updated 03:00 am EDT, Wed May 16, 2012
Class-action civil suit fires back at 'overpriced' e-books
In addition to the lawsuit from the Department of Justice and 17 states against Apple and two major publishers alleging the companies conspired to keep e-book prices artificially high, a US District Court judge yesterday approved a class-action civil lawsuit targeting Apple and five major publishers on the same charges, filed "on behalf of e-book customers." The judge rejected a motion to dismiss the lawsuit in a strongly-worded opinion.
The argument made by the Justice Department and the class-action civil suit is the same: that five major publishing houses and Apple conspired to use the "agency model," a standard practice in the publishing field that lets publishers set prices, as a weapon against Amazon, which was starting to monopolize the e-book market, punish uncooperative publishers and authors, and sell e-books at a loss. Rather than take issue with Amazon, the DOJ instead charged the publishers with an illegal collusion to keep prices "high," to the surprise of legal analysts.
In the DOJ case, three of the major publishers settled rather than fight the charges, but Apple, MacMillan and Penguin have stood their ground, saying the agency model does not represent price-fixing but allows publishers and authors to offer more choice and flexibility in pricing. The sixth major US publisher, Random House, was the last to accept the "agency model" for e-books and it has managed to avoid most of the litigation so far, as have smaller publishers who accepted the agency model with Apple and other e-book sellers later. The DOJ's suit is not about the agency model per se but about an alleged collusion between Apple and the other five major publishers, allegedly to stop Amazon from becoming a monopoly.
The holdout publishers and Apple counter that they did not conspire to fight Amazon, but that Amazon's model will destroy bookstores, lower profits and force smaller publishers out. Apple suggested that the publishers offer bestsellers at between $12 and $15 when the iBookstore launched, but did not require them to do so.
The Kindle model used by Amazon allows the company to discount e-books as it wants, often at a loss, and though it paid full royalties at first, publishers believe they will eventually be asked to accept royalties based on the price the book sold for, which is effectively determined by Amazon. While Amazon can afford to cover the loss, publishers fear that the Kindle model will lead to ruinously lower revenues once Amazon is again the dominant seller (it still has a majority of e-book sales, but rivals such as Apple and Barnes & Noble have eaten away at its lead).
Amazon says the forced lower pricing is good for consumers, but doesn't address the consequences -- in much the same way Walmart has taken criticism for squeezing manufacturers and competing sellers out, eliminating competition and bullying suppliers so that it can offer ever-lower prices. The civil lawsuit claims Apple and the publishers are "overpricing" e-books compared to Amazon.
The consumer class-action suit approved by Judge Denise Cote names all five publishers along with Apple and will add to the complexity of the DOJ case, which hasn't even begun. Judge Cote appeared to side strongly with consumers against Apple and the publishers, essentially saying she believed that Apple blocked e-books from competing in an "open" market by "[helping] the suppliers to collude, rather than compete independently." The ruling allows the class-action suit to proceed to court, putting more pressure on the publishers and Apple to settle.
The three publishers who already settled with the DOJ are still named in this civil lawsuit, even though they agreed to change their pricing models and are negotiating with states to give small refunds to buyers who bought e-books during the affected period. MacMillan and Penguin's CEOs have repeatedly insisted that the companies did nothing wrong, that no collusion on pricing took place, that Apple did not lead or participate in a conspiracy and neither did the two companies. The Author's Guild and other organizations would side with Apple and the publishers in any court proceedings.