US sues Apple, publishers over e-book prices

By Pete Yost

Associated Press

Published: Wednesday, April 11 2012 12:15 p.m. MDT

Attorney General Eric Holder is seen at a news conference at the Justice Department in Washington, Wednesday, April 11, 2012. The Justice Department and several states have sued Apple Inc. and major book publishers, alleging a conspiracy to raise the price of electronic books that Attorney General Eric Holder says cost consumers millions of dollars.

Cliff Owen, Associated Press

WASHINGTON — The Justice Department and 15 states sued Apple Inc. and major book publishers Wednesday, alleging a conspiracy to raise the price of electronic books they said cost consumers more than $100 million in the past two years by adding $2 to $5 to the price of each e-book.

Attorney General Eric Holder said executives at the highest levels of the companies conspired to eliminate competition among e-book sellers. Justice's antitrust chief Sharis Pozen said the executives were desperate to get Amazon.com, marketer of the Kindle e-book reader, to raise the $9.99 price point it had set for the most popular titles, which was substantially below their hardcover prices.

The government reached a settlement with three of the publishers, Hachette, HarperCollins and Simon & Shuster. But it will proceed with its lawsuit in federal court in New York City against Apple and Holtzbrinck Publishers, doing business as Macmillan, and The Penguin Publishing Co. Ltd., doing business as Penguin Group.

Holder told a Justice Department news conference on Wednesday that "we believe that consumers paid millions of dollars more for some of the most popular titles" as a result of the alleged conspiracy. Pozen said the scheme added and average of $2 to $3 to the prices of individual books.

Connecticut Attorney General George Jepsen said the individual book markups went as high as $5 and the total cost to consumers was more than $100 million since April 2010, when the scheme allegedly took effect.

According to Pozen, Apple's Steve Jobs told publishers involved in the alleged conspiracy that "the customer pays a little more, but that's what you want anyway."

The lawsuit said the effort to get e-book prices reduced by Amazon.com came as Apple was preparing to launch the iPad. The government said the conspirators agreed that instead of selling books to retailers and letting them decide what retail price to charge, the publishers would convert the retailers into "agents" who could sell their books but not alter the publisher-set retail price. The scheme called for Apple to be guaranteed a 30 percent commission on each e-book it sold, the lawsuit said.

"To effectuate their conspiracy, the publisher defendants teamed up with defendant Apple, which shared the same goal of restraining retail price competition in the sale of e-books," the lawsuit said.

Apple did not immediately respond to a comment request.

Macmillan Chief Executive Officer John Sargent said in a letter to authors, illustrators and agents that the company has not settled because it is "hard to settle a lawsuit when you know you have done no wrong."

He said: "Macmillan did not act illegally. Macmillan did not collude."

Sargent said the filing of the lawsuit came after discussions with the Department of Justice that lasted months.

"But the terms the DOJ demanded were too onerous. After careful consideration, we came to the conclusion that the terms could have allowed Amazon to recover the monopoly position it had been building before our switch to the agency model," he said. "We also felt the settlement the DOJ wanted to impose would have a very negative and long term impact on those who sell books for a living, from the largest chain stores to the smallest independents."

At the heart of the e-book pricing debate is the industry's ongoing concerns about Amazon. Publishers see the "agency model" as their best, short-term hope against preventing the online retailer from dominating the e-book market and driving down the price of books to a level unsustainable for publishers and booksellers.

Get The Deseret News Everywhere

Subscribe

Mobile

RSS