The United States Department of Justice, Antitrust Division, and the European Commission have launched major antitrust initiatives against the e-book publishing industry and Apple.
Both enforcers are attacking the publishers’ decisions to switch from a traditional resale model in which book sellers paid wholesale prices and set their own resale prices to an agency model in which the publishers dictate the resale price and guarantee the retailer a 30% commission.
In early April, the Antitrust Division filed a complaint against Apple and five publishers, Hachette Book Group Inc., HarperCollins Publishers LLC, Penguin Group USA Inc., Simon & Schuster Inc. and Holtzbrinck Publishers LLC. Hachette, HarperCollins Publishers, and Simon & Schuster all agreed to settle without admitting wrong doing. But the other publishers and Apple did not. In addition to ending the challenged agency arrangements, the three publishers’ proposed settlements (1) impose a five-year ban on most favored nation agreements with retailers and (2) require the publishers to adopt antitrust compliance programs and notify the Division before entering any proposed joint venture involving e-books.
Sixteen states also filed actions against Apple, Penguin, Macmillan and Simon & Schuster seeking damages for consumers who allegedly overpaid for e-books.
Joaquin Almunia, the chief European antitrust enforcer, announced that the Commission had received proposed settlements from Apple as well as Simon & Schuster, HarperCollins, Hachette Livre SA and Macmillan.
According to the DOJ’s complaint, over three days in January 2010, each publisher defendant agreed to enter with Apple a “functionally identical” agency agreement set to take effect simultaneously that April. Each agreement allegedly allowed the publishers to set retail prices while promising that they would also raise e-book retail prices at other vendors. The publishers are then alleged to have pursued similar deals with other retailers as well as restraining price competition among themselves. The complaint quotes Apple’s deceased CEO Steve Jobs biography in which he wrote about urging the publishers to adopt the agency model through which “the customer pays a little more, but that’s what you want anyway.”
The complaint seeks to ban the defendants from (1) “fixing the method and manner in which they sell e-books, or otherwise agreeing to set the price or release date for e-books, or collective negotiation of e-book arrangements;” and (2) entering most favored nation agreements in which publishers promise not to sell books less expensively to other retailers.