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15 States Join DoJ's Lawsuit Against Apple, Publishers

By - Source: Reuters | B 21 comments

A lawsuit submitted by the Department of Justice paints the picture of a conspiracy to fix ebook prices and hide any evidence of collaboration. Sounds like a John Grisham novel.

Wednesday afternoon the Department of Justice lived up to its threat to sue Apple and five publishers accused of ebook price fixing. The lawsuit was filed in U.S. District Court for the Southern District of New York, accusing all six parties of conspiring to fix ebook prices and forcing consumers to overpay tens of millions of dollars.

In what sounds like a plot yanked straight out of a John Grisham novel, the Department of Justice claims that all six parties involved colluded to fix ebook prices during the launch of the first iPad tablet in 2010. Executives "at the highest levels" of Apple and the publishers met together in private rooms and worked together to break up Amazon's low-cost dominance of the ebook market, to eliminate competition among all ebook sellers and to solve "the $9.99 problem."

The complaint states that the publisher defendants' U.S. chief executives placed at least 56 phone calls to one another during December 2009 and January 2010. "As a result of this alleged conspiracy, we believe that consumers paid millions of dollars more for some of the most popular titles," said U.S. Attorney General Eric Holder during a press conference.

It gets even better. According to the Department of Justice, Apple and the five publishers took careful steps to conceal their communications with each other. They even "double deleted" their email and used measures to erase their paper trails. All parties involved also reassured each other that they would collectively move together to raise ebook prices. Thus because of the agreement, ebook prices rose up an average of $2 to $3 across the board in a three-day period in early 2010. Now they cost up to $14.99, more than a physical paperback book.

As reported Wednesday morning, three of those publishers already settled with the government, not wanting to spend millions defending themselves in court. That means Amazon and other retailers can now set their own prices on ebooks published by HarperCollins, Simon & Schuster and Hachette Book Group. The "most favored nation" contracts with Apple will now be eliminated, and all three will not be allowed to enter an Agency Model for another two years.

Hachette said it reluctantly agreed to settle although it was not involved in a conspiracy. HarperCollins settled but denied the conspiracy theories as well. Simon & Schuster didn't even bother to comment.

Along with Apple, the other two publishers who refused to settle was Penguin and Macmillan. Apple has refused to comment on the lawsuit, but an insider stated that Apple wasn't even part of the settlement negotiations. Previously the company said in a private class action suit on the same issue that it had not colluded with publishers, but instead "individually negotiated separate vertical agreements with each of the publishers."

Macmillan issued a statement to the book industry, announcing its innocence to accusations of collusion. The company reportedly even tried to negotiate with the Department of Justice for months, but the settlement terms were too onerous. ""After careful consideration, we came to the conclusion that the terms could have allowed Amazon to recover the monopoly position it had been building before our switch to the agency model," said Macmillan Chief Executive John Sargent.

Penguin CEO John Makinson said on Wednesday that his company didn't do anything wrong. Penguin was the only publisher in the group that did not negotiate a settlement with the Department of Justice, and plans to put up a fight.

Apple seemingly doesn't have a chance to win its case, partially thanks to the late Steve Jobs, his personal involvement and his testimony. "Throw in with Apple and see if we can all make a go of this to create a real mainstream e-books market at $12.99 and $14.99," Jobs wrote to one of the publishers. As it stands now, the Agency Model provides Apple and other retailers with a 30-percent cut of all best-seller ebook sales.

Overseas, the EU Competition Commissioner Joaquin Almunia said on Wednesday that the Commission has received preliminary settlement proposals from Apple and four publishers so that its own investigation into ebook price fixing will come to a close.

In addition to the lawsuit filed by the Department of Justice, a similar lawsuit was filed in federal court in Austin, Texas, by a group of 15 states and Puerto Rico, led by Texas and Connecticut, against Apple, Penguin, Simon & Schuster and Macmillan. Hachette and HarperCollins reportedly settled with the 15 states prior to the lawsuit submission, agreeing to shell out $51 million in restitution to consumers who bought ebooks.

Ultimately for Amazon, the settlement of the three local publishers is a definite first victory in its war against Apple for the consumer dollar. "This is a big win for Kindle owners, and we look forward to being allowed to lower prices on more Kindle books," Amazon said yesterday in a statement.

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Top Comments
  • 16 Hide
    clindman , April 12, 2012 4:27 PM
    die, apple, die!
  • 14 Hide
    Marcus52 , April 12, 2012 6:13 PM
    I've been saying for quite awhile that the prices of eBooks was too high; it's no surprise to me that the publishers colluded to fix them. We all know how cheap it is to store a book's worth of material on a server.

    The only excuse I see is the possibility that the companies wanted to allow for some time for those who will lose their business - any part of the hard-copy printing and warehousing end - to downsize through attrition. Not everything a company does is because of a desire to line the pockets of the executives; for most of us, firing one person would be very hard to do, laying off hundreds or thousands is no picnic.

