Apple agrees to pay $450 million to settle ebook price fixing lawsuit

Posted:
in General Discussion edited July 2014
Apple has agreed to pay up to $450 million to settle a class-action lawsuit from states and consumers accusing the iPad maker of illegally fixing e-book prices and raising costs.

Summation
Apple's closing slide in its e-book antitrust case. | Source: U.S. District Court


The settlement was first revealed by New York Attorney General Eric T. Schneiderman, who indicated that the deal will resolve claims for consumer damages and civil penalties brought forward in lawsuits by the state of New York and 32 other states and territories.

Schneiderman said the settlement could result in payments of up to $400 million to consumers. Total costs in the conditional settlement are said to be around $450 million, according to Reuters.

"This settlement proves that even the biggest, most powerful companies in the world must play by the same rules as everyone else," Schneiderman said. "In a major victory, our settlement has the potential to result in Apple paying hundreds of millions of dollars to consumers to compensate them for paying unlawfully inflated E-book prices. We will continue to work with our colleagues in other states to ensure that all companies compete fairly with the knowledge that no one is above the law."

The settlement was first announced last month, but the terms of the deal were not announced at that time. With the news of a $450 million agreement, Apple would save nearly $400 million from the $840 million the lawsuit originally sought, if it were to have gone to trial.

While Apple has agreed to the terms, they must still be ratified by U.S. District Judge Denise Cote. If the court's ruling that Apple violated antitrust laws is affirmed, consumers will receive $400 million from Apple.

But if the ruling is not affirmed and liability must be retried, the settlement provides a smaller recovery of $50 million. Apple could also pay nothing if the company is determined to have not violated antitrust laws.

Book publishers
Late Apple cofounder Steve Jobs introduces iBooks iPad app and partner publishers in 2010. | Source: Apple


Apple led the charge in convincing publishers to switch to a so-called "agency" pricing model. That prevented content owners from being able to sell the same titles at a lower price elsewhere, without offering the same price on Apple's iBooks platform -- a "most favored nations" clause.

In contrast, the e-book industry prior to the launch of the first iPad was under the "wholesale model" preferred by Amazon. In that model, resellers such as Amazon had the power to set prices, selling titles at or below cost if they chose to do so.

As Apple attempts to compete with Amazon, the iPad maker is now saddled with an injunction that bars it from entering into any unsavory deals with publishers. Publishers were also targeted by the government and chose to settle, and those payments will be in addition to anything Apple might pay to consumers.

In separate litigation related to the same issue, Apple is in the process of appealing a ruling by the U.S. District Court for the Southern District of New York -- the same court overseeing the class-action suit -- that found the company guilty of colluding with major book publishers to falsely inflate pricing of content sold through the iBookstore.

The U.S. government leveled the suit after an investigation into Apple's "agency model" price structure, which operates on a "most favored nations" basis that disallows content owners to sell their wares to another retailer for a lower price. Apple's model ran counter to Amazon's "wholesale model" that allows retailers to buy content from publishers in bulk, then set resale prices at or below cost as they see fit.
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Comments

  • Reply 1 of 37

    well, I'm a consumer... and this will help me buy hardcopy books that are blacklisted by  Amazon due to Amazon 'looking out for my interests'

     

    Sigh...  Can't corporations be just be 'less evil' than yesterday?  And can't States be 'less stupid' than yesterday?

  • Reply 2 of 37
    jessijessi Posts: 302member

    A half billion dollar, illegal, shakedown.

     

    Amazon had the influence with the president, so Amazon got it's monopoly protected by his thugs.

     

    Apple is barred from COMPETING with Amazon.  COMPETITION is not "unsavory".

     

    Total travesty of justice here, Cote belongs behind bars for the rest of her life.

     

    And Al Gore needs the boot from the board... if he can't deliver pull to stop stuff like this, why are they paying him?  Advice?  From the guy who gave us global warming, even after it was disproven?  LOL

  • Reply 3 of 37
    rs9rs9 Posts: 68member
    Settle down Jessie, Apple just made $450 Million. Plus it'll be a tax break.
  • Reply 4 of 37
    rogifanrogifan Posts: 10,669member
    And this is why Apple should not get in to bed with government, and when the government says 'jump', Apple should tell the government to pound sand. It's obvious the government will screw Apple any chance it gets.
  • Reply 5 of 37

    "The U.S. government leveled the suit after an investigation into Apple's "agency model" price structure, which operates on a "most favored nations" basis that disallows content owners to sell their wares to another retailer for a lower price."

     

    That sure looks like price-fixing. But of course this is Apple we're talking about, so of course everybody else is wrong.

  • Reply 6 of 37
    macbook promacbook pro Posts: 1,605member
    salmanpak wrote: »
    "The U.S. government leveled the suit after an investigation into Apple's "agency model" price structure, which operates on a "most favored nations" basis that disallows content owners to sell their wares to another retailer for a lower price."

