Apple’s eBook Pricing gets an Antitrust Suit

In a report posted by Bloomberg’s Bob Van Voris, the US Department of Justice filed an antitrust suit in the New York district court against Apple and a number of book publishers last Wednesday. The DoJ is also expecting that several publishers will settle their cases this week, while Hachette, HarperCollins and Simon & Schuster already straighten things up on their sides.

The eBook Price Fixing

It was just last month when the government’s interest in eBook price fixing came to light. Apparently, the DoJ has warned Apple and five major book publishers about its plan to sue them. It is due to the Cupertino-based company’s alleged role in convincing eBook publishers to switch to “agency model,” instead of the “wholesale model” sales that Amazon is implementing on its Kindle Store.

Under the online retailer’s sales model, they would buy the books from its respective publishers at a wholesale price, and then offer it using their own rate. As it turns out, publishers where repeatedly upset with Amazon’s continuous selling of their titles at a loss.

According to biographer Walter Isaacson, the late Apple CEO Steve Jobs said that publishers were disappointed with Amazon’s method because it had screwed them up. In turn, publishers opted to partner with the company and adopt their agency model.

“We told the publishers, ‘We’ll go to the agency model, where you set the price, and we get our 30%, and yes, the customer pays a little more, but that’s what you want anyway.’ But we also asked for a guarantee that if anybody else is selling the book cheaper than we are, then we can sell them at the lower price too. So they went to Amazon and said, ‘You’re going to sign an agency contract or we’re not going to give you the books.’”

Federal Antitrust Law Violations

While Apple is prepping its iBooks before the release of the original iPad in 2010, Jobs offered to implement the agency model to its digital bookstore. According to previous reports, the Department of Justice suspected the company’s move to implement the said sales model as a violation of the federal antitrust law.

It is believed that the company conspires with book publishers to increase their prices. Furthermore, some publishers were also investigated over agreements to delay eBook release and allow their paperback editions some exclusivity window. Meanwhile, one of the Big Six publishers Random House will not face the investigation, as it initially rejected the company’s sales model.

In 2010, Apple also faced an anticompetitive inquiry from the Connecticut Attorney General. It was followed by an investigation conducted by the European Commission late last year.

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