US Sues Apple and Major Publishers Over E-Book Price Fixing

DOJ alleges backroom deal cost consumers millions.

ByABC News
April 11, 2012, 12:20 PM

April 11, 2012 — -- The Justice Department has filed an anti-trust lawsuit against Apple and five major publishers over allegations of pricing fixing of E-books.

The lawsuit, filed in U.S. District Court in Manhattan, alleges that Apple and publishers Simon & Schuster, HarperCollins, MacMillan, Hachette and Pearson agreed to fix the price of e-books ahead of the debut of Apple's iPad in 2010 as ebooks gained popularity with the rise of Amazon's Kindle in 2007.

"Beginning in the summer of 2009, we allege that executives at the highest levels of the companies included in today's lawsuit – concerned that e-book sellers had reduced prices – worked together to eliminate competition among stores selling e-books, ultimately increasing prices for consumers," said Attorney General Eric Holder at a press conference Wednesday. "As a result of this alleged conspiracy, we believe that consumers paid millions of dollars more for some of the most popular titles."

Holder alleged that the price fixing occurred during "regular, near quarterly meetings" during meals in private dining rooms at expensive Manhattan restaurants and constituted a "conspiracy to raise, fix and stabilize retail prices."

According to Holder, Hachette, HarperCollins and Simon & Schuster have agreed to a proposed settlement but the settlement will have to be approved by a U.S. District Court judge in Manhattan.

Three other companies -- Apple, MacMillan and Pearson's Penguin Group -- have chosen to fight, said Antitrust Division Acting Assistant Attorney Genera Sharis Pozen. "We will pursue vigorously our claims against those companies to ensure that consumers get the full benefits of the competition they deserve."

"We are taking action to stop what was an illegal conspiracy," said Pozen.

The lawsuit alleges that Apple had long believed it would be able to "trounce Amazon by opening up [its] own ebook store," the lawsuit alleges, "but the intense price competition that prevailed among e-book retailers in late 2009 had driven the retail proce of popular e-books to $9.99 and had reduced retailer margins on e-books to levels that Apple found unattractive."

The Justice Department claims that Apple and the publishers "reached an agreement whereby retail price competition would cease…retail e-book prices would increase significantly (which the publisher defendants desired), and Apple would be guaranteed a 30 percent 'commission' on each e-book it sold."

The lawsuit quotes Apple's late CEO Steve Jobs as saying, "We'll go to [an] agency model, where you set the price, and we get our 30 percent, and yes, the customer pays a little more, but that's what you want anyway."

The quotation originally appeared in Walter Isaacson's biography of Jobs, which was published in 2011.

According to the Justice Department, Apple's agreement with the publishers set the price of the e-book version of bestsellers and newly released hardcovers at $12.99, $14.99 and $16.99 instead of Amazon's $9.99.

One of the publishers' CEOS allegedly called the Amazon price "the wreched $9.99 price point." Another allegedly said, "Our goal is to force Amazon to return to acceptable sales prices."

Apple allegedly called the new pricing agreement an "Aikido move," a reference to the Japanese martial art.

"Apple was perfectly willing to help the Publisher Defendants obtain their objective of higher prices for consumers," charges the lawsuit, "by ending Amazon's '9.99' price program as long as Apple was guaranteed its 30 percent margin and could avoid retail price competition from Amazon."

Under their proposed settlement with the Justice Department, Hachette, HarperCollins and Simon & Schuster will end their agreements with Apple and other e-book retailers and will not be allowed to enter into new agreements for two years that limit customer discounts.

Apple declined comment to ABC News.