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

post #1 of 99
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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 ]
post #2 of 99
With the good comes the bad.
post #3 of 99
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?

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post #4 of 99
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.
post #5 of 99
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.
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post #6 of 99
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.
post #7 of 99
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.

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"There is no rule that says the best phones must have the largest screen." ~RoundaboutNow

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"There is no rule that says the best phones must have the largest screen." ~RoundaboutNow

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post #8 of 99
DoJ suit will be thrown out or resulting changes will be minimal

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post #9 of 99
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.
post #10 of 99
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.
post #11 of 99
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.
post #12 of 99
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.
post #13 of 99
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.
post #14 of 99
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.
post #15 of 99
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.
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post #16 of 99
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.
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post #17 of 99
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.
post #18 of 99
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post #19 of 99
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.
post #20 of 99
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.
post #21 of 99
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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post #22 of 99
Quote:
Originally Posted by mdriftmeyer View Post

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.

When are they going to apply the same rules to the movie industry?

Simultaneous release to cinemas, DVD rentals, cable companies and free to air TV should be enforced by the DOJ based on this definition of illegal.
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post #23 of 99
Quote:
Originally Posted by mdriftmeyer View Post

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.

You need to familiarize yourself with just what the concerns are. It's not what you would make them to be.

Here's the EU concerns and why they've had an ongoing investigation:
http://europa.eu/rapid/pressReleases...guiLanguage=en

and the US:
http://www.google.com/hostednews/afp...63e24cf6a6.5c1
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post #24 of 99
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.

Whether the price is higher than the consumers want is totally irrelevant. Consumers don't get to set prices. The consumer's choice is only whether to buy at a given price or not.

I would love to see someone explain exactly which law Apple is alleged to have broken. If you look at it, it is clear that Amazon broke the law (by fixing prices) while Apple offered an alternative that did away with price fixing by letting the publishers set their own prices.

And the "but Amazon is cheaper" argument isn't very useful. It's not uncommon for a monopoly to set prices low at first to drive the competition out of the market and then raise prices after they've secured control.

Quote:
Originally Posted by Wiggin View Post

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.

There's nothing illegal about a deal which says "you can't sell the same product cheaper to anyone else".

Please explain what law Apple has broken by allowing publishers choose their own pricing.

Quote:
Originally Posted by Gatorguy View Post

You need to familiarize yourself with just what the concerns are. It's not what you would make them to be.

Here's the EU concerns and why they've had an ongoing investigation:
http://europa.eu/rapid/pressReleases...guiLanguage=en

and the US:
http://www.google.com/hostednews/afp...63e24cf6a6.5c1

It's interesting that neither of those articles says anything about what Apple has done that's illegal or what law they've broken. There's a lot of innuendo, but nothing in the way of facts.

So what law has Apple broken? Specifically.
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post #25 of 99
Quote:
Originally Posted by hill60 View Post

When are they going to apply the same rules to the movie industry?

Simultaneous release to cinemas, DVD rentals, cable companies and free to air TV should be enforced by the DOJ based on this definition of illegal.

Yet another brilliant move by Steven P. Jobs.

Movie Industry has an outdated business model that they are unwilling to part with... agitate the DOJ on that business model. Force the DOJ to bring an antitrust lawsuit to get that business model declared an antitrust violation...

While there is a potential cost to Apple the benefit of forcing change on the entire entertainment industry will be huge.
post #26 of 99
Anti-Trust Laws are unnecessary and actually harmful to the market and the end consumer:
http://video.google.com/videoplay?do...78685983789002

(Video is from 1983, with Ron Paul and Prof. Dominick T. Armentano. Worth your time.)
post #27 of 99
Quote:
Originally Posted by jragosta View Post

It's interesting that neither of those articles says anything about what Apple has done that's illegal or what law they've broken. There's a lot of innuendo, but nothing in the way of facts.

So what law has Apple broken? Specifically.

