DoJ reportedly planning antitrust suit against Apple, publishers over e-books

Posted:
in iPad edited January 2014


The U.S. Department of Justice is readying a lawsuit against Apple and five major publishers over alleged price fixing of e-books, according to a new report.



The Wall Street Journal claimed on Monday that the DoJ has warned Apple and the publishers of its plans to sue them.



One of the issues under investigation is Apple's alleged role in convincing e-book publishers to switch to an agency model from the wholesale model that Amazon had implemented with its Kindle store. Under the old system, publishers would sell their books at wholesale and let the bookseller set its own prices. Amazon had consistently upset publishers by selling titles at a loss.



As Apple readied its iBooks digital bookstore ahead of the release of the original iPad in early 2010, Apple CEO Steve Jobs offered to implement the agency model for its store. The company agreed to let publishers set prices in exchange for a 30 percent cut and an agreement that prevented other retailers from undercutting them. The publishers then used their deal with Apple as leverage to pressure Amazon to switch to the agency model.



Simon & Schuster, Hachette, Penguin, Macmillan and HarperCollins are the publishers that could face legal action from the federal agency. Random House, the only other Big Six publisher, is not included in the investigation because it initially rejected the agency model.



Insiders claimed that the Justice Department suspects Apple and the publishers of violating federal antitrust laws by colluding to raise prices. For their part, the publishers argue that they were trying to enhance competition with the shift to agency pricing. Some of the publishers are also being investigated over agreements to delay e-book releases to allow hardcover editions a window of exclusivity.











People familiar with the matter told the Journal that several of the parties involved in the probe have entered talks to settle the case in an effort to avoid going to court. However, sources said only some of the publishers are in settlement discussions.



One publishing executive told the publication that negotiations with the DoJ have "taken many turns." Another executive said that a settlement was still a ways off.



The Justice Department lawsuit would come on the heels of a class-action lawsuit filed last year. A group of consumers have accused Apple and the publishers of engaging in an e-book "price-fixing conspiracy" that resulted in price hikes. The complaint draws upon comments made by Jobs to his biographer about the move to the agency model for iBooks as evidence of the alleged collusion.



The European Commission began investigating Apple and the publishers late last year. Apple also faced an anticompetitive inquiry from the Connecticut Attorney General in 2010.



Apple redoubled its e-book efforts in January with the release of iBooks 2. The company is looking to tap the education market by providing low-cost interactive digital textbooks as alternatives to traditional textbooks. The iPad maker also released iBooks Author, a free tool for creating e-books for the iBookstore,.









[ View article on AppleInsider ]

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Comments

  • daramouthedaramouthe Posts: 36member
    With the good comes the bad.
  • solipsismxsolipsismx Posts: 19,566member
    So an agency model is illegal? Apple taking 30% instead of Amazon taking 70% is illegal? Am I missing something here because it sounds like Amazon was the one trying to shut out any competition and controlling both customers and publishers?
  • drobforeverdrobforever Posts: 400member
    Quote:
    Originally Posted by SolipsismX View Post


    So an agency model is illegal? Apple taking 30% instead of Amazon taking 70% is illegal? Am I missing something here because it sounds like Amazon was the one trying to shut out any competition and controlling both customers and publishers?



    I agree both companies are trying to shut out competition. But the end results are different. Amazon's way can drive away competition, but at the same time also sell books at lower prices than what publishers want, while Apple's way can drive away competition and sell books at higher price than customers want.
  • tylerk36tylerk36 Posts: 1,037member
    Anti Trust. Seems like I heard this before. Microsoft and anti Trust. Whats next Anti Trust over Apple selling iPads below their actual value? This is pathetic. You gotta wonder if Amazon and others are trying to pay off officials to disrupt Apple and its business. Wonder if Apple will secretly pay off the same officials or some other big wigs who can change the out come of this.
  • adonissmuadonissmu Posts: 1,722member
    The bottom line is that people will be more inclined to buy books from amazon than directly from the publisher if Amazon can set the prices at whatever they want to. How is that not the height of anti competitive? Apple allowing book publishers to set their own prices for their own material is now collusion.



