Apple, Book Publishers Slapped With Federal Anti-Trust Suit for E-Book Price-Fixing

Suit claims Apple tried to undercut Amazon by allowing five publishers to set their own prices, jacking up prices to consumers

Last Updated: April 11, 2012 @ 2:12 PM

Updated, 4:43 p.m. PST

The Justice Department filed an anti-trust lawsuit Wednesday accusing Apple and five book publishers of colluding to jack up e-book prices.

The suit alleges that the technology giant and the publishing companies teamed up to illegally undercut rival Amazon's ability to offer discounted versions of digital books. 

Read the full complaint here

It claims the scheme began in 2009 as Apple was preparing to enter the burgeoning e-reader marketplace with the iPad. 

 "Defendants' ongoing conspiracy and agreement have caused e-book consumers to pay tens of millions of dollars more for e-books than they otherwise would have paid," the suit reads. 

HarperCollins, Macmillan, Penguin, Hachette and Simon & Schuster are the five publishers listed in the suit, which was filed Wednesday in New York district court. 

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Amazon had been able to offer low prices because it operated on a so-called
"wholesale model," that allowed it to dictate what it charged customers for books. 

In a plan that the suit says Apple considered an "aikido move," the company offered publishers an "agency model" that allowed them to establish pricing. As part of the agreement, Apple was guaranteed a 30 percent commission on sales.  

Prior to the new model being embraced, Amazon for the most part had established a baseline price of $9.99 for e-books on its Kindle. Under the alleged pact with Apple, costs of e-books rose to as much as $16.99, the suit claims. 

"These 'Apple Agency Agreements' conferred on the Publisher Defendants the power to set Apple's retail prices for e-books, while granting Apple the assurance that the Publisher Defendants would raise retail e-book prices at all other e-book outlets, too," the suit reads.

The Justice Department said that Hachette, Simon & Schuster and HarperCollins have reached a proposed settlement, but said that Apple, Macmillan and Penguin have chosen to litigate the case.

Both Macmillan and Penguin said in statements that they believed the agency model was worth going to court over and denied that it was anti-competitive. 

"When Macmillan changed to the agency model we did so knowing we would make less money on our e book business," John Sargent, Macmillan’s CEO, wrote in an open letter Wednesday. "We made the change to support an open and competitive market for the future, and it worked. We still believe in that future and we still believe the agency model is the only way to get there. It is also hard to settle a lawsuit when you know you have done no wrong."

The settlement would require the publishers to return to a wholesale model; something that the department maintains will level the playing field for challengers to Apple.  

"Ensuring an open and competitive marketplace allows for innovation, which is good for businesses participating in that marketplace and is good for consumers," Sharis A. Pozen, acting assistant attorney general, said at a press conference after the suit was filed. 

Apple declined to comment. Simon & Schuster did not immediately respond to requests for comment. 

In statements, Harper Collins and Hachette said they had agreed to settle the case to avoid a lengthy legal fight, but denied they had violated anti-trust laws. 

Bloomberg first reported the suit. 

Pamela Chelin contributed to this report.