U.S. Department of Justice Sues Apple and Publishers over E-Book Pricing

ibooks iconFollowing up on last month's threat to file suit over the Apple-backed agency model of e-book pricing, the U.S. Department of Justice today sued Apple and a number of book publishers over the practice, Bloomberg briefly reports. Settlement talks had been ongoing, but Apple and the publishers were reportedly unwilling to meet the Department of Justice's demands.

The U.S. filed a price- fixing antitrust lawsuit against Apple Corp. and Hachette in New York district court over eBook pricing. The government also sued HarperCollins, Macmillan and Penguin, according to court papers.

Settlement talks had centered around dismantling the agency model, which sees publishers set retail pricing and vendors receive a percentage of the sales price. Apple had pushed for the agency model in an attempt to dilute Amazon's power in the book market, where it had offered vast discounts, even sometimes selling books at a loss, in order to attract customers who would make other purchases through the site.

But the Department of Justice believes that the agency model as implemented by the publishers at Apple's behest amounts to collusion, with contracts between Apple and the publishers including language that prevented the publishers from offering lower pricing to competitors than they did to Apple. Contrary to the government's claims of an anti-competitive impact from the agency model, Apple and several of the publishers have argued that the move has fostered competitiveness by limiting Amazon's stranglehold on the book market. Consequently, the two sides have been unable to reach a settlement.

Update: Bloomberg reports that the Department of Justice has reached a settlement with Simon & Schuster, Hachette, and HarperCollins over the issue. Once finalized, the settlement would leave Apple, Macmillan and Penguin as defendants in the case.

Macmillan CEO John Sargent has published an open letter to the publisher's authors, illustrators and agents outlining why it will fight the lawsuit.

It is always better if possible to settle these matters before a case is brought. The costs of continuing—in time, distraction, and expense— are truly daunting.

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. 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.

Sargent notes that Macmillan makes less money under the agency model than it did under the previous wholesale model, but that it made the change to support competitiveness in the market, not stifle it.

Addressing the Department of Justice's claim that publishers and Apple colluded to fix pricing, Sargent also describes the circumstances under which he made the final decision to move to the agency model, calling it the "loneliest decision" he has ever made.

The government’s charge is that Macmillan’s CEO colluded with other CEO’s in changing to the agency model. I am Macmillan’s CEO and I made the decision to move Macmillan to the agency model. After days of thought and worry, I made the decision on January 22nd, 2010 a little after 4:00 AM, on an exercise bike in my basement. It remains the loneliest decision I have ever made, and I see no reason to go back on it now.

Update 2: The Department of Justice has released a transcript of a press conference statement from Attorney General Eric Holder regarding the lawsuit.

Update 3: Connecticut Attorney General George Jepsen today announced that a group of sixteen states have followed the Department of Justice's lead and filed their own lawsuit against Apple and publishers. The complaint claims that consumers were overcharged by at least $100 million due to the alleged price fixing.

Update 4: The Verge has a thorough analysis of the highlights from the Department of Justice's filing.

Top Rated Comments

WannaGoMac Avatar
115 months ago
Finally. I know I will be marked down on this site for saying this but...before Apple entered the ebook business, prices were coming DOWN. After Apple entered the ebook business, prices all went up and have stayed flat at the new price point.
Score: 38 Votes (Like | Disagree)
Xenomorph Avatar
115 months ago

great news for the consumer!

Indeed. I've stayed away from purchasing any e-book so far. Why would I pay $15 for a digital copy when I can order the same book online for $7?

I guess you're paying for the convenience of having all the digital copies in the palm of your hand, but digital distribution was supposed to make things cheaper!!!

If I can buy a hundreds of games on Steam for a fraction of the cost of what the boxed copies would have cost me, I'd think books (and movies) would be even cheaper.

Same with online movies.
Why buy a movie on iTunes for $15-$20, when I can pick it up on Blu-Ray at Walmart for $10 (which includes the HD Blu-ray, DVD, and sometimes even a free digital copy)?
Score: 32 Votes (Like | Disagree)
miles01110 Avatar
115 months ago
I honestly never really understood the government's argument on this one. Publishers already have a monopoly on book pricing anyways since one book is (usually) only available from one publisher. How can they collude with one another to keep the price of a book only one party has a monopoly on artificially high?
Score: 24 Votes (Like | Disagree)
jonnysods Avatar
115 months ago
Thank you big brother.

I'm glad they don't waste time with time wasting issues such as collusion of gas prices at the pumps, and they deal with important things like book prices.
Score: 18 Votes (Like | Disagree)
milbournosphere Avatar
115 months ago
It's nice to see my government working for me. :) Hopefully the matter will be resolved quickly. E-book pricing models are starting to get a little scary...
Score: 15 Votes (Like | Disagree)
TMay Avatar
115 months ago

Finally. I know I will be marked down on this site for saying this but...before Apple entered the ebook business, prices were coming DOWN. After Apple entered the ebook business, prices all went up and have stayed flat at the new price point.


Before Apple became involved, Amazon was "dumping" ebooks at prices below cost to gain market share.

This is what "dumping" looks like in the steel market...

http://www.mcclatchydc.com/2009/12/30/81483/china-loses-steel-dumping-case.html

"In a unanimous decision, the three Democrats and three Republicans on the ITC determined that subsidized steel from China has damaged U.S. steelmakers. The Chinese steel, the panel determined, had been dumped — sold at artificially low prices to undercut fair competition."

