On Wednesday, the US Department of Justice (DOJ) filed an antitrust lawsuit against consumer electronics giant Apple and the country’s five biggest book publishers. The charge: These companies colluded together to artificially raise the price of ebooks when Apple entered the market with its iBooks software two years ago.
“Earlier today, we filed a lawsuit in US District Court for the Southern District of New York, against Apple and five different book publishers—Hachette, HarperCollins, Macmillan, Penguin, and Simon & Schuste,” Attorney General Eric Holder said Wednesday during a press conference announcing the action. “Three of these publishers—Hachette, HarperCollins, and Simon & Schuster—have agreed to a proposed settlement. [But] we will continue to litigate against Apple and two additional leading publishers for conspiring to increase the prices that consumers pay for ebooks.”
“Executives at the highest levels of the companies included in today’s lawsuit worked together to eliminate competition among stores selling ebooks, ultimately increasing prices for consumers,” the announcement continues. “As a result of this alleged conspiracy, we believe that consumers paid millions of dollars more for some of the most popular titles.”
So, is it true? Did Apple and the world’s biggest book publishers collude to artificially raise the price of ebooks?
You bet they did.
Over two years ago, in February 2010, I complained in "Apple Entry into Market Means Higher eBook Prices" that this was exactly what was happening. At the time, new ebooks averaged $9.99, thanks to Amazon’s aggressive tactics with its Kindle platform. But when Apple jumped into the market, the average selling price of ebooks jumped immediately to $15. Why? Because Apple actually allowed publishers for the first time to set the price at which ebooks were sold to consumers. And guess what? They opted for higher prices. Shocking, I know.
This isn’t the first time Apple and the publishers have been sued for this illegal practice. A Seattle-area class-action lawsuit from August 2011 made the same collusion allegations. And the European Union (EU) launched its own antitrust investigation in December 2011, noting that the Apple/publisher relationships “may breach EU antitrust rules that prohibit cartels and restrictive business practices.”
The DOJ lawsuit does, however, offer the best hope for ebook fans. And that’s because the agency already wrung a settlement out of three of the publishers, providing a guideline for what the US government will find acceptable in this market. And their conditions are very interesting: It “requires the companies to terminate their anti-competitive most-favored-nation agreements with Apple and other ebooks retailers” and prohibits them from placing constraints on retailers’ ability to offer discounts to consumers for two years.
Put in simpler terms, the US government doesn’t want the publishers to set prices as Apple ordained. It wants the retailer to set the prices, as Amazon did before Apple entered this market and set off this literary grenade.
The settlement also prevents the companies from divulging secret information about competitors to other companies, in line with a charge that the publishers illegally revealed Amazon’s ebook retailing practices to Apple.
Apple hasn't publicly acknowledged this incredible charge yet.