By Jack Haines
Staff Writer
The Department of Justice filed a lawsuit on Wednesday, April 11 aimed at popular technology giant Apple, and several book publishers, claiming the companies had violated anti-trust laws.
Book publishers Harper Collins, Hachette, MacMillan, Simon and Schuster and Penguin have been accused of teaming up with Apple in a scheme to eliminate competition in the sale of e-books, which would then allow publishers to hike prices while getting more sales.
The scheme is said to have been promoted by Apple co-founder, the late Steve Jobs with the goal of eliminating competition from Amazon. Amazon had been known for placing price discounts on best-selling books, a tactic which yielded great success.
“Given the situation that existed, what was best for us was to do this aikido move and end up with the agency model,” Jobs stated in Walter Isaacson’s 2011 biography “Steve Jobs.”
“Publishers saw the rise in e-books, and particularly Amazon’s price discounting, as a substantial challenge to their traditional business model,” the filed complaint states, “By the end of 2009, however, 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.”
As Apple was preparing to launch their own tablet, the iPad, the publishers and Apple realized they both had similar objectives, and teamed to bring down Amazon and make profit. The plan they designed would help stifle competition, raise prices, and give Apple a 30 percent share of revenue made from the sale of e-books.
The previous system in which e-books were sold had publishers selling to retailers, who then set the price of the books and sold them. The publishers and Apple replaced this with what they called an ‘agency model,’ in which the publisher set the price and used retailers as ‘agents’; the retailers would have no power to change prices.
Retailers such as Amazon would lose the ability to control prices, and publishers could raise the prices as much as they wanted, while Apple’s 30 percent share would still make the scheme beneficial for them. Eventually, Amazon was forced to conform to the agency model.
As prices rose for all retailers, consumers went from spending $10 for a bestselling e-book on Amazon, to between $12-15. “As a result of this alleged conspiracy, we believe that consumers paid millions of dollars more for some of the most popular titles,” Attorney General Eric Holder said in an online BBC News article on April 11.
The U.S. Department of Justice isn’t the only organization suspicious of Apple and the publishers. The European Commission has been investigating for the same reason, and the companies are now trying to settle. Harper Collins, Hachette and Simon and Schuster have agreed to settle, but Apple, MacMillan and Penguin have not negotiated thus far.
The complaint comes as Apple becomes the most valuable corporation, now worth $600 billion. At this point, there is no telling what effect the lawsuit will have on Apple, or the publishers involved.
