EBook Antitrust Lawsuit May Help Modernize the Publishing Industry

Sep 21, 2012

Article ImageAnnounced to the public in April of 2012, the Department of Justice (DOJ) filed an Antitrust lawsuit against Apple and publishers Hachette, HarperCollins, Macmillan, Penguin Group (USA), and Simon & Schuster. The Justice Department alleged that Apple and the aforementioned publishing companies conspired together in an attempt to curb competitive pricing for e-books, namely in the wake of Amazon's offerings of $9.99 or less.

According to the DOJ filing, "Apple facilitated the Publisher Defendants' collective effort to end retail price competition by coordinating their transition to an agency model across all retailers." Basically, the publishers were looking for a way to keep retailers like Amazon from charging less than they believed adequate for a new release or bestselling book by fixing prices at a minimum of $12.99 to $16.99. This price would be set by the publisher and nonnegotiable to retailers (what was referred to as the "agency model").

In September, U.S. District Court Judge Denise Cote approved settlement between the DOJ and three of the publishers - Simon & Schuster, Hachette and HarperCollins - who face a $96 million penalty and agreed to sever their contracts with Apple for fixed ebook prices. However, Apple and the remaining two publishers have not yet agreed to negotiate settlement terms and, at this time, are waiting for the case to go to trial in the summer of 2013.

According to the DOJ complaint, Macmillan was the first publisher to sign an agreement setting ebook prices with Apple, and followed by giving Amazon a choice to either go along with the agency model or wait seven months to be able to sell new hardcover titles in ebook form. Amazon was hesitant to agree to the terms, but once all five publishers were on-board with the joint agency model, Amazon announced that it must comply as well, which led to the DOJ's investigation of the matter.

There has been some discussion among legal experts as to whether the antitrust laws apply in this matter, specifically in the wake of attorney Bob Kohn's request to stay Judge Cote's ruling on the settlement until it's heard in appeals court. He states in his request for a stay that the price-fixing publishers attempted was not illegal, citing "because if the restraint is reasonably necessary to achieve the benefit, it's legal."

Mark Giangrande, an academic law librarian and member of the Illinois Bar since 1981, has done extensive research on the topic of antitrust law, and believes that the case law Kohn cites doesn't necessarily apply in this matter. "The move benefits the publishers, but not necessarily consumers. There is enough case law and commentary out there that states the purpose of the antitrust laws is to protect consumers. To quote Steve Jobs, ‘The customer pays a little more, but that's what you want anyway.' Is that a compelling market efficiency or is it something else?" he says.

Denise Howell, an attorney in Newport Beach, CA that specializes in technology law, tends to agree. "My overall take is that the DOJ was doing its job in pursuing the publishers, and approving the settlement was appropriate. The evidence against the publishers seemed damning enough that it was likely good business sense for them to buy certainty and get out. The settlement itself was more than a slap on the wrist, and seems likely to deter these publishers and others from banding together to create or protect artificially high prices in the context of digital goods."

While it remains to be seen how this process will play out in trial, it is certain that the publishing industry is on the brink of change. Some experts believe that the publishing business still hasn't fully grasped modernization, viewing ebooks as simply a way to make more money because much of the overhead costs are eliminated.

"Even Amazon's prices are ‘high' when one takes into account the fact that ebooks eliminate the costs of physical materials and resources, retail space, transportation and even conventional marketing and promotion," says Howell. "The ebook business has been thriving with Amazon as the market leader, and competition to Amazon, driven primarily by competing reading platforms and their ecosystems, remains strong as well."

Giangrande is within the same frame of mind. "Judge Cote noted in her order that the ebook market is new and that we can't predict how the market is to develop. I believe that she is right, in that, technology changes quickly and, while the publishers may not want to react to these changes, they may be compelled to," he says. "I think this case forces publishers and their distribution partners to do more than simply present the equivalent of the printed page."

("Books and tablet" from Shutterstock.)

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