Antitrust Law Daily Wrap Up, ANTITRUST NEWS: Trial Begins in e-Books Price Fixing Case Against Apple, (Jun 3, 2013)

By Jeffrey May, J.D.

A government trial against Apple, Inc. for conspiring with major publishers to fix the price of electronic books or e-books kicked off in the federal district court in New York City today. The Justice Department's Opening Statement Presentation offers a timeline, attempting to show that Apple facilitated the alleged conspiracy. The presentation chronicles a series of conversations between the CEOs of the publishing houses and between the publisher CEOs and Eddy Cue, Apple’s senior vice president for Internet software and service (U.S. v. Apple, Inc., Civil Action No. 12-cv-2826 (DLC)).

In April 2012, the U.S. Department of Justice Antitrust Division and 16 state attorneys general brought actions against Apple and the publishers for conspiring to fix the sales prices of e-books. The suits named Apple and publishers Hachette Book Group (USA), HarperCollins Publishers L.L.C., Simon & Schuster Inc., Holtzbrinck Publishers LLC, which does business as Macmillan, and Penguin Group (USA). All five of the publishers have now settled the federal and state charges.

The publishers allegedly acted collectively to switch to a new sales model for e-books known as the “agency model” in an effort to drive up prices for New York Times bestsellers and other newly released e-book titles. The publishers entered into functionally-identical agreements with Apple, which distributes e-books through its “iBookstore.” Under the agency model, publishers sold titles to consumers directly at prices set by the publishers with retailers serving as the publishers’ “agents” and receiving a percentage of each sale as commission.

Previously, the publishers sold e-books using the “wholesale model,” meaning they sold titles to retailers at a wholesale price or discount off the price listed on the physical edition of the book or “list price.” Retailers were then free to sell titles to consumers at retail prices of their choosing. The agency model purportedly led to rising prices for newly released and bestselling e-books.

The alleged conspiracy “had its roots in publisher antipathy for low prices set by retailer Amazon, Inc. for the sale of e-books,” according to the government. The government suggests that the publishers and Apple “shared the objective of thwarting Amazon’s ability to compete on price.”

The trial is expected to last for three weeks.

Companies: Hachette Book Group Inc.; HarperCollins Publishers L.L.C.; Simon & Schuster Inc.; Penguin Group (USA) Inc.; Holtzbrinck Publishers, LLC; Apple Inc.

News: Antitrust AntitrustDivisionNews