    Case is a waste of resources.
  • solipsismxsolipsismx Posts: 19,566member
    Quote:
    Originally Posted by drobforever View Post


    I agree both companies are trying to shut out competition. But the end results are different. Amazon's way can drive away competition, but at the same time also sell books at lower prices than what publishers want, while Apple's way can drive away competition and sell books at higher price than customers want.



    Let's look at the most famous antitrust case in computing. MS made IE free to pull bring down netscape unfairly. What I see here is Apple charging the customer more in order to pay the publisher more fairly so how is that an anti-competitve move? Amazon owned the eBook market and they were trying to lock it in with a pricing structure that doesn't look viable in and of itself. Amazon even threatened publishers that they would not carry any of their eBooks or printed material if they used iBookstore. I don't recall Apple ever stating they publishers can only use iBookstore.
  • jd_in_sbjd_in_sb Posts: 1,268member
    DoJ suit will be thrown out or resulting changes will be minimal
  • wurm5150wurm5150 Posts: 763member
    If they revert it back to the old business model, Amazon will pretty much own the market thus killing off the competition.. And probably kill the publishing industry along with it.
  • wigginwiggin Posts: 2,055member
    Quote:
    Originally Posted by SolipsismX View Post


    Let's look at the most famous antitrust case in computing. MS made IE free to pull bring down netscape unfairly. What I see here is Apple charging the customer more in order to pay the publisher more fairly so how is that an anti-competitve move? Amazon owned the eBook market and they were trying to lock it in with a pricing structure that doesn't look viable in and of itself. Amazon even threatened publishers that they would not carry any of their eBooks or printed material if they used iBookstore. I don't recall Apple ever stating they publishers can only use iBookstore.



    Apple charging more to pay the publishers more is not the anti-competitive issue here. But Apple also attempted to control what the publishers could charge for their books through other retailers. Remember, MS was determined to be a monopoly, so you can't really compare the two anit-trust cases. This potential case is not about an abuse of a monopoly because neither Apple nor any one individual publisher is in a monopoly position, but about collusion and price fixing.



    If you go back to when iBooks was first unveiled and we learned of the terms Apple arranged, myself and others suspected that this type of arrangement might get Apple into hot water. I'm really not surprised at all that this has gotten the attention of the DoJ.
  • adamcadamc Posts: 482member
    Amazon have done more harm to the publishing industry with their business model than what is Apple and the publishers are doing.



    Borders have shut their doors and how many bookstores have to die so Amazon can live.



    At least with Apple and the publishers model everyone has a chance whereas Amazon's model only they have the chance.



    To level the field Amazon have to start pay sales tax for everything they sell over the web.
  • mikeb85mikeb85 Posts: 506member
    Quote:

    As Apple readied its iBooks digital bookstore ahead of the release of the original iPad in early 2010, Apple CEO Steve Jobs offered to implement the agency model for its store. The company agreed to let publishers set prices in exchange for a 30 percent cut and an agreement that prevented other retailers from undercutting them. The publishers then used their deal with Apple as leverage to pressure Amazon to switch to the agency model.



    Read the bolded part. That`s the behaviour that could be construed as anti-competitive. More specifically:



    Quote:

    and an agreement that prevented other retailers from undercutting them



    This is what we call, price fixing.
  • jarroyo1031jarroyo1031 Posts: 17member
    I'm glad this is happening. If the DOJ is right, then Apple and the publishers deserve what they get. If there is no truth to what the DOJ is alleging, then the matter will be resolved quickly. It makes no difference to me what ends up happening since I have not invested in Apple. I'm curious to see how this ends up turning out since the DOJ tends to win when they sue.
  • nealgnealg Posts: 132member
    I don't think it is the pricing model that is the question but the matter of collusion that is the real issue. From the evidence available, it is difficult to say if there was collusion or not.
  • gatorguygatorguy Posts: 14,345member
    Quote:
    Originally Posted by SolipsismX View Post


    Let's look at the most famous antitrust case in computing. MS made IE free to pull bring down netscape unfairly. What I see here is Apple charging the customer more in order to pay the publisher more fairly so how is that an anti-competitve move? Amazon owned the eBook market and they were trying to lock it in with a pricing structure that doesn't look viable in and of itself. Amazon even threatened publishers that they would not carry any of their eBooks or printed material if they used iBookstore. I don't recall Apple ever stating they publishers can only use iBookstore.



