Department of Justice throws the law ebook at publishers

Apple and five of the world's largest book publishers have been sued in the US for allegedly colluding to increase the price of ebooks. Read all about it...

by Dave Waller
Last Updated: 16 Apr 2012

Apple and publishing executives from HarperCollins, Simon & Schuster, Penguin, Hachette Book Group and Holtzbrinck found themselves in the dock for allegedly agreeing on a common response to Amazon’s maximum ebook price of $9.99. It’s a solution that helped allay publishers’ fears over Amazon destroying their traditional role between writer and reader. One snag: according to the suit it wound up costing consumers ‘tens of millions of dollars’.

From September 2008 through 2009, it's alleged that the sneaky mob colluded over phone calls, emails and meals in the ‘dining rooms of upscale Manhattan restaurants’, including the ‘chef’s wine cellar’ – a private room at the New York restaurant Picholine. If that sounds like something from a bad ebook, then there’s more. The suit even quotes the late Steve Jobs as saying that ‘the customer pays a little more, but that’s what you [publishers] want anyway’. 

The DoJ alleges that the result of all this intrigue was the introduction, with the launch of Apple’s iPad, of an ‘agency’ business model where the group set retail prices. Of course Apple also has a ‘most favoured nation’ clause in which publishers agree not to sell on cheaper terms elsewhere – while giving Apple a 30% commission on every sale – forcing other retailers to adopt the same terms. The effect was to raise the price of best-selling titles $2 to $5 each.

The issue of competition here certainly seems a little more than black and white. One could argue (as the publishers do) that the agency model actually benefits competition, as it’s helping to prevent Amazon getting a monopoly by selling ebooks at less than cost price. From launching the Kindle in 2007 to the launch of the iPad at least, the online giant had pretty much owned the ebook market. Indeed, John Makinson, chief executive of Penguin, said the publisher had decided not to settle because it believed it had done nothing wrong. While three of the five publishers – Hachette, HarperCollins and Simon & Schuster – immediately settled with the justice department, Apple, Macmillan and Penguin have stayed to slug it out in court.

The settlement would require Hachette, HarperCollins and Simon & Schuster to let retailers including Amazon and Barnes & Noble set their own prices for ebooks. They’d also have to end their ‘most favoured nation’ relationship with Apple and stop sharing competitively sensitive information with each other for five years. No more flash meals for them then. Of course Amazon, which is hailing the case as a victory for Kindle owners, can now treat itself to a slap-up meal at Picholine, knowing that its grip on the ebook market may once again become nearly total.

The DoJ lawsuit apparently stretched over 36 pages. We would suggest they consider an ebook – but you just can’t make a decent buck out of them these days…

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