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Apple, Publishers Facing Antitrust Lawsuit from Justice Dept

By - Source: The WAll Street Journal | B 27 comments

The Justice Department is suing Apple and five publishers over alleged ebook price fixing.

For book readers who have taken a hit in the wallet thanks to overinflated ebook prices, justice is about to be served.

The Wall Street Journal reports that after a thorough investigation over complaints regarding the dramatic increase in ebook pricing, the Justice Department is now threatening to sue in an antitrust case against Apple and five publishers including Simon & Schuster Inc., Hachette Book Group, Penguin Group (USA), Macmillan and HarperCollins Publishers Inc.

The report states unnamed sources who say several parties have held talks to settle the antitrust case and head off a potentially damaging court battle. Not all publishers are in the discussions, but if participating parties reach a settlement, then numerous ebooks could return back to their cheaper price point. As it stands now, most cost more than an actual physical paperback sold in stores.

As reported back in December, once Amazon's Kindle ereader devices began to grow popular, publishers didn't want the online retailer to control the ebook market by selling virtual books at a $9.99 or less price point. For some reason, publishers believed ebooks to be worth more than $9.99 despite paperback prices. So as a collective, they agreed to a model proposed by Apple's late CEO Steve Jobs called the "agency model" which would go live once the iPad hit stores. This model essentially pulled ebook pricing away from online retailers like Amazon and Barnes & Noble.

Prior to the "agency model" plan agreement, publishers typically sold books to retailers for roughly half of the recommended cover price. Called the "wholesale model," retailers had the freedom of setting their own price, even less than the cover price if desired. To get readers into purchasing a Kindle device, Amazon thus stocked its virtual warehouse full of ebook best sellers priced at $9.99 or less, selling them for less that it paid for each to publishers.

But the publishers reportedly didn't like that strategy, and once they agreed to Apple's "agency model" proposal, the publishers set their own price while Apple took in a 30-percent cut. Apple even required that publishers couldn't let rival retailers sell the same book at a lower price.

Thus as ebook prices began to rise, customers and retailers began to complain. The EU was first to react, raiding a handful of publishers back in March 2011 and seizing computers, contracts and executive smartphones. Eventually the U.S. Justice Department's antitrust arm smelled foul play and began its own investigation. The government seemingly didn't have to go far however, as Steve Jobs admitted to some of the ebook pricing drama to his biographer, Walter Isaacson, in late 2011.

"We told the publishers, 'We'll go to the 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,'" Jobs reportedly stated. "They went to Amazon and said, 'You're going to sign an agency contract or we're not going to give you the books,' "

That said, insiders close to the Justice Department's investigation claim that the agency believes Apple and publishers "worked in concert" to raise prices across the industry, and has enough evidence to sue them all for violating federal antitrust laws. Several publishers believe they aren't guilty of foul play, but will settle anyway because it's the cheaper way out. Others plan to stand firm against the government's lawsuit.

Surprisingly, Barnes & Noble is on the side of publishers. Chief executive William Lynch reportedly testified in a deposition that abandoning the "agency model" would effectively result in a single player gaining even more market share than it has today. That in itself sounds like a fear of Amazon and its Kindle products, a fear that may help in the publishers' case.

To read the full report, head here, or pick up a physical copy of the Wall Street Journal on stands now.

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Top Comments
  • 25 Hide
    blazorthon , March 8, 2012 4:09 PM
    Oh wow. We never stop hearing about Apple's illegal schemes. The legal ones are bad enough, but this crap should get Apple disbanded or something similarly severe instead of letting them off easy.

    Maybe force new ownership and fine everyone proven to be involved.
  • 24 Hide
    dakota75 , March 8, 2012 4:36 PM
    The price of a book has to cover the cost of the paper, the printing, distribution and storage. These are all overheads that don't apply to ebooks. So there is absolutely no reason why an ebook should ever cost more than a physical book. Even selling them for the same price is excessive.
  • 22 Hide
    alvine , March 8, 2012 4:12 PM
    evil apple
Other Comments
  • 25 Hide
    blazorthon , March 8, 2012 4:09 PM
    Oh wow. We never stop hearing about Apple's illegal schemes. The legal ones are bad enough, but this crap should get Apple disbanded or something similarly severe instead of letting them off easy.

