Technology: Apr 11, 2012

The U.S. beat Apple Inc. and five of the nation's largest publishers with antitrust lawsuit, alleging they conspired to raise prices in the rapidly growing e-book market.

Three of the editors agreed to the suit, which could upend the model that led the price of many best-selling e-books up to $ 12.99 $ 14.99 or from $ 9.99 several years ago.

"Defendants' ongoing conspiracy and agreement has caused e-book consumers to pay tens of millions of dollars more for e-books that otherwise would be paid," the lawsuit said, describing CEO only meetings of publishers in Manhattan restaurants at which the alleged conspiracy was hashed out.

The lawsuit, filed by the Department of Justice in Manhattan federal court, alleges Apple and the publishers reached an agreement where price competition would cease, retail e-book prices would increase considerably, and Apple would have to be guaranteed a 30% commission on every e-book sold.

The three publishers who agreed to a Lagardère SCA's Hachette Book Group, CBS Corp. 's Simon & Schuster Inc. and News Corp.' s HarperCollins Publishers LLC. News Corp. also owns The Wall Street Journal.

These three publishers agreed to end their agreements with Apple regarding e-books, and refrain from restricting any retailer the ability to set up an e-book prices for two years. This could help Amazon.com Inc. to resume deep discounts on a new e-books.

Also named in the suit is Pearson PLC's Penguin Group (USA) and Macmillan, a unit of Verlagsgruppe Georg von Holtzbrinck GmbH.

Simon & Schuster confirmed that it settled but declined further comment. Apple declined to comment. Macmillan denied any collusion. The three other publishers will not respond to requests for comment.

Referring to the colony and its e-reading devices, Amazon said, "This is a great victory for Kindle owners, and we look forward to being allowed to lower prices in more Kindle books."

The agreement between Apple and the publishers allegedly occurred before the introduction of the iPad in 2010, when Amazon.com driven e-book prices down to $ 9.99 for a newly released and best-selling e-books, according to the lawsuit.

The conspiracy to limit competition, the lawsuit says, sought to limit Amazon's ability to discount e-books.
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When Apple began selling its iPad, the editors moved from "wholesale" model, under which retailers set the price of books, to "agency" model in which publishers set the prices and retailers take a cut.

The complaint included a remark of the late Steve Jobs, head of Apple, describing his company's strategy to negotiate with the publishers: "We will go to [in] agency model, where you set the price, and we get our 30%, and yes, the customer pays a bit more, but what you want in any way. "

The suit alleges that the publishers' chief executives met in September 2008 or earlier "in private dining rooms of a luxury Manhattan restaurants" and "legal counsel present at any of these meetings."

It also describes how Apple executives worked with the publishers at the end of 2009 and the beginning of 2010, as the iPad launch drew near to fine tune the new pricing model. In January 2010, each of the five publishers "into functionally identical agency contract with Apple that would go into effect at the same time in April 2010," the Justice Department said.

The government said publishers "regularly communicated" to "exchange sensitive information and assurances of solidarity." They "took steps to hide their communications with each other, including instructions to 'double delete' e-mail and take other steps to avoid leaving a paper trail," the government said.

John Sargent, CEO of Macmillan, in a message sent Wednesday authors, agents and illustrators, said Macmillan did not collude with anyone. Reaching a settlement with the Justice Department, he added, would be particularly difficult when "you know that you have done no wrong."

Mr. Sargent, noting that publishers actually earn less money in each e-book sales under the agency model than the traditional wholesale model, described his decision to embrace agency prices as "the loneliest" one he had ever made.

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

He also sounded a few other topics. The settlement proposed by the Department of Justice, he wrote, could not be enabled Amazon to "restore the monopoly position it was to build a" prior to the adoption of agency prices. He also said that such an arrangement "would have a very negative and long-term impact on those who sell books for a living, the largest chain stores to smaller independent."

A spokesman for Amazon declined to respond to Mr. Sargent's comment.

A spokesman for Bertelsmann AG's Random House Inc., which was the only major publisher not initially accept the agency pricing model, and thus were not charged to the suit, declined to comment on the suit or the colonies. Random House did adopt the agency pricing model last year.

Wednesday, April 11, 2012

U.S. Sues Apple, Publishers Over E-Book Pricing

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