    Hopefully, they will be able to re-train and transfer over some of the work force no longer needed, but there won't be enough of the new jobs, and it will require an entirely different skill set.

    Apple - has absolutely no excuse, because none of their work force is threatened. Pure greed, which is an anti-capitalist desire because it removes one of the most important parts of capitalism, competition. (I suspect more of Job's underhanded deals will come to light as the years go by.)

    I wouldn't be surprised if there was some shenanigans going on that's causing Apple stock to soar to the ridiculous heights it has, I hope someone that should be is keeping tabs on that situation.
  • 14 Hide
    hoofhearted , April 12, 2012 4:58 PM
    I am sure these practices don't just apply to ebooks. Take wireless, dataplans and smartphones for instance.
Other Comments
    Display all 21 comments.
  • 16 Hide
    clindman , April 12, 2012 4:27 PM
    die, apple, die!
  • 8 Hide
    atmos929 , April 12, 2012 4:36 PM
    we could have a good movie out of this... a comedy one -_-
  • 9 Hide
    rayvaughansucks , April 12, 2012 4:40 PM
    Jobs was a horrible human being.
  • 4 Hide
    captaincharisma , April 12, 2012 4:51 PM
    Samsung will be their superpack ;) 
  • 14 Hide
    hoofhearted , April 12, 2012 4:58 PM
    I am sure these practices don't just apply to ebooks. Take wireless, dataplans and smartphones for instance.
  • -6 Hide
    pale paladin , April 12, 2012 5:20 PM
    open market 101. If you give people the opportunity to make bad decisions based on greed they will. Fair regulation with swift punishment should be the basis for this country. Not uber liberal bleeding heart ideologies. This should apply to all business and economy, including the labor force , including immigration.

    and yes. die, apple, die!
  • 0 Hide
    willard , April 12, 2012 6:05 PM
    pale paladinopen market 101. If you give people the opportunity to make bad decisions based on greed they will. Fair regulation with swift punishment should be the basis for this country. Not uber liberal bleeding heart ideologies. This should apply to all business and economy, including the labor force , including immigration. and yes. die, apple, die!

    You've got it backwards. It's the conservatives, not the liberals, who want deregulation. They've consistently pushed for greater freedoms and bigger tax breaks for corporations, claiming that the past record of 100% failure of these policies is not because the policies just line the pockets of corporate giants, but because they haven't deregulated enough and if only we'd deregulate even more everything would suddenly be all flowers and sunshine.

    The banking industry is another story. The housing bubble collapse that resulted in the state of the current US economy was the result of policies championed largely by liberals, and opposed by conservatives. The root of it all was minorities being denied loans they couldn't afford, which was labeled racism because in America, minorities have no faults and anything that doesn't go their way is instantly racism. Regulations were relaxed and we got the subprime lending trend that destroyed the economy.
  • 13 Hide
    vertigo_2000 , April 12, 2012 6:12 PM
    I just don't understand how they can justify selling an e-book for $14.99 when the paperback version is cheaper. It makes no sense to my logical mind. Does not compute.

    What's worse, is that people were buying them. Mental BSOD.
  • 14 Hide
    Marcus52 , April 12, 2012 6:13 PM
    I've been saying for quite awhile that the prices of eBooks was too high; it's no surprise to me that the publishers colluded to fix them. We all know how cheap it is to store a book's worth of material on a server.

    The only excuse I see is the possibility that the companies wanted to allow for some time for those who will lose their business - any part of the hard-copy printing and warehousing end - to downsize through attrition. Not everything a company does is because of a desire to line the pockets of the executives; for most of us, firing one person would be very hard to do, laying off hundreds or thousands is no picnic.

    Hopefully, they will be able to re-train and transfer over some of the work force no longer needed, but there won't be enough of the new jobs, and it will require an entirely different skill set.

    Apple - has absolutely no excuse, because none of their work force is threatened. Pure greed, which is an anti-capitalist desire because it removes one of the most important parts of capitalism, competition. (I suspect more of Job's underhanded deals will come to light as the years go by.)

