Bloomberg: “U.S. files antitrust suit against Apple, publishers”

Bloomberg: “U.S. files antitrust suit against Apple, publishers”

More on this later, but according to this

Washington Post article

the Department of Justice has filed suit against Apple and the “Agency 5” publishers (Hachette, Penguin, HarperCollins, Sinon & Schuster, and Macmillan) over the Agency Model.

We’ll probably see the filing shortly, and I’ll update this later today.

Update: here is a

Wall Street Journal article

with more good information. According to the article, Hachette, Simon & Schuster, and HarperCollins

“…agreed to terminate their agreements with Apple regarding e-books and refrain from limiting any retailer’s ability to set e-book prices for two years. That could help Amazon.com Inc. AMZN +0.93% resume deep discounts on new e-books.”

We may see the “This price set by the publisher” warnings go away very quickly.

I don’t think we’ll see a dramatic quick lowering of the New York Times bestseller hardback equivalents across the board to $9.99. I do think we’ll see those former Agency Model publishers’ books included in sales, and prominently.

Could this be a negative impact for independently published books? Perhaps…price might be less of an advantage for them, and if the Big Six has books in the promotions in the same way the indies do, that muddies the water.

The WSJ also nicely provided this

pdf of the filing

I’m looking forward to reading it. 🙂

Update: here are some sections that are catching my eye in the government filing:

“Publishers saw the rise in e-books, and particularly Ama zon’ s price discounting,
as a substantial challenge to their traditional business model. The Publisher Defendants feared
that lower retail prices for e-books might lead eventually to lower wholesale prices for e-books,
lower prices for print books, or other consequences the publishers hoped to avoid. Each
Publisher Defendant desired higher retail e-book prices across the industry before “$9.99″
became an entrenched consumer expectation. By the end of 2009, however, the Publisher
Defendants had concluded that unilateral efforts to move Ama zon 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. To effectuate their conspiracy,the Publisher Defendants teamed up with Defendant Apple, whichshared the same goal of restraining retail price competition in the sale of e-books.”

“As Apple CEO Steve Jobs described his company’sstrategy for negotiating with the Publisher Defendants, “We’ll go to [an] agency model, where you set the price, and we get our 30%, and yes, the customer pays a little more, but that’s what you want anyway.””

“Plaintiff United States ofAmerica brings this action pursuant to Section 4 ofthe
Sherman Act, 15 U.S.C. § 4, to obtain equitable r e l i e f and other r e l i e fto prevent and restrain
De f endant s ‘ viol a t ions of Se c t ion 1 ofthe She rman Act, 15 U.S.C § 1.
19. This Court has subject matter jurisdiction over this action under Section 4 ofthe
Sherman Act, 15 U.S.C. § 4, and 28 U.S.C. §§ 1331,1337( a ) , and 1345.”

“Beginning no later than September 2008, the Publisher Defendants’ senior executives engaged in a series ofmeetings, telephone conversations and other communications in which they jointly acknowledged to each other the threat posed by Amazon’s pricing strategy and the need to work collectively to end that strategy. By the end ofthe summer of2009, the  Publisher Defendants had agreed to act collectively to force up Amazon’s retail prices and thereafter considered and implemented various means to accomplish that goal, including moving under the guise of a joint venture.”

“In September 2008, Penguin Group CEO John Makinson was joined by Macmillan CEO John Sargent and the CEOs ofthe other four large publishers at a dinner meeting in “The Che f s Wine Cellar,” a private room at Picholene. One ofthe CEOs reported
that business matters were discussed.”

“All five Publisher Defendants agreed in 2009 at the latest to act collectively to raise retail prices for the most popular e-books above $9.99. One CEO of a Publisher Defendant’s parent company explained to his corporate superior in a July 29, 2009 e-mail message that “[i]n the USA and the UK, but also in Spain and France to a lesser degree, the ‘top publishers’ are in discussions to create an alternative platform to Amazon for e-books.”

“The executive in charge ofApple’s inchoate e-books business, Eddy Cue, telephoned each Publisher Defendant and Random House on or around December 8, 2009 to schedule exploratory meetings in New York City on December 15 and December 16.”

As I would expect with the DoJ filing suit, it sounds like they have evidence of a collusion. They probably have call logs and such.
This post by Bufo Calvin originally appeared in the I Love My Kindle blog.

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8 Responses to “Bloomberg: “U.S. files antitrust suit against Apple, publishers””

  1. Tom Semple Says:

    I wonder when the settlements are to take effect? I’m not sure it will change my purchasing behavior very much. Discounted $9.99 pricing was always restricted to best-sellers, while my reading interests are more varied. I think perhaps both proponents and opponents of agency pricing tend to exaggerate its effects, and it seems impossible to qualify these without having access to a lot of data that is not public.

