April 12, 2012 in Business

Lawsuit filed over e-book pricing

DOJ, states accuse Apple, publishers of conspiracy
Pete Yost Associated Press
 

WASHINGTON – The government says avid best-seller readers who use electronic books have been getting ripped off. Tina Fey’s “Bossy Pants,” Tim Tebow’s “Through My Eyes” and Keith Richards’ “Life” maybe should have cost less.

The Justice Department and 15 states sued Apple Inc. and major book publishers Wednesday, alleging a conspiracy that raised the price of electronic books. They said the scheme cost consumers more than $100 million in the past two years by adding $2 or $3, sometimes as much as $5, to the price of each e-book.

If there was price fixing, even the e-book version of the hot-selling Walter Isaacson biography of Steve Jobs, the late genius behind Apple computers, may have cost too much.

Attorney General Eric Holder said executives at the highest levels of the companies conspired to eliminate competition among e-book sellers. The Justice Department’s antitrust chief, Sharis Pozen, said the executives were desperate to get Amazon.com – the marketer of Kindle e-book readers – to raise the $9.99 price point it had set for the most popular e-book titles, because that was substantially below their hardcover prices.

The federal government has reached a settlement with three of the publishers, Hachette, HarperCollins and Simon & Shuster. But it will proceed with its lawsuit in federal court in New York against Apple and Holtzbrinck Publishers, doing business as Macmillan, and The Penguin Publishing Co. Ltd., doing business as Penguin Group.

Since Amazon introduced the Kindle in 2007, e-book sales have surged. They represented just 2 percent of all titles sold in the United States that year, but they soared to 25 percent last year. In 2010, about 114 million e-books were sold at a total cost of $441.3 million.

Holder told a Justice Department news conference that “we believe that consumers paid millions of dollars more for some of the most popular titles” as a result of the alleged conspiracy. Pozen said the scheme added an average of $2 to $3 to the prices of individual e-books.

Connecticut Attorney General George Jepsen said the individual book markups went as high as $5 and the total cost to consumers was more than $100 million since April 2010, when the scheme allegedly took effect.

The government lawsuits did not disclose individual titles whose prices were allegedly jacked up. The Fey, Tebow, Richards and Isaacson books all came out in electronic versions from the named publishers after April 2010.

According to Pozen, Apple’s Steve Jobs told publishers involved in the alleged conspiracy that “the customer pays a little more, but that’s what you want anyway.”

The lawsuit said the effort to get e-book prices increased by Amazon.com came as Apple was preparing to launch the iPad. The government said the conspirators agreed that instead of selling books to retailers and letting them decide what retail price to charge, the publishers would convert the retailers into “agents” who could sell their books but not alter the publisher-set retail price. The scheme called for Apple to be guaranteed a 30 percent commission on each e-book it sold, the lawsuit said.

After reading the federal complaint, the Consumer Federation of America called it “a ‘slam-dunk’ case of collusive, anti-competitive behavior.”

At Apple, spokesman Tom Neumayr declined to comment.

Macmillan CEO John Sargent said in a letter to authors, illustrators and agents that the company has not settled because it is “hard to settle a lawsuit when you know you have done no wrong.”

Sargent said there were months of discussions with the Justice Department over a possible settlement, but the government’s proposed terms “could have allowed Amazon to recover the monopoly position it had been building before our switch to the agency (pricing) model.”

At the heart of the e-book pricing debate is the industry’s ongoing concern about Amazon. What the “agency model” achieved was to shift the power for setting retail prices on e-books from the retailer – in this case primarily Amazon – to the alleged conspirator publishers, who then exerted pressure on Amazon to comply with the higher prices. The alleged scheme applied to New York Times bestselling titles, all titles that have gone on sale in the current year and mass market paperback titles.

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