This is an investigation. They haven't brought charges at this point, which would be the big reason you don't see them formally accused of anything illegal. . . yet. When the investigation is terminated, and if Apple and the publishers haven't already offered to make changes to avoid any possible charges, then you'll see what the EU/US has in mind. Perhaps nothing. Perhaps a high-profile antitrust lawsuit, maybe even on both continents.

I would expect changes and a settlement suggestion from Apple before it gets to that stage. They've obviously been warned.
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post #28 of 99
This is non-sense. The arrangement Apple has isn't that much different than many industries, so will the department of justice now shut down all these other businesses too?

The other thing here is that this arrangement actually increases competition. Anybody with the resources can enter the business knowing full well that the playing field is level.
post #29 of 99
Amazon had consistently upset publishers by selling titles at a loss.


Clearly having the publishers lose money is a the way to go - why would they want to mess that up?
post #30 of 99
Quote:
Originally Posted by wizard69 View Post

This is non-sense. The arrangement Apple has isn't that much different than many industries, so will the department of justice now shut down all these other businesses too?

The other thing here is that this arrangement actually increases competition. Anybody with the resources can enter the business knowing full well that the playing field is level.

You mean the book publishers in concert with Apple have already agreed to not compete on pricing and refuse to sell to any retailer who would sell at a lower price, therefor a level playing field for them?

Here's what is claimed to be wrong with Apple's plan:
"We told the publishers, 'We'll go to the agency model, where you set the price, and we get our 30%, and yes, the customer pays a little more, but that's what you want anyway,'" Mr. Jobs was quoted as saying by his biographer, Walter Isaacson.

The publishers were then able to impose the same model across the industry, Mr. Jobs told Mr. Isaacson. "They went to Amazon and said, 'You're going to sign an agency contract or we're not going to give you the books,' " Mr. Jobs said."

Unfortunate that the quotes were directly attributed to Mr. Jobs and frankly I'm darn surprised that he saw no issues with the plan. In hindsight, colluding with publishers to set prices and deny other seller's the right to market books at their own prices should be an obvious red flag to Apple. Perhaps not the best decision if they had it to do over IMHO

"The Justice Department believes that Apple and the publishers acted in concert to raise prices across the industry, and is prepared to sue them for violating federal antitrust laws, the people familiar with the matter said."
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post #31 of 99
Quote:
Originally Posted by lilgto64 View Post

Amazon had consistently upset publishers by selling titles at a loss.


Clearly having the publishers lose money is a the way to go - why would they want to mess that up?

That's right. Being competitive apparently means selling at a loss, or at near zero margin. Being anti-competitive apparently means making money to not go broke.

What if publishers don't sell the books to Amazon anymore, but sell them directly to consumers, like Apple does? Oh no, that's also anti-competitive.
post #32 of 99
Quote:
Originally Posted by Gatorguy View Post

This is an investigation. They haven't brought charges at this point, which would be the big reason you don't see them formally accused of anything illegal. . . yet. When the investigation is terminated, and if Apple and the publishers haven't already offered to make changes to avoid any possible charges, then you'll see what the EU/US has in mind. Perhaps nothing. Perhaps a high-profile antitrust lawsuit, maybe even on both continents.

I would expect changes and a settlement suggestion from Apple before it gets to that stage. They've obviously been warned.

Yet you're suggesting that Apple has done something illegal. I'm not asking what charges the DoJ will file, I'm asking you to provide the justification for your endless anti-Apple tirades. What laws do you believe that Apple has broken?
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post #33 of 99
Quote:
Originally Posted by John F. View Post

That's right. Being competitive apparently means selling at a loss, or at near zero margin. Being anti-competitive apparently means making money to not go broke.

What if publishers don't sell the books to Amazon anymore, but sell them directly to consumers, like Apple does? Oh no, that's also anti-competitive.

I can't tell you how many times I have bought directly from the publisher thanks to Apple. I never buy books from Amazon anymore. Hell I don't even buy them from iBooks. I just go to the publisher's website and have a party.
post #34 of 99
Quote:
Originally Posted by Gatorguy View Post

You mean the book publishers in concert with Apple have already agreed to not compete on pricing and refuse to sell to any retailer who would sell at a lower price, therefor a level playing field for them?