    That sure looks like price-fixing. But of course this is Apple we're talking about, so of course everybody else is wrong.


    "Most favored nation" cause is a common contract provision. The agency pricing model is common as well.
  • Reply 7 of 37

    There is a misunderstanding about the so-called "most favored nations" clause stating that if an ebook was sold for a lower price elsewhere, then Apple could sell it for that price. Apple did not originate that clause, Amazon did. It was in the first Amazon publisher contracts and continues to this day: other ebook resellers, including Apple, followed Amazon's lead. I know this because I am a party to ebook contracts with Amazon, Apple and other ebook resellers starting with the launch of the Kindle.

     

    The real distinction between the "Agency" and "wholesale" models is that the publisher sets the retail selling price of the book under the agency model, whereas under the wholesale model the retailer sets the retail selling price. The reason publishers jumped on this was that under the wholesale model Amazon was selling ebooks for below what they pay the publisher for the ebook, in order to drive competitors out of business.

     

    With the DOJ decision, Amazon continues to sell ebooks below cost, including in their new subscription program which will allow reading an unlimited number of books for $9.99 a month: they have told publishers that they are free to do this, as long as they pay the publisher the wholesale price of the book every time it is opened by a new customer.

     

    Ultimately, of course, Wall Street will decide that Amazon needs to make a profit. Then all the folks that think that Amazon is driving competition out of business to benefit them may discover that the world works a little differently than they think.

  • Reply 8 of 37

    No one forces anyone to buy anything! If the price "isn't right", don't buy. I am a publisher and the government, once again, doesn't know what it is talking about. I would be with Steve on this one. Apple went expedient on this though they had the money to fight it. Cote is going to be proud of herself and that idiot Holder, I swear, knows nothing about regular commerce. Bezos, one of these days, not Apple, will be waiting for the other shoe to fall. What business is it of the government what a non-monopoly charges for something. Aren't we in a free country where we can say, "No, I won't pay that price and no one can make me?" Do we need a watchdog to protect us from our own insanity? Apple could have turned out to be right and only settled, as far as I can tell, that they had some inside information which told them the Justice dept. was "going to get them," somehow, someway, and they had no chance to ever win. I wonder if these deadheads like Holder and Cote even read books, let alone buy them.

  • Reply 9 of 37
    jungmarkjungmark Posts: 6,591member
    Meanwhile DOJ turns it's back on Amazon's monopoly abuse.
  • Reply 10 of 37
    How does that compare to what Amazon paid the judge?
  • Reply 11 of 37
    "This settlement proves that even the biggest, most powerful companies in the world must play by the same rules as everyone else," Schneiderman said.

    Sounds like the king posing with his sword over the dead dragon. "look what I slew!"

    Meanwhile, Amazon lurks in the shadows, careful not to appear big and powerful, even though its powerful enough to push large publisher around.

    It's odd, really. I as a consumer chose to pay whatever price Apple and Amazon charged me for eBooks and yet the government is saying I am owed a refund because prices were fixed by a cabal of publishers and Apple? Okay. But prior to that, pricing was set artificially by Amazon, and not a reflection of free market forces, so effectively, what is the government protecting? The letter or spirit of the antitrust law?
  • Reply 12 of 37
    jkichlinejkichline Posts: 1,315member
    I choose to pay the iBooks price. Period. As a consumer, I should be free to pay what I want for content, goods and services. I don't need the government "protecting" me. I wasn't scammed. I saw the price and paid it.

    The only thing that they are making their case on is that Apple colluded with publishers to fix prices. Personally I don't think they did. They just said stuff should probably be about this much money which is fair to publishers.

    I think the government is protecting a monopoly (Amazon) because the powerd that be don't want Apple to be "right".

    If/when the post card comes that says I can get me $5 back, I'm going to send it back with a big screw you letter. Let me consume the way I want to.
  • Reply 13 of 37
    gatorguygatorguy Posts: 19,696member
    jkichline wrote: »
    I choose to pay the iBooks price. Period. As a consumer, I should be free to pay what I want for content, goods and services. I don't need the government "protecting" me. I wasn't scammed. I saw the price and paid it.

    The only thing that they are making their case on is that Apple colluded with publishers to fix prices. Personally I don't think they did. They just said stuff should probably be about this much money which is fair to publishers.

    I think the government is protecting a monopoly (Amazon) because the powerd that be don't want Apple to be "right".

    If/when the post card comes that says I can get me $5 back, I'm going to send it back with a big screw you letter. Let me consume the way I want to.

    Do you think the authors make more on books sold thru Apple than Amazon? I don't know. I do know I don't hear much about fair play for the authors. It's nearly always the "poor publishers".

