Re:
If the so-called "agency" pricing model goes away, then Amazon and other retailers are free to price books at lower margins, at a loss (as they were doing before), etc.

It just puts pricing back on the retailers, where it belongs. Publishing houses will continue to set a wholesale price, and retailers are then allowed to compete on price.

Physical books aren't the same price in every store (compare a bestseller at B&N to WalMart), why should ebooks?
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Eponymous Coward (profile), 11 Apr 2012 @ 9:15am

Re: Why Apple?
Because Apple, through their agency model, was dictating the end-market price of their suppliers' goods sold through any outlet. They were fixing the retail price of any ebook they offered, not only in their store, but in any other store as well.

Imagine if Walmart, through agreements with Pepsi and Coke, forced the price of soda to rise at Target/Costco/wherever.

Low-overhead stores suddenly aren't allowed to 'pass the savings on to you' because their competition says they can't. How does that make sense?
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akp, 11 Apr 2012 @ 9:17am

Re:
There's a difference between what the "market" has decided should be a price, and the cable companies/music labels/movie studios all deciding what the end price will be, and forcing it at every retailer.

The "market" has decided that a DVD should be about $20, but that doesn't mean WalMart isn't free to sell that same DVD for $5.
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Xan, 11 Apr 2012 @ 9:24am

Re:
No, Amazon wants to sell ebooks for less than they are allowed.
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Xan, 11 Apr 2012 @ 9:29am

Re: Why Apple?
Basically Apple told the publishers not to allow Amazon to sell the book cheaper than Apple would sell it for.
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John Doe, 11 Apr 2012 @ 9:53am

Re: Re: ebooks are too expensive
With a physical book, when you give it to someone else, you no longer have it.

Once I have read it, who cares if I keep a copy? I am certainly not going to buy two copies so no money lost.
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Baldaur Regis (profile), 11 Apr 2012 @ 9:56am

Re: Re: ebooks are too expensive
Why would you assume the original poster would keep a copy?

Not to debate you personally, but your comment illustrates perhaps the core assumption of the entire entertainment industry: transferring a digital file = copying = 2 (or more) copies.
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Andycap, 11 Apr 2012 @ 10:02am

Re: Re:
Seriously !!!! i buy a 100000 books and decide because i want to attract business i will sell at a loss to attract business as Amazon wanted to do , this is fair and a practice used by many vendors.
Apple managed to collude with the publishers to stop discounted prices as they felt they had a larger part of the market and did not want competition from Amazon or to let book prices fall for there customers.
This was a way to artificially create a price for books that hopefully will drop and stop a lot of the book piracy that is very popular at the moment. To be honest a book is worth much less now than what it was worth 100 years ago as printing presses became cheaper to run and the population grew. Now with ebooks costing less than a penny to distribute the price really should be related to the value people put on them. I read a post the other day stating that people are reading many more books since they got ebook readers something like double the amount and many more people are reading because of the ease of carrying an ebook reader. So if the customer base has been quadrupled since the creation of the ebook reader and printing prices have all but gone away and distribution costs have fallen to almost 0. Publishers should be looking at reducing there prices by at least 80% and still generating a decent profit.
The problem though is that greed has caused higher prices. Ebook prices being higher than paperbacks just does not make sense in any way and people have realised this and have tuned there backs on the publishers by pirating, hopefully if Amazon can get the prices down to a reasonable price people will buy again but even then people have become used to free so the publishers have screwed themselves with there greed as many will never pay for a book again.
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harbingerofdoom (profile), 11 Apr 2012 @ 10:10am

Re: Re: Re:
if "it doesnt mater too much" then when did you use that as a launching point?
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DannyB (profile), 11 Apr 2012 @ 10:21am

All that is necessary for Apple to triumph
All that is necessary for Apple to triumph is for Google men to do nothing.
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ChrisB, 11 Apr 2012 @ 10:25am

Re: Re:
> The "market" has decided

There is no "market" when you have a monopoly. Those holding the monopoly will charge as much as they can, aware that if they charge too much people and/or governments will revolt.

