Department of Justice proposes a fix to Apple's e-book price fixing

The Department of Justice created a set of proposals to remedy the effects of Apple's e-book price-fixing scheme.

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    A commuter reads on his Kindle e-reader on a subway train in Cambridge, Mass. The Department of Justice issued a series of proposals to increase competition in the e-book retail market.
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Apple could be required to provide links to other companies’ e-book stores from within Apple’s e-book app at no cost to the other companies, giving consumers the opportunity to compare competitors' prices. The Department of Justice suggested this, and several other proposals to rebalance the e-book market in a court document issued on Friday. 

The DOJ’s proposal also calls for Apple to terminate its existing agreements with five major publishers and to abstain from new e-book distribution contracts for five years. Apple would also have to pay for a court-appointed external monitor to work with the company’s antitrust officer, if the proposal is passed.

"The big picture concern is that the DOJ seems to be showing some interest in Apple's app platform," says Scott Hemphill, a law professor at Columbia University. While the company usually keeps 30 percent of the revenue made from purchases in the App Store, the DOJ would require Apple to link to other stores' prices free of charge. "The government did not allege in the case [against Apple that its] prohibition on links [to outside sites] was an anti-competitive act in the first place," Mr. Hemphill says. Tacking on this condition in the proposal could be a signal that the DOJ has taken interest in the wider question of how the App Store operates. 

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Apple was found guilty of conspiring to fix e-book prices in violation of antitrust laws. The Internet giant is liable for “facilitating and encouraging” price fixing with five major publishing companies – Hachette, HarperCollins, Simon & Schuster, Macmillan, and Penguin – when it launched its e-book store in 2010.

“The court found that Apple’s illegal conduct deprived consumers of the benefits of e-book price competition, and forced them to pay substantially higher prices,” says Bill Baer, Assistant Attorney General in charge of the DOJ’s Antitrust Division, in a statement included in the DOJ proposal. “Under the department’s proposed order, Apple’s illegal conduct will cease and Apple and its senior executives will be prevented from conspiring to thwart competition in the future.”

As the Monitor reported in July, Apple’s involvement in price fixing was described as a “hub and spoke conspiracy” by New York University law professor Harry First, with Apple at the center, in control of e-book retailers.

When Apple entered the market, Amazon.com controlled 90 percent of the e-book trade and often sold books at a loss – conditions that created discontent among publishers worried that consumers would grow to expect to pay less for books.

“The problem when this all began was that there was just Amazon,” says Andrew Albanese from Publishers Weekly. But now that there is more competition, it actually helps the publishing industry. Consumers will have more opportunities to buy books, and they are no longer sovereign to an e-book retailer. Having links to different e-book retailers in the App Store, as the DOJ has proposed, would also be helpful to the publishers, Mr. Albanese says. 

Each of the five major publishers settled outside of court, which required each publisher to terminate agreements that prevented e-book retailers from lowering the prices at which they sell e-books to consumers, and to allow for retail price competition.

The court will hold a hearing to discuss the DOJ’s proposals on August 9.  

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