    Edit: Here's a report on author earnings I just stumbled on. In a quick read it would appear authors are better off NOT dealing with the Big 5 publishers if they have an option.
    http://authorearnings.com/the-report/
  • Reply 14 of 37
    occam11occam11 Posts: 7member
    What's interesting is that apps are sold in the app store in a model basically identical to the agency model for books: the developer sets the selling price, Apple takes 30%. There is FAR less competition for selling apps than for selling books: many apps never even make it to the Android side, and consumers have innumerable choices for getting a book: buy a used copy, borrow it, go to the library, etc. So why is it price fixing when you do it for books and not price fixing when you do it for apps? Peculiar, and demonstrates Cotes (willful?) ignorance.
  • Reply 15 of 37
    crowleycrowley Posts: 5,612member
    Quote:

    Originally Posted by Jessi View Post

     

    Total travesty of justice here, Cote belongs behind bars for the rest of her life.


    <img class=" src="http://forums-files.appleinsider.com/images/smilies//lol.gif" />  Amazing

  • Reply 16 of 37
    Quote:

    Originally Posted by occam11 View Post



    What's interesting is that apps are sold in the app store in a model basically identical to the agency model for books: the developer sets the selling price, Apple takes 30%. There is FAR less competition for selling apps than for selling books: many apps never even make it to the Android side, and consumers have innumerable choices for getting a book: buy a used copy, borrow it, go to the library, etc. So why is it price fixing when you do it for books and not price fixing when you do it for apps? Peculiar, and demonstrates Cotes (willful?) ignorance.

     

    Because there is only one store where you can sell iOS apps. Apple is not telling developers that if they sell an app in Apple's app store for $4 they also have to charge $4 for it on Google Play. 

  • Reply 17 of 37
    saareksaarek Posts: 1,097member
    occam11 wrote: »
    There is a misunderstanding about the so-called "most favored nations" clause stating that if an ebook was sold for a lower price elsewhere, then Apple could sell it for that price. Apple did not originate that clause, Amazon did. It was in the first Amazon publisher contracts and continues to this day: other ebook resellers, including Apple, followed Amazon's lead. I know this because I am a party to ebook contracts with Amazon, Apple and other ebook resellers starting with the launch of the Kindle.

    With the DOJ decision, Amazon continues to sell ebooks below cost, including in their new subscription program which will allow reading an unlimited number of books for $9.99 a month: they have told publishers that they are free to do this, as long as they pay the publisher the wholesale price of the book every time it is opened by a new customer.
    Thanks for the heads up, I hope the subscription service comes to the UK at the same time as the US (alas, I doubt it)!

    I'll subscribe straight away.
  • Reply 18 of 37
    lilgto64lilgto64 Posts: 1,147member

    I am by no means an expert on this topic and have not studied the available material in this case - but it does sound fishy to me that a distributor negotiating with its suppliers and getting them to agree on a pricing model whereby any discounts extended to the distributor's competitors area also matched doesn't sound at all like collusion to fix prices. 

    In fact, had you asks me prior to this case, I would have told you that in my opinion price fixing could only be applicable if direct competitors colluded with each other to set their prices, especially while maintaining an outward appearance of competition. 

    For example, if I am running a gas station and I develop a formula using the price of a barrel of oil on the stock market to calculate my price each day and my competitor across the street does any of the following:

    1. copies the prices off my sign.

    2. uses his own formula that results in a price that is often (or even always) the same as mine.

    3. undercuts me by x cents per gallon.

    4. charges x cents more than me per gallon.

    we would not be guilty of price fixing. 

    However, if we called each other each day and agreed on a price - especially if that price was artificially inflated - that would be price fixing. 

    The trouble is that as a government regulator (or even consumer) driving by and seeing identical prices I have no way of knowing whether that secrecy phone call ever happened because the resulting prices are the same (or near enough as to make no difference). 

    So maybe here is why this has been called price fixing - using the gas station scenario - suppose I know the guy across the street buys from the same supplier I do but consistently has lower prices than me deliberately to put me out of business - and I talk to the supplier to get him to agree to give me a lower price anytime the guy across the street get a lower price so that he can't put me to of business. 

     

    Oh wait, just confused myself. If my agreement with the publisher forces them to either lower my price or raise my competitions' price then maybe that borders on price fixing. 

  • Reply 19 of 37
    occam11occam11 Posts: 7member

    Well, Big Five publishers pay advances against royalties to authors. "Advances" are cash up front to the author for projected royalties. Even if they are typically not huge, advances are a HUGE benefit to an author: even if the book doesn't hit projections they don't need to pay the advance back (although they do have to pay it back if they never finish the manuscript). And, guess what, most books do not hit projections: editors are eternal optimists.

     

    It is true that some (very few) authors have done very well self publishing through Amazon, selling their ebooks for $2.99 or whatever. But Amazon is working hard to drive all ebook prices down. How well do you think your self-published book selling at $2.99 will do when it is up against big-name authors at the same price?

  • Reply 20 of 37
    occam11occam11 Posts: 7member

    Right, one store. Kind of my point.

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