Unfortunately, the people have had enough of $20 DVDs, and are revolting. Good luck trying to stop them.
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John Doe, 11 Apr 2012 @ 10:39am

Re: Re: Re: ebooks are too expensive
The real issue is, why should they care if I keep a copy? Seriously, how many times does someone read a book? And how many times are they really going to pay for the same book?
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Anonymous Coward, 11 Apr 2012 @ 10:40am

I wish that the "settlement" meant all their e-books from now on need to be priced under $5, which should be their real price.
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Donnicton, 11 Apr 2012 @ 11:20am

Re: Re: Re: Re:
Because #piracyiseverywhere
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Spike (profile), 11 Apr 2012 @ 11:26am

The movie industry has more of an iron grip on pricing than the ebook industry ever did, yet wheres that lawsuit?

Oh right, the bribes keep flowing and the DoJ is on their side, so its business as usual....
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AdamF (profile), 11 Apr 2012 @ 11:46am

Re: Re: Why Apple?
So if I understand it right, Apple has a contract with publishers, which allows publishers to choose at what price their books will be sold (with Apple taking 30% cut). The contract also specifies that publishers must ensure that any other retailer they deal with will also sell their books at the same price. Did I get it right?

The problem with your metaphor is that if Walmart tried something like that, Pepsi would tell them to f*** off. But then Pepsi and Coke are actually interested in selling their product to as many people as possible, while most publishers would prefer to outlaw ebooks entirely.
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The Mighty Buzzard (profile), 11 Apr 2012 @ 11:51am

Re: Re:
They'd rather pay lawyers. And the claim that they can't be guilty of price fixing when no other retailers were involved kind of holds water there. As far as I'm aware, it's legal to try and fix the price you're receiving and you're allowed to set most any price you like as long as it's not discussed with your peers in the industry.
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Scote, 11 Apr 2012 @ 1:04pm

Re: Why Apple? Because it was a knowing conspirator.
"Could somebody, please, explain to me why Apple is being sued?"

You really need to read the full DOJ pdf. It explains Apple's involvement clearly. But the gist of it is that Amazon bought ebooks for wholesale prices and set its retail ebook prices at no greater than $9.99, no matter what they paid for it, even if they had to take a loss. They did this to give themselves a competitive edge in the ebook market. The low prices freaked out the big publishers who thought that consumers would come to expect cheap ebooks, and, shudder, cheaper books in general. The big publisers couldn't have that and so conspired amongst themselves to stop Amazon from selling ebooks for low prices. Enter Apple, who's goals gave the publishers a way to all sign a collusary deal to raise prices, but make it look like it was a deal with Apple rather than a conspiracy amongst themselves.

Apple wanted a straight 30% cut, and didn't want to compete on price--ever. Apple deal got apple a huge, guaranteed profit margin, higher than existing ebook profit margins, and the big five publishers agreed not to let anyone else sell their ebooks for less.

So, Apple, coming strong into the ebook market should have **lowered** ebook prices to compete. Instead the conspired with publishers to *raise* ebook prices. That is the opposite of competition. Apple, according to the DOJ, knew what they were doing, and kept all the publishers apprised so they all knew they were signing on the same terms to kill Amazon's pricing.

Or so I under stand it.
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Torg (profile), 11 Apr 2012 @ 1:52pm

Re: Re: Why Apple? Because it was a knowing conspirator.
"But the gist of it is that Amazon bought ebooks for wholesale prices and set its retail ebook prices at no greater than $9.99, no matter what they paid for it, even if they had to take a loss."

Digital distribution does not work that way. They do not need to order new ebooks every time someone buys one from them.
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Anonymous Coward, 11 Apr 2012 @ 2:08pm

Re: Re: ebooks are too expensive
That's exactly why it doesn't make sense to apply physical rules to digital media. In the digital world copying, sharing, and lending, are all synonyms.
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Simon, 11 Apr 2012 @ 2:27pm

Re: Re: Re: Why Apple?
Almost right - other retailers had to sell at the same price or HIGHER.
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Baldaur Regis (profile), 11 Apr 2012 @ 3:19pm

Noteworthy in itself
From the filing:

34. The Publisher Defendants also feared that the $9.99 price point would make e-books so popular that digital publishers could achieve sufficient scale to challenge the major incumbent publishers' basic business model. The Publisher Defendants were especially concerned that Amazon was well positioned to enter the digital publishing business and thereby supplant publishers as intermediaries between authors and consumers. Amazon had, in fact, taken steps to do so, contracting directly with authors to publish their works as e-books � at a higher royalty rate than the Publisher Defendants offered. Amazon's move threatened the Publisher Defendants' traditional positions as the gate-keepers of the publishing world. The Publisher Defendants also feared that other competitive advantages they held as a result of years of investments in their print book businesses would erode and, eventually, become irrelevant, as e-book sales continued to grow.