    Maybe force new ownership and fine everyone proven to be involved.
  • 22 Hide
    alvine , March 8, 2012 4:12 PM
    evil apple
  • 24 Hide
    dakota75 , March 8, 2012 4:36 PM
    The price of a book has to cover the cost of the paper, the printing, distribution and storage. These are all overheads that don't apply to ebooks. So there is absolutely no reason why an ebook should ever cost more than a physical book. Even selling them for the same price is excessive.
  • 7 Hide
    jaber2 , March 8, 2012 5:28 PM
    This case will be settled out of court in few years, all parties would have to stop colluding and possible provide credit for users, otherwise no one will go to jail and they continue to look for the next scheme. case closed .
  • 19 Hide
    Branden , March 8, 2012 5:30 PM
    i bought a kobo 3 months ago, my wife got envious so i bought her one too recently.

    i find average ebook only being a dollar or two cheaper than the physical thing, and it's not hard to find many ebooks MORE expensive than their paper counterparts. you'd also think that for $23 an ebook would at least have a clear cover image (so many are horribly pixelated) and TOC that's mapped out properly.
    there's no reason for an ebook to be more than $5, or $10 for new release.
  • 11 Hide
    palladin9479 , March 8, 2012 5:31 PM
    The publishers were price fixing to protect the brick and mortar stores from competition. That Apple would lead such a blatantly illegal scheme is ... wow.

    The no bull quote from jobs's own mouth says it all.

    Quote:
    We told the publishers, 'We'll go to the 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,
  • 12 Hide
    house70 , March 8, 2012 5:33 PM
    jacekringThis is stupid...it's like saying that Microsoft can't legally sell xbox 360's at a loss even though it's making up the money through games sales.Amazon sells books at a loss and makes up it's profits through kindle sales. Same thing except in reverse. Price fixing is never a good thing and only hurts the consumers.I can see why B&N is on the side of the publishers...since they own brick and mortar stores, and most of it's revenue is from paperback sales not ebook sales.I think Amazon should starts it's own publishing house for e-book exclusives. Where authors can put submit books to Amazon for publishing, amazon would promote the good ones and give say 40% of the sale directly back to the author. Cutting out the traditional publishing house completely.

    You got it completely opposite of what it is: Amazon sells the ereader at a loss, and gets the money from selling the media.
    In this particular case, publishers got greedy like Apple and it turned around to bite them in the a$$. They should have known better than that, given that Apple's practices are not exactly covert.
  • 19 Hide
    house70 , March 8, 2012 5:39 PM
    palladin9479The publishers were price fixing to protect the brick and mortar stores from competition. That Apple would lead such a blatantly illegal scheme is ... wow.The no bull quote from jobs's own mouth says it all.

    Ripping their customers off has always been Apple's policy, esp. under Jobs' reign.
  • 13 Hide
    viciouz2000 , March 8, 2012 5:47 PM
    lol, i guess steve jobs main function in apple was to keep everything in the down low and cover up. Since Tim Cook took over, all of apples dirty laundry is being seen by all. Bunch of greedy bastards, charging more for an ebook while there is no overhead like in hard copies and paperbacks is just plain greedy.
  • 13 Hide
    wiyosaya , March 8, 2012 5:54 PM
    Karma is a bitch - especially when its deserved.
  • 5 Hide
    house70 , March 8, 2012 6:22 PM
    wiyosayaKarma is a bitch - especially when its deserved.

    By definition, karma is something deserved. It's a bitch when the initial deed was bad, too, otherwise it can be good karma.
  • 3 Hide
    eddieroolz , March 8, 2012 8:45 PM
    Essentially, the publishing business are also crooks. Just like the record labels and movie studios.
  • 4 Hide
    sykozis , March 8, 2012 9:17 PM
    Quote:
    Surprisingly, Barnes & Noble is on the side of publishers. Chief executive William Lynch reportedly testified in a deposition that abandoning the "agency model" would effectively result in a single player gaining even more market share than it has today. That in itself sounds like a fear of Amazon and its Kindle products, a fear that may help in the publishers' case.

    So, B&N thinks price fixing should be legal because it benefits them and screws over consumers..... Guess I'll keep buying from Amazon.

    Quote:
    "We told the publishers, 'We'll go to the 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,'" Jobs reportedly stated. "They went to Amazon and said, 'You're going to sign an agency contract or we're not going to give you the books,' "

    Apple's typical anti-consumer business model.....and a direct violation of Anti-Trust laws...

    Quote:
    Several publishers believe they aren't guilty of foul play, but will settle anyway because it's the cheaper way out. Others plan to stand firm against the government's lawsuit.

    And hopefully those "others" get raked over the coals.....
  • 1 Hide
    bystander , March 8, 2012 11:26 PM
    dakota75The price of a book has to cover the cost of the paper, the printing, distribution and storage. These are all overheads that don't apply to ebooks. So there is absolutely no reason why an ebook should ever cost more than a physical book. Even selling them for the same price is excessive.