    I wouldn't be surprised if there was some shenanigans going on that's causing Apple stock to soar to the ridiculous heights it has, I hope someone that should be is keeping tabs on that situation.
  • 1 Hide
    Marcus52 , April 12, 2012 6:20 PM
    bleh that should have been "prices of eBooks ARE too high, or were, but not "was". No excuse for my bad English there since it is my primary language - my apologies for contributing to the dumbing down of America.
  • -4 Hide
    slabbo , April 12, 2012 6:47 PM
    willardYou've got it backwards. It's the conservatives, not the liberals, who want deregulation. They've consistently pushed for greater freedoms and bigger tax breaks for corporations, claiming that the past record of 100% failure of these policies is not because the policies just line the pockets of corporate giants, but because they haven't deregulated enough and if only we'd deregulate even more everything would suddenly be all flowers and sunshine.The banking industry is another story. The housing bubble collapse that resulted in the state of the current US economy was the result of policies championed largely by liberals, and opposed by conservatives. The root of it all was minorities being denied loans they couldn't afford, which was labeled racism because in America, minorities have no faults and anything that doesn't go their way is instantly racism. Regulations were relaxed and we got the subprime lending trend that destroyed the economy.


    you're the one who has it backwards. why would a bank want to make bad loans? they don't, where were forced to do so by the regulations.
  • -9 Hide
    markheber , April 12, 2012 7:04 PM
    From what I have been reading around the net, it seems that Amazon receives 50% where Apple only receives 30% from the sale of an e-book, so Amazon is the greedy one. That e-books cost 85% as much to produce and sale as a hard copy and is worth more because it can be transported easier, so they should cost at least as much, if not more. That Apple never talked to anyone about the actual price of the books so cannot be part of "price fixing". Most lawyers that have made comments say that the settlements are worse for business than was the collusion of the publishing companies.

    Collusion is a criminal offense and should be prosecuted, but poisoning the publishing world seems to be an excessive penalty.
  • 0 Hide
    eddieroolz , April 12, 2012 8:54 PM
    Looks like Apple is getting bitten in the home market while it concentrates its lawyers abroad. This is turning into a game of risk.
  • 3 Hide
    fudoka711 , April 12, 2012 9:05 PM
    markheberFrom what I have been reading around the net, it seems that Amazon receives 50% where Apple only receives 30% from the sale of an e-book, so Amazon is the greedy one. That e-books cost 85% as much to produce and sale as a hard copy and is worth more because it can be transported easier, so they should cost at least as much, if not more. That Apple never talked to anyone about the actual price of the books so cannot be part of "price fixing". Most lawyers that have made comments say that the settlements are worse for business than was the collusion of the publishing companies.Collusion is a criminal offense and should be prosecuted, but poisoning the publishing world seems to be an excessive penalty.


    Apple might take 50% of the sale of an eBook (btw, what is/are your souce(s)? I've never heard this anywhere. Apple has been known for the longest time to take fat percentages out of anything sold using their products.

    Besides, even if Apple takes 50% of $9.99, the book publishing companies and authors were STILL able to make money off the sales. Now why in the world would a $14.99 price be justified then? Doesn't matter if Apple makes 50 cents less per sale than Amazon does. That's not the point. The overall price is artificially set too high.
  • 4 Hide
    gregor , April 12, 2012 9:24 PM
    markheberFrom what I have been reading around the net, it seems that Amazon receives 50% where Apple only receives 30% from the sale of an e-book, so Amazon is the greedy one. That e-books cost 85% as much to produce and sale as a hard copy and is worth more because it can be transported easier, so they should cost at least as much, if not more. That Apple never talked to anyone about the actual price of the books so cannot be part of "price fixing". Most lawyers that have made comments say that the settlements are worse for business than was the collusion of the publishing companies.Collusion is a criminal offense and should be prosecuted, but poisoning the publishing world seems to be an excessive penalty.

    So you're arguing that because the ebooks cost less to produce, store, transport etc they should charge more for them? Where does the 85% figure come from?
  • 5 Hide
    Anonymous , April 12, 2012 10:35 PM
    I'm guessing that "production" here means original editing, advertising, etc. Obviously individual copies of the book cost way less to produce because there are no raw materials (besides a few milliwatts of electricity, I suppose.) So companies can make far more per-copy profit on each ebook sale, while still charging less total price. Which is why I agree that ebooks should cost much less than physical books.
  • 2 Hide
    f-14 , April 13, 2012 1:36 AM
    can't wait until authors realize they only need to pay for an editor, and illustrator, web designer and they can sell their product themselves now and contract out physical printing to any printer with a bindery.
  • 0 Hide
    beayn , April 13, 2012 1:43 AM
    markheberThat Apple never talked to anyone about the actual price of the books so cannot be part of "price fixing".

    Didn't you read the whole article?
    "Throw in with Apple and see if we can all make a go of this to create a real mainstream e-books market at $12.99 and $14.99," Jobs wrote to one of the publishers.

    That looks like talking about the price of the books to me.
  • 0 Hide
    zhangifan2017 , April 13, 2012 2:46 AM
    Nice article!
  • 0 Hide
    enewmen , April 13, 2012 6:33 AM
    rayvaughansucksJobs was a horrible human being.

    Doesn't make sense:
    He went to India in mid-1974, went on a psychedelic quest, became a monk, then a serious practitioner of Zen Buddhism. Sound very cool. But I don't know where the "hard ass" came from?
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