A complete guide to the Apple iBooks price fixing scandal

Features Richard Goodwin 12:27, 13 Apr 2012

We take a look at why the US Justice Department has decided to sue Apple and some of the world's biggest publishers

Apple’s on-going legal dispute with the US government concerning the price of ebooks reached a head this week, following the news that the US Department of Justice plans to sue Apple.

The DOJ claims that Apple, along with several major book publishers, came together in secret to raise the prices of ebooks – a practice generally known as ‘price-fixing.’

But it is not just Apple that’s in hot water with the US government. The antitrust compliant, which you can read here, accuses several major publishers, including household brands like Penguin, Harper Collins and Macmillan, of openly colluding to raise the price of ebooks.

The DOJ claims that the aforementioned publishers were worried about Amazon’s ultra-cheap – $9.99 – ebook pricing model and, fearing they’d lose out in the long run, decided to take action with a little help from Apple – the biggest technology brand on the planet.

So while Apple is undoubtedly the focal point of this debacle it doesn’t appear to have been the instigator. Since 2008, claims the document, the CEOs of said publishing houses have been meeting in secret at top hotels and restaurants in and around Manhattan.

‘By the end of 2009,’ surmises the court document, ‘the Publisher Defendants had concluded that unilateral efforts to move Amazon away from its practice of offering low retail prices would not work, and they thereafter conspired to raise retail e-book prices and to otherwise limit competition in the sale of e-books.’

It concluded: ‘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 ebooks.’

Know Your Mobile spoke to Steve W. Berman of Seattle-based law firm, Hagens Berman.

He said: ‘We are pleased that the U.S. Justice Department and Attorney General Holder agreed with our analysis that Apple and some of the nation’s largest publishers engaged in anticompetitive practices.’

He added: ‘we’ve long held that Apple and this group of book publishers formed a cabal with the sole intent of extinguishing any competitive influences in the e-book marketplace.’

‘We are eager to move forward with our civil action against Apple and the publishers, and to show the court and the public the depth and breadth of the conspiracy they concocted at the expense of consumers.’

Switching the model
The main problem facing The Publishers was that Amazon was just too big. No one, including Apple, could complete with the scale of Amazon’s ebook business model. It had the Kindle, the market share, and, most importantly, the hearts and minds of consumers.

Apple, nonetheless, ‘believed it would be able to trounce Amazon by opening up [its] own ebook store’ in the form of iBooks. Obviously this didn’t happen, but it wasn’t for want of trying, and by 2009 the intense competition in the ebook market had driven the price of ‘popular ebooks’ down to $9.99, reducing retailer margins to a level that ‘Apple found unattractive.’

It was around this time, late-2009, that The Publishers and Apple discovered they had a mutual enemy in the form of Amazon and began their mutual co-op to take the company’s business model down.

The end result of this conspiracy is detailed as follows in the antitrust compliant:

‘Together, Apple and the Publisher Defendants reached an agreement whereby retail price competition would cease (which all the conspirators desired), retail e-book prices would increase significantly (which the Publisher Defendants desired), and Apple would be guaranteed a 30 percent "commission" on each e-book it sold (which Apple desired).’

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