    I agree that it's crap, but ebooks have their costs too, such as secure servers and internet connections. They are still going to be cheaper than books, but they do have overhead.
  • 1 Hide
    alidan , March 9, 2012 3:39 AM
    dakota75The price of a book has to cover the cost of the paper, the printing, distribution and storage. These are all overheads that don't apply to ebooks. So there is absolutely no reason why an ebook should ever cost more than a physical book. Even selling them for the same price is excessive.


    it can be argued that the information in the book is what you sell, and the paper is a write off, however this would be in the case of informative books, and not a romance book.

    jacekringThis is stupid...it's like saying that Microsoft can't legally sell xbox 360's at a loss even though it's making up the money through games sales.Amazon sells books at a loss and makes up it's profits through kindle sales. Same thing except in reverse. Price fixing is never a good thing and only hurts the consumers.I can see why B&N is on the side of the publishers...since they own brick and mortar stores, and most of it's revenue is from paperback sales not ebook sales.I think Amazon should starts it's own publishing house for e-book exclusives. Where authors can put submit books to Amazon for publishing, amazon would promote the good ones and give say 40% of the sale directly back to the author. Cutting out the traditional publishing house completely.


    kindle probably sold at cost or at a loss, at least when first introduced, to help establish itself at a product. its like how the ps3 was sold at 600$ when estimates put it over 840.35 (quick search, i have heard over 1000$) and they sold it just to make damn sure blu ray won the format war.

    palladin9479The publishers were price fixing to protect the brick and mortar stores from competition. That Apple would lead such a blatantly illegal scheme is ... wow.The no bull quote from jobs's own mouth says it all.


    um... online digital downloads of videogames, and physical copies. they are the same price to protect their brick and mortar sales.

    its not hard to find how common this crap is.

    jacekringIf I got it opposite, then it's only because the article has it opposite:
    To get readers into purchasing a Kindle device, Amazon thus stocked its virtual warehouse full of ebook best sellers priced at $9.99 or less, selling them for less that it paid for each to publishers.


    you didnt get it opposite, they were talking about the eairly days there, and you didnt take into account the pushing of a new format... they took an over all expected loss to push a format and a way of thinking.

    bystanderI agree that it's crap, but ebooks have their costs too, such as secure servers and internet connections. They are still going to be cheaper than books, but they do have overhead.


    put 2-10mb book on a server, have it downloaded once (usually) per person, go on to next.

    you know, any youtube video is larger than damn near any book, and youtube is close to breaking even with advertisements that pay out 3$-10$ per 1000 views. call me crazy, but any overhead in the ebook trade is marginal at best.
  • 2 Hide
    f-14 , March 9, 2012 3:52 AM
    "We told the publishers, 'We'll go to the 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,'" Jobs reportedly stated.
    and this is why i fervently pray jobs is living in a firey hell and another reason why i have no sympathy and only hate for this S.O.B.
    no physical media, no need for physical media prices or higher. the publishers can all go to hell to, i haven't bought books since apple pulled this scam.
    i hope very soon writers work together to invent their own direct market sales system and eliminate the publishers.
    i can already hear current publishers scrambling and crying foul copy right infringement and similar acts as the RIAA and MPAA but i am glad to see their punishment becoming their steady and slow strangulating death with the closer of book store chain after book store chain. i will miss b.dalton, waldens and borders but the publishers killed them and shot themselves in the foot in the process and i simply hope that this anti trust bust leads to their demise as well as starts the RIAA and MPAA members to their death as well and they are sped their way to hell by an anti trust bust as well.
  • 0 Hide
    f-14 , March 9, 2012 3:56 AM
    viciouz2000lol, i guess steve jobs main function in apple was to keep everything in the down low and cover up. Since Tim Cook took over, all of apples dirty laundry is being seen by all. Bunch of greedy bastards, charging more for an ebook while there is no overhead like in hard copies and paperbacks is just plain greedy.

    more like tim cook didn't know about all the under the table donations and dealings with the right congress members and therefore did not keep them going, or got greedy and refused to pay the same bribes that has been so typical of politics and american politics for the last 250 years.
  • -2 Hide
    freeinterweb , March 9, 2012 6:21 AM
    i dont get it

    publishers give a 30% cut to apple
    and they wont let amazon sell it for the price they want which gives them more money due to the amount of customers it will bring in at lower prices...

    can someone explain the strategy behind this?
  • 0 Hide
    Anonymous , March 9, 2012 6:49 AM
    It would seem that they are all guilty including Amazon who was undercutting the publishers and authors if they were selling the books at a loss, is this correct, so to change this they did this other model developed by jobs to keep what they deemed a fair price in play? I think they all suck and are evil just as with other media and pricing. I could understand pricing based on the need of new material and the author and publisher basing a price by that need, but I can't understand how any of what was done by all of them is okay or right. Someone can explain it in simpler terms if they would and I'm not stupid this is just over my head other than it appearing that they are all crooks to my eyes.
  • 0 Hide
    stoogie , March 9, 2012 7:17 AM
    APPLE CAN SUCK MY COCK
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