U.S. Department of Justice Sues Apple Over E-Book Pricing

iBook Store

The U.S. government has filed an antitrust lawsuit in New York against Apple, Hachette, HarperCollins, Macmillan, Penguin and Simon & Schuster over allegations of fixing e-book prices. 16 other states have also joined the U.S. Department of Justice in filing lawsuits against the Apple and the publishers mentioned over the same charges.

That lawsuit says that Apple and other publishers teamed up together to battle Amazon’s low e-book pricing. From WSJ’s story on the lawsuit:

The government’s lawsuit, filed in Manhattan federal court, described CEO-only meetings of publishers at which the alleged conspiracy was hashed out. The suit alleged that the publishers’ chief executives met starting in September 2008 or earlier “in private dining rooms of upscale Manhattan restaurants” and “no legal counsel was present at any of these meetings.”

The suit describes the shift from the traditional “wholesale” pricing model, under which retailers set the price of both electronic and physical books, to an “agency” model under which publishers set the price and retailers take a commission.

Under the agency model, Apple takes a 30 percent cut of whatever price the publisher sets. Additionally, it disallows publishers to sell an e-book on other stores at a price cheaper than that on the iBookstore. In contrast, Amazon, under the “wholesale” pricing model, had the freedom to set e-book prices and sold a number of newly released and best selling e-books at $9.99.

According to the DOJ, the agency pricing model led to an overall increase in the price of e-books which isn’t great news for the consumer. Through the backing of a strong player like Apple, publishers gained bargaining power against Amazon, which they say, helped reduce its dominance and increase competition in the e-book market.

The argument for the publishers who are defendants in this lawsuit is that, when the expected price of e-books goes down, corresponding prices for print books also goes down, which means that in the drive to create low cost books, the effort put into the content in these books reduces.

A similar problem exists on Google Play (Android Market), where the average consumer isn’t willing to pay a lot for apps, which means developers can’t justify putting in a lot of effort to create a great app, resulting in mediocre apps for Android.

Simon & Schuster, Hachette and HarperCollins have already settled with the DOJ, leaving out Apple, Macmillan and Penguin as the remaining defendants in the lawsuit. Apple hasn’t commented on the lawsuit. Macmillan’s CEO has published an open letter outlining the reasons behind their decision to fight this case in court rather than settling. The European Union is also investigating this issue.

Publishers, it seems, still have a long way to go before they figure out a strategy to effectively price and sell digital books.

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  • Hmmm?

    The quality argument seriously starts to get annoying after a while and it doesnt really apply here. I believe if you put out a good product people will buy it as long as the product is properly advertised. In this case, the publishers and Apple are guilty. This only benefited them and the authors were not getting more even either price increases. Hasn’t been a great week for Apple

    • Cryptsaver

      There should be an “Apple” Edition of the Monipoly game. I think they want to take over the world.

  • Cryptsaver

    MONOPOLY

  • http://www.motorbeam.com/ faisal

    Why, everyone wants a bit of Apples profit.

    • Joe

      No, everybody wants Apple to be unable to tell publishers what they can charge via other venues. If I am netting $7 on a book through Apple and I can net that same $7 on another site by only charging $8 to the customer I should be able to do that and expose better prices. A 30% mark-up on books and the like is robbery for the service that is provided. Obviously a number of other vendors can do it cheaper so they should be able to.

    • AppleCider

      Because Apple wants all your money, and they don’t like competition. They set all their prices so nobody can sell their stuff for cheaper. Get out of your hole and look around before putting stupid comments…troll.

  • Jane Fonda

    Boardwalk

  • kmanvan

    lol

    The way you inserted that android comment in the article for a news that has absolutely *nothing* to do with android OR google. Nice trolling there. You’re bias is showing iphonehacks. :-p

  • ItsyourBoy

    WTF is a troll or trolling ?

  • ItsyourBoy

    I don’t think iPhonehacks was being bias he was not saying one is better than an other he was stating a fact and it helped me better understand what was going on with Ebook thing