Damn that uppity Amazon, trying to compete with us! Us, with our secret-meetings-in-upscale-restaurants business strategies and our leave-no-paper-trail mentality! The nerve.
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Anonymous Coward, 11 Apr 2012 @ 3:30pm

Re: Noteworthy in itself
That sounds awfully familiar, dare I say..........mega-familiar
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Torg (profile), 11 Apr 2012 @ 3:40pm

Re: Noteworthy in itself
Isn't that an admission of collusion to sabotage a competitor?
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Scote, 11 Apr 2012 @ 6:24pm

Read the PDF
Yes, digital distribution *did* work that way--until the big 5 publishers and apple illegally colluded to change the model and raise prices, according to the DOJ. The wholesale vs. agency model isn't about warehousing physical stock but about pricing. Under the wholesale model, a publisher says to a distributor like Amazon, "This book is $30 list, wholesale price is $15, sell it however you like and we'll always get our $15." But Amazon could sell for low margins, like retailing for $16, or even at a loss, $9.99, to promote e-books and the Kindle. That's the wholesale model. Under the agency model, the publisher says, "This book lists for $30, and you must sell it for $30. Period. End of story. We keep $20."
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Scote, 11 Apr 2012 @ 8:28pm

Re: Always happy to see Apple sued
"Apple will eventually settle - after all, what's a few million bucks? - and the book publishers will learn what it's like to live and work in the 21st century."

I dunno. Not having to compete on price because of MFN clauses and getting a straight 30% net profit is pretty sweet. I think Apple may fight this hard. Just as the publishers feared that consumers would come to expect low book prices if Amazon kept selling e-books for $9.99, Apple may fear a cascade from app sellers, music, tv and movie publishers if Apple has to drop the 30% MFN agency model in book sales.
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the good doctor, 12 Apr 2012 @ 8:44am

i have not seen one clear explanation of apple's part in this collusion. they are providing a platform for selling ebooks, and their stipulation is that you can't sell it cheaper elsewhere. is that collusion? how?
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Simon, 12 Apr 2012 @ 9:34am

Re: Re: Why Apple? Because it was a knowing conspirator.
So if Amazon were paying more to the publishers than they were selling them for, what's to stop the publishers buying endlessly from Amazon and creating an INFINITE CASH MACHINE?!?!?
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Anonymous Coward, 12 Apr 2012 @ 12:05pm

Infinity
Nothing!!!!! AFIK :-)

Which is why the publishers are a bunch of whiners.

Such things have actually happened with physical goods. The maker of the kid's toy "Vampire Blood" and other goodies found his product in the bargain bin at one retailer, selling for below his manufacturing cost. So he bought up that retailers retail stock, and re-sold it at his regular wholesale price to other retailers.

But, just because publisher collusion to raise prices is illegal and evil doesn't mean that Amazon's plans to crush all competition through aggressive pricing (prices which would likely go up once Amazon succeeded in crushing all other e-book sellers and e-book reading platforms) wasn't evil. The difference is that one is illegal and raised prices and the other is legal and lowered prices.
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Niall (profile), 13 Apr 2012 @ 4:40am

Re: Re: Re: Why Apple? Because it was a knowing conspirator.
It's the non-physical licence to copy in this case.
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Niall (profile), 13 Apr 2012 @ 5:16am

Re:
It's unfairly restricting someone's free right to sell a product how they like. Seriously, that's like Wal-Mart telling Pepsi that of they want to sell in their stores, Pepsi cannot sell anywhere else for any less.

More accurately, it sounds a form of monopsony, or at least attempted monopsony.
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