The U.S. Justice Department took Apple Inc. and two major publishers to court for conspiring to push up the prices of e-books, while three other publishers agreed to settle the government’s charges.
U.S. Attorney General Eric Holder told a press conference that the proposed settlement would give retailers such as Amazon and Barnes & Noble the freedom to reduce e-book prices.
The lawsuit, filed in the U.S. District Court for the Southern District of New York on Wednesday, said the conspiracy has caused e-book consumers to pay “tens of millions of dollars more for e-books than they otherwise would have paid.”
The department alleged that Apple and the publishers had a common interest in fighting Amazon.Com Inc. ’s practice of selling e-books for as little as $9.99, and decided to work together to raise prices by switching to an “agency” model where the publishers set the prices.
“To effectuate their conspiracy, the publisher defendants teamed up with defendant Apple, which shared the same goal of restraining retail price competition in the sale of e-books,” the Justice Department complaint said.
Apple has not been part of the settlement negotiations, a person familiar with the matter had told Reuters.
The two publishers the Justice Department is proceeding to litigate against are Pearson Plc’s Penguin Group and Macmillan, a unit of Verlagsgruppe Georg von Holtzbrinck GmbH.
News Corp’s HarperCollins Publishers Inc, CBS Corp’s Simon & Schuster Inc and Lagardere SCA’s Hachette Book Group agreed to settle with the Justice Department. The settlement terms were not immediately disclosed.
The lawsuit was filed in the U.S. District Court for the Southern District of New York on Wednesday.
Macmillan Chief Executive John Sargent said in a letter made public on Wednesday that settlement terms demanded by the Justice Department “were too onerous.”
“Macmillan did not act illegally. Macmillan did not collude,” and also said the company has not settled because it is “hard to settle a lawsuit when you know you have done no wrong.”
The Justice Department complaint cites an e-mail from an executive for an unnamed publisher pointing out the need for the publishers to work together to convince Amazon to raise prices.
“We’ve always known that unless other publishers follow us, there’s no chance of success in getting Amazon to change its pricing practices,” the executive wrote.
“Without a critical mass behind us, Amazon won’t ‘negotiate,’ so we need to be more confident of how our fellow publishers will react,” the executive said in the e-mail.
The European Union is also investigating allegations of conspiracy to fix the prices of e-books.
The Justice Department has been looking into whether deals Apple cut roughly two years ago, when it launched its iPad tablet computer, with the quintet of publishers were done with the intent of propping up prices for e-books, people familiar with the matter have said.
As part of those agreements, publishers shifted to a model that allowed them to set the price of e-books and give Apple a 30 per cent cut of sales, the sources have said. Amazon had been paying publishers for the books, and then discounting them to win market share.
A negotiated settlement is expected to eliminate Apple’s so-called “most favoured nation” status, which had prevented the publishers from selling lower-priced e-books through rival retailers such as Amazon.com Inc. or Barnes & Noble Inc. , sources had told Reuters last month.
But the situation was fluid, those sources said at the time.
At the heart of the e-book pricing debate is the industry's ongoing concerns about Amazon.com. Publishers see the “agency model” as their best, short-term hope against preventing the online retailer from dominating the e-book market and driving down the price of books to a level unsustainable for publishers and booksellers.
Since launching the Kindle in 2007, Amazon has made a point of offering best-sellers for $9.99. The discount is so deep from list prices of $20 and more that it's widely believed Amazon is selling the e-books at a loss as a way of attracting more customers and forcing competitors to lower their prices. Amazon also has been demanding higher discounts from publishers, and stopped offering e-books from the Independent Publishers Group, a Chicago-based distributor, after they couldn't agree to terms.
When Apple launched the iPad two years ago, publishers saw two ways to balance Amazon.com's power: Enough readers would prefer Apple's shiny tablet over the Kindle to cut into Amazon's sales and the agency model would stabilize prices. Apple's iBookstore has yet to become a major force, but publishers believes the new price model has reduced Amazon's market share from around 90 per cent to around 60 per cent, with Barnes & Noble's Nook in second at 25 per cent. The iBookstore is believed to have 10 to 15 per cent.
With files from The Associated Press