    You need to read up on the case Solip. It's not simply about the pricing. It's as much about how they got there. The EU is likely to take the same action from articles over the past few months.
  • gatorguygatorguy Posts: 14,345member
    Quote:
    Originally Posted by tylerk36 View Post


    Anti Trust. Seems like I heard this before. Microsoft and anti Trust. Whats next Anti Trust over Apple selling iPads below their actual value? This is pathetic. You gotta wonder if Amazon and others are trying to pay off officials to disrupt Apple and its business. Wonder if Apple will secretly pay off the same officials or some other big wigs who can change the out come of this.



    Just yesterday a high-profile blogger (can't remember which one) guessed that Apple could end up with an anti-trust suit resulting from multi-touch features if they refused to license, assuming they were able to lock it down with patents. I think that's one of the reason he guessed Apple would make an offer to license any of their IP to Samsung or Moto.



    Apple's not the little guy anymore. With a ton of money and a lot of power to influence or even take over market segments they're going to have to be careful in how they flex their muscles. All their money won't keep EU regulators or the DoJ at bay if they think they're getting just a bit too big for the public good.
  • mdriftmeyermdriftmeyer Posts: 6,799member
    I find it truly rich that they think a Publisher delaying a digital book to allow a hardbound book to get some traction is somehow illegal.



    The Publisher always dictates whether it's hardbound, paperback and/or digital. Sorry but there is no teeth on that.
  • mdriftmeyermdriftmeyer Posts: 6,799member
    Quote:
    Originally Posted by Gatorguy View Post


    Just yesterday a high-profile blogger (can't remember which one) guessed that Apple could end up with an anti-trust suit resulting from multi-touch features if they refused to license, assuming they were able to lock it down with patents. I think that's one of the reason he guessed Apple would make an offer to license any of their IP to Samsung or Moto.



    Apple's not the little guy anymore. With a ton of money and a lot of power to influence or even take over market segments they're going to have to be careful in how they flex their muscles. All their money won't keep EU regulators or the DoJ at bay if they think they're getting just a bit too big for the public good.



    The High profile blogger doesn't know what the hell he's talking about.
  • mdriftmeyermdriftmeyer Posts: 6,799member
    Quote:
    Originally Posted by jd_in_sb View Post


    DoJ suit will be thrown out or resulting changes will be minimal



    It won't even get out of the preliminary investigations. This is a fishing expedition on behalf of Amazon and other competitors seeing as they know their approach is collapsing and they don't want to see their place diminished any further.



    Amazon has a P/E of 133.85.



    Apple has a P/E of 15.11.



    Who do you think is crapping themselves at this point? It's not Apple.



    As has already been pointed out, Amazon has destroyed much of the retail space for Bookstores and has been strong-arming the Publishing Houses.



    Apple comes in and destroy their leverage.



    They whine and are now filing inquiries with the DoJ.



    It's a dead end case.
  • gatorguygatorguy Posts: 14,345member
    Quote:
    Originally Posted by mdriftmeyer View Post


    The High profile blogger doesn't know what the hell he's talking about.



    "If anyone can prove that Apple holds certain patents that should be treated under antitrust law just like standard-essential patents, then the royalty Apple can demand for those patents could also be judged based on the criteria that apply to standard-essential patents...



    At this stage, Apple has not enforced patents that would shut competitors out of the market altogether...



    By making the purported offers, Apple has certainly made a smart move because it demonstrates to antitrust regulators that it plans to be a reasonably cooperative patent holder. Obviously, regulators wouldn't want to support a crusade of the kind that Steve Jobs's biography outlined in an oversimplified form."



    Any guess who's opinion this is?



    EDIT: I'd wager Hill60 knows where this came from.
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