What part of Amazon's action doesn't look like "dumping", i.e., subsidizing to undercut fair competition, e.g., Apple, Wal Mart, et al.
Score: 14 Votes (Like | Disagree)

Top Stories

16inchmacbookpromain

Kuo: New MacBook Pro Models to Feature Flat-Edged Design, MagSafe, No Touch Bar and More Ports

Thursday January 14, 2021 9:32 pm PST by
Apple is working on two new MacBook Pro models that will feature significant design changes, well-respected Apple analyst Ming-Chi Kuo said today in a note to investors that was obtained by MacRumors. According to Kuo, Apple is developing two models in 14 and 16-inch size options. The new MacBook Pro machines will feature a flat-edged design, which Kuo describes as "similar to the iPhone 12" ...
iphone x camera close

iOS 14.4 Will Introduce Warning on iPhones With Non-Genuine Cameras

Thursday January 14, 2021 8:07 am PST by
In the second beta of iOS 14.4 seeded to developers and public testers this week, MacRumors contributor Steve Moser has discovered code indicating that Apple will be introducing a new warning on iPhones that have had their camera repaired or replaced with aftermarket components rather than genuine Apple components. "Unable to verify this iPhone has a genuine Apple camera," the message will...
prototype iphone 12 pro

Prototype iPhone 12 Pro Shown Off in Photos

Wednesday January 13, 2021 3:39 pm PST by
Developer Giulio Zompetti, who often shows off prototype versions of Apple devices, today highlighted a prototype version of the iPhone 12 Pro. The iPhone 12 Pro is running an operating system called SwitchBoard, a nonUI version of the iOS 14 update that Apple uses internally. We've seen SwitchBoard on prototype devices before, as Apple uses it to test new features. Zompetti's prototype...
foldable iPhone concept feature

Apple Testing In-Display Fingerprint Sensor for iPhone 13, Foldable iPhone Also in the Works

Friday January 15, 2021 1:46 pm PST by
Apple has started "early work" on an iPhone that has a foldable display, according to a new report from Bloomberg's Mark Gurman. Though testing of a foldable iPhone has begun, Apple has not committed to releasing a device that has a foldable display. Development has not yet expanded beyond a display and Apple does not have full foldable iPhone prototypes in its labs. Like foldable...
Apple TV Ray Light 2 Triad

Apple Extends Free Apple TV+ Trials Until July

Friday January 15, 2021 10:50 am PST by
Apple is once again planning to extend its free Apple TV+ trial subscriptions, this time until July. When Apple TV+ launched in November 2019, Apple offered free Apple TV+ subscriptions to those who purchased a new Apple device in or after September 2019. Those free subscriptions were set to expire in November 2020, but in October 2020, Apple announced that it was extending free trials...
macbook pro 16 inch thunderbolt

Bloomberg: Next-Generation MacBook Pro to Offer Improved Displays, Faster Charging Over MagSafe

Thursday January 14, 2021 11:36 pm PST by
Following today's report from analyst Ming-Chi Kuo outlining major changes for the next-generation MacBook Pro models coming in the third quarter of this year, Bloomberg's Mark Gurman has weighed in with his own report corroborating some of the details but seemingly differing a bit on others. First, Gurman shares more details on the return of MagSafe charging to the MacBook Pro, indicating...
Hue module dimmer switch

Philips Hue Announces New Wall Switch Module, Dimmer Switch, and Outdoor Light Bar

Thursday January 14, 2021 3:11 am PST by
Philips Hue has announced a new wireless dimmer switch module that lets Hue bridge owners directly control the smart lighting from their standard wall switches. The new Philips Hue wall switch module is the ideal addition to any Philips Hue set up. Installed behind existing light switches, it allows users to turn their existing switch into a smart switch and ensures their smart lighting is...
pat gelsinger intel

Incoming Intel CEO Derides Company's Inability to 'Deliver Better Products' Than Apple's M1 Chip

Friday January 15, 2021 6:17 am PST by
Incoming Intel CEO Pat Gelsinger has said that the company must "deliver better products" than Apple, which he described as a "lifestyle company," and says that Intel's best days are "in front of it" (via The Oregonian). Speaking at an Intel all-hands meeting yesterday, Gelsinger derisively implied that Apple is merely a "lifestyle company," so Intel must be able to surpass its technology: ...
mac pro mini feature

Apple Working on Two New Mac Pro Desktops, One of Which Will Be Reminiscent of Power Mac G4 Cube

Friday January 15, 2021 10:23 am PST by
Apple is developing two versions of the Mac Pro to succeed the Mac Pro that was first released in December 2019, according to a new report from Bloomberg. The first updated Mac Pro is a direct successor to the current Mac Pro and it will use the same design. It may also be equipped with Intel processors rather than Apple silicon chips, and it could be one of the sole machines in the Mac...
pioneer carplay wc5700nex

The Best Apple-Related Accessories at CES 2021

Wednesday January 13, 2021 1:16 pm PST by
CES 2021 is taking place digitally this year, and it hasn't been as exciting as in past years because many vendors have opted out. That said, some companies are still showing off some interesting Apple-related accessories that are coming out this year and that will be of interest to Mac, iPad, and iPhone users. Subscribe to the MacRumors YouTube channel for more videos. Pioneer Wireless...