Got a tip for us? Share it...

New in OS X: Get MacRumors Push Notifications on your Mac

Resubscribe Now Close

Publishers in E-Book Antitrust Case File Objection to DOJ's Proposed Punishment for Apple

iBooks.pngThe five book publishers who settled with the U.S. Government in the e-book antitrust case have filed an objection with the court arguing that the Department of Justice's proposed punishments for Apple would violate their settlement agreements from before the trial began, according to The Wall Street Journal.

The DOJ has recommended that the "agency model" deals with publishers be nullified and that Apple require competitors such as Amazon to put direct purchase links to their own e-book stores inside their iOS apps. Some experts have said that Apple could owe as much as $500 million in penalties.
In a court filing Wednesday afternoon, the publishers said that the U.S. Department of Justice's demands on Apple would eliminate the use of the "agency model" for the sale and distribution of e-books for a period of five years, by prohibiting Apple from entering such agreements.

Under the agency model, publishers, rather than Apple, set the retail price for e-books.

"The provisions do not impose any limitation on Apple's pricing behavior at all; rather, under the guise of punishing Apple, they effectively punish the settling defendants by prohibiting agreements with Apple using an agency model," lawyers for the publishers said in papers filed in federal court in Manhattan.
Apple has consistently defended its behavior and called the DOJ's proposal a "draconian and punitive intrusion into Apple's business".

Top Rated Comments

(View all)

9 months ago
Wow, now that Amazon has almost completed its task of putting every B&M bookstore out of business, the government steps in to make sure their slash-and-burn business model survives in the digital market as well.
Rating: 24 Positives
9 months ago
Don't understand why this case is so hard to solve. All the DoJ have to do is get Apple to remove the clause from their agency agreements that prevents the publishers from selling their eBooks through Amazon at a lower price. If Apple wants to make 30% margin on eBook sales that's fine. If Amazon want to make 5% margin and sell the eBooks much cheaper that's up to them. It's a free market. Ultimately customers will decide who gets their money.
Rating: 16 Positives
9 months ago
The publishers aren't really siding with Apple. They are looking out for their best interests. The DOJ prevents Apple from using the agency model. The publishers want the agency model. Apple is almost an unintended beneficiary in this instance.
Rating: 13 Positives
9 months ago
"Trust the Government. It worked well for the Indians". ;)
Rating: 10 Positives
9 months ago

Don't understand why this case is so hard to solve. All the DoJ have to do is get Apple to remove the clause from their agency agreements that prevents the publishers from selling their eBooks through Amazon at a lower price. If Apple wants to make 30% margin on eBook sales that's fine. If Amazon want to make 5% margin and sell the eBooks much cheaper that's up to them. It's a free market. Ultimately customers will decide who gets their money.


Your thinking way to logical.

We need a committee of at least 100 govt workers and a hearing to conclude what you did on a forum in 2 years time.
Rating: 7 Positives
9 months ago

"Trust the Government. It worked well for the Indians". ;)


These days, any government care less about the people.
Fake pundits are there to soothe the people, while the government please corporations.

----------

Wow, now that Amazon has almost completed its task of putting every B&M bookstore out of business, the government steps in to make sure their slash-and-burn business model survives in the digital market as well.


Obama’s guys are in the Amazon’s pocket.
Rating: 6 Positives
9 months ago

Remember when there used to be good news about Apple?


The publishers are supporting Apple.
Rating: 6 Positives
9 months ago
Remember when there used to be good news about Apple?
Rating: 4 Positives
9 months ago
As a protest against anti-trust charges that book publishers colluded with Apple to raise prices, book publishers collude with Apple to challenge US court ruling. Seems to check out.
Rating: 4 Positives
9 months ago

My understanding was that the clause Apple had did not prevent a publisher from selling a book on Amazon or any other store for a lower price. It merely said that if it did, Apple could lower the price on their store as well.

Your understanding is correct, the problems are in the consequences which sadly are not lower prices for everyone.

Before Apple the game was played with the wholesale model. In wholesale the publisher doesn't decide the final price (the price the consumer pays), it instead sells to the retailer at a given price, and the retailer sells to the consumer at whatever price it sees fit. This means that in the wholesale model the publishers get the same money per-sale no matter what the consumer pays. With the agency model it's not so. With the agency model the publishers sets the price the consumer pays, and gets 70% of that, the retailer gets the remaining 30% (assuming Apple's fees).

The key issue is that with wholesale the price the consumer pays is irrelevant to the retailer's per-sale revenue (which is fixed) but in the agency model the price the consumer pays does affect to the retailer's per-sale revenue. Mix that with the MFN clause (which allows to match the lowest price) and you get the following scenario:

Let's assume Amazon sells through wholesale and Apple sells through agency with MFN clause. The publishers sell the book through Apple at a consumer price of 15$, so for every sale they get 10.50$ (the 70%). Through Amazon they set a wholesale price of 10.50$, so that's what they get and Amazon is free to sell the ebook to the consumers at the price it wants. So from the publisher's revenue point of view selling though Amazon or Apple is the same, they always get 10.50$ every sale.

Amazon decides to set the book on sale to the consumers at 12$ because they are happy with a lower margin than 30%. Every sale the publishers gets 10.50$ (wich is fixed) and Amazon 1.50$. Since the publishers always get their 10.50$ they are happy (at least about the revenue per-sale). Apple matches the price according to the MFN clause, so now they too sell the book at 12$, but in this case the publishers get only 8.40$ per-sale from Apple instead of 10.50$. And this makes them definately not happy.

Let's assume now that Amazon wants to use the book as loss-leader. It sets the price at 5$, so for every sale the publishers get 10.50$ and Amazon loses 5.50$. Apple matches the price and through Apple the publishers now get 3.50$ per-sale. If the publishers were not happy before, now they are contemplating suicide...

So the publishers cannot afford the agency model with MFN clause without fixing consumer prices overall, or their revenues would be at the mercy of the lowest bidder. This is to explain the consequences of the MFN clause, the collusion issues and the involvement of Apple in it are another story.

TL;DR: With the agency model the final price affects the publisher's revenues directly. With MFN the wholesale model had to go and prices had to be fixed by publishers, or the whole system would not work (at least from the publishers' point of view).
Rating: 4 Positives

[ Read All Comments ]