Apple and major publishers face lawsuit over ebook 'price fixing'
The lawsuit, filed by law firm Hagens Berman in California northern district court, claims that HarperCollins, Hachette Book Group, Macmillan,Penguin and Simon & Schuster conspired with Apple to increase ebook prices in order "to boost profits and force ebook rival Amazon to abandon its pro-consumer discount pricing", and that they are "in violation of a variety of federal and state antitrust laws".
The complaint centres on the agency model – used by Apple for iTunes and by most major publishers for ebook sales – in which the publisher, rather than the retailer, sets the retail price of ebooks. The model has already sparked investigations in Europe and the UK, with the Office of Fair Trading investigating whether certain publisher-retailer arrangements "may breach competition law", and the European commission looking into whether companies have colluded to keep ebook prices high.
Naming two plaintiffs, California resident Anthony Petru and Mississippi resident Marcus Mathis – both of whom purchased at least one ebook for over $9.99 after the adoption of the agency pricing model – the lawsuit, once approved, will represent any purchaser of an ebook by a major publisher after the adoption of the agency model and could, according to Hagens Berman, be worth "tens of millions of dollars".
It alleges that the five publishers "feared" Amazon's move to price ebooks at $9.99 – a figure considerably below physical book prices. The pricing "threatened to disrupt the publishers' long-established brick-and-mortar model faster than [they] were willing to accept", and to set low consumer expectations for ebook prices.
Pointing to Macmillan's battle with Amazon over the agency model last year, which ultimately saw the online retailer capitulate to Macmillan's introduction of the model "because Macmillan has a monopoly over their own titles", the lawsuit says the five publishers "forced Amazon to abandon its discount pricing and adhere to a new agency model ... If Amazon attempted to sell ebooks below the publisher-set levels, the publishers would simply deny Amazon access to the title." This has, the suit says, seen the prices of new ebooks increase to an average of $12-15 – a rise of 33 to 50% – and reach a point where they are often more expensive than physical editions.
"As a result of the pricing conspiracy, prices of ebooks have exploded, jumping as much as 50%. When an ebook version of a bestseller costs close to or even more than its hard-copy counterpart, it doesn't take a forensic economist to see that this is evidence of market manipulation,"said Steve Berman, founding partner of Hagens Berman, in a press release about the suit. "Fortunately for the publishers, they had a co-conspirator as terrified as they were over Amazon's popularity and pricing structure, and that was Apple. We intend to prove that Apple needed a way to neutralise Amazon's Kindle before its popularity could challenge the upcoming introduction of the iPad – a device Apple intended to compete as an e-reader."
But while publishers were likely to be "concerned" at the law suit – "it's another force ranging against them, and another example where they look like they are against rather than for the consumer" – The Bookseller's deputy editor Philip Jones said there was "no smoking gun" in the evidence.
"There are lots of accusations of collusion and conspiracy, rather like a John Grisham novel, but I couldn't find a single instance where they had proof, or even hinted that they had proof," he said. "There is a question over how the agency model has been implemented and whether that is illegal in the US and Europe, and that is what the regulatory bodies on both sides of the pond are looking into, but they are insinuating that there was collusion between Apple and these major publishers and I don't believe they can make the case. The lawyers can write that collusion was necessary for agency to occur, and give logic to that argument, but that doesn't prove that collusion actually took place."