Here's what is claimed to be wrong with Apple's plan:
"We told the publishers, 'We'll go to the agency model, where you set the price, and we get our 30%, and yes, the customer pays a little more, but that's what you want anyway,'" Mr. Jobs was quoted as saying by his biographer, Walter Isaacson.

The publishers were then able to impose the same model across the industry, Mr. Jobs told Mr. Isaacson. "They went to Amazon and said, 'You're going to sign an agency contract or we're not going to give you the books,' " Mr. Jobs said."

Unfortunate that the quotes were directly attributed to Mr. Jobs and frankly I'm darn surprised that he saw no issues with the plan. In hindsight, colluding with publishers to set prices and deny other seller's the right to market books at their own prices should be an obvious red flag to Apple. Perhaps not the best decision if they had it to do over IMHO

"The Justice Department believes that Apple and the publishers acted in concert to raise prices across the industry, and is prepared to sue them for violating federal antitrust laws, the people familiar with the matter said."

So basically Amazon had been anti competitive. In comes Apple to save the day. Now Apple anti competitive because they let the publisher's set the price of their own books. The agency model is how it should always have been. Before I started working in a publishing company I had no idea what was going on. The DOJ needs to do more research on this issue. I am actually shocked they didn't bring a similar law suit against Amazon several years ago.
post #35 of 99
Quote:
Originally Posted by JDW View Post

Anti-Trust Laws are unnecessary and actually harmful to the market and the end consumer:
http://video.google.com/videoplay?do...78685983789002

(Video is from 1983, with Ron Paul and Prof. Dominick T. Armentano. Worth your time.)

Ron Paul knows nothing about antitrust. He's not an antitrust lawyer or economist, the last I checked. Don't shill for politicians here, please.
post #36 of 99
Quote:
Originally Posted by anantksundaram View Post

Ron Paul knows nothing about antitrust. He's not an antitrust lawyer or economist, the last I checked. Don't shill for politicians here, please.

It's 100% clear you did not watch the video. Had you watched it, you would have seen that the man doing most of the talking was Professor Dominick T. Armentano, an expert on economics and well researched on Anti-Trust and its implications. Do your homework before you speak.
post #37 of 99
Quote:
Originally Posted by jragosta View Post

Yet you're suggesting that Apple has done something illegal. I'm not asking what charges the DoJ will file, I'm asking you to provide the justification for your endless anti-Apple tirades. What laws do you believe that Apple has broken?

Huh (and which ones were the anti-Apple tirades)? This is the DoJ's opinion

BTW, I had asked you before if you were a lawyer. You leave readers with the impression you are. If so, what's your specialty?
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post #38 of 99
Quote:
Originally Posted by JDW View Post

It's 100% clear you did not watch the video. Had you watched it, you would have seen that the man doing most of the talking was Professor Dominick T. Armentano, an expert on economics and well researched on Anti-Trust and its implications. Do your homework before you speak.

Of course not. I cannot be bothered to watch every video and read every link that is trotted out here.

If you think it's worth our time to do so, how about you take the time to summarize Prof. Armentano's arguments, so that we can decide whether to view it to learn more or not?
post #39 of 99
Quote:
Originally Posted by anantksundaram View Post

Of course not. I cannot be bothered to watch every video and read every link that is trotted out here.

But you can be bothered enough to bash others for posting links? Preposterous!

Quote:
Originally Posted by anantksundaram View Post

If you think it's worth our time to do so, how about you take the time to summarize Prof. Armentano's arguments, so that we can decide whether to view it to learn more or not?

You are just being argumentative here. I gave you the summary in my original post. It is as plain as day.
post #40 of 99
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?

You need to know why Amazon got 70%. The standard break Down was the retailer got 35% and the distributor got 35%. Amazon just happen to be both, retailer and distributor, so it got paid for both rolls, which was the standard at the time.
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