    This summarizes some of the juicier details of the suit:

    http://lunch.publishersmarketplace.com/2012/04/details-from-the-dojs-lawsuit/

    Macmillan CEO John Sargent’s statement (followed by quote):
    http://us.macmillan.com/NewsDetails.aspx?id=28237

    “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. ”

    In other words, people really like the convenience and lower costs of ebooks and of purchasing print books online. Exactly what is wrong with that? I don’t buy the argument that it is destroying book culture. Book culture is _changing_, not going away. The question is whether publishers want to serve the preferences and requirements of readers, or not.

    The automobile’s success came at the loss of much of the mass transit infrastructure that preceded it (and horse-powered transportation infrastructure almost entirely). We can argue that the car has engendered some unforeseen and negative cultural and environmental changes, but these are things we collectively continue to observe, accept, and mitigate as needed. Horses exist in large numbers, mostly for recreational purposes, mass transit (now including air travel) remains vital.

    Likewise, printed books are not going away, though fewer may be produced and sold in stores. And more books (analog and digital) are being published than ever before.

  2. janice lynn chase Says:

    It’s about time! What were they waiting for? I was beginning to think that all was rumor and never to be fact! Thank you.

    • Bufo Calvin Says:

      Thanks for writing, janice!

      The wheels of justice do turn slowly, as they say…and that’s especially true of the wheels of the Department of Justice. 🙂

      First, the situation had to occur. 🙂

      Then, people had to complain (I think that’s likely true since I believe this is civil…not a lawyer, though).

      Then, they had to start the research. They had to see if they could gather evidence that would give them a solid case. This might involve contacting judges…and that sort of thing can take a very long time. The Google Settlement still isn’t finished (and that’s been years…since 2009). There was a famous case with the owners of Superman suing over Captain Marvel…and that took decades, as I recall.

      Next, they had to negotiate with the parties involved. Going to court is expensive for everybody.

      During all this, I think they may even be talking to other countries to see what they are doing.

      They also need to arrange things with the judges in terms of their schedules.

      It takes a long time, as you note, but they haven’t been just waiting. 🙂

      • janice lynn chase Says:

        This is indicative of the problems inherent in our justice system. We need some serious reforms, but each administration has been very reluctant to do anything to streamline our DOJ. We can send a man into space, but we can’t deal with tort reform, etc.

  3. Rick Askenase Says:

    As I read with delight of the suit against Apple, and the settlement with three of the publishers, I can’t help recalling when this all arose. Remember? Someone posted a youtube clip of Walter Schlossberg (?) of NY Times who confronted Steve Jobs regarding ebook prices and Jobs stating that all prices would be the same- this at the launch of the first iPad. (I tried to find th clip but couldn’t.)

    This was a big stink at the time, it led to the agencxy prices- and NOW thjey are all sued by Department of Justice. I LOVE IT!! Steve Jobs- you reap what you sew.

    And the publishers get what they deserve as well.

    • Bufo Calvin Says:

      Thanks for writing, Rick!

      Here’s that clip:

      http://allthingsd.com/20100129/the-entire-boomtown-video-on-the-mossberg-jobs-chit-chat/

      That wasn’t just a smoking gun: it was like the bank robbers who take off their masks and smile for the security cameras. 😉 Of course, I’m exaggerating, but it did strike a lot of people as though it was bragging.

      There was a thought early on in legal proceedings that Steve Jobs might be called into court, partially because of this comment. It’s possible that there are no internal documents at all showing that Jobs was involved with this whole process…although the Apple leader was referenced in a class action suit.

      Of course, that question of personal testimony is moot now, although liability may not be. The filing talks more about Eddie Cue:

      http://www.apple.com/pr/bios/eddy-cue.html

      One possibility to me is that the publishers never expected this to stand…but knew it would take a few years before they would be called to account. Those years were crucial: it was the blossoming stage of the e-book market.

      For example, it’s tougher for Amazon to just drop the New York Times hardback bestseller equivalents back to $9.99…when they are selling at $12.99, than it would have been to maintain that price all along. That perceptual gain might be worth the penalties they may pay now.

  4. Rosemary Says:

    I’ve just discovered an article in the New Yorker by Ken Auletta which traces the story of the agency model and is most interesting. It is in the June 25 issue of the magazine.
    Rosemary

    • Bufo Calvin Says:

      Thanks for writing, Rosemary!

      The summary looks interesting. The full story is behind the paywall, so I can’t really give you a full reaction.

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