Apple, leading US publishers, charged with collusion

Two plaintiffs in an anti-trust lawsuit claim that Apple and five publishers colluded to drive up Amazon's low e-book prices, raising profits for publishers and making Apple's iPad more competitive against Amazon's Kindle.

Beck Diefenbach/Reuters
On the day of the iPad launch, did Apple founder Steve Jobs already know that Amazon would be forced to raise prices on its e-books?

Something fishy may be happening in the e-book world.

Apple, Hachette Book Group, Penguin Group Inc., Simon & Schuster Inc., Macmillan Publishers, and HarperCollins Publishers have just been slapped with a class action anti-trust lawsuit.

The Hagens Berman law firm of northern California is bringing the suit and the plaintiffs – according to the Hagens Berman website – are Anthony Petru of California and Marcus Mathis of Mississippi.

Hagens Berman claims that Apple and the five publishers colluded to drive up e-book prices and eliminate Amazon's lead in the e-book market. Amazon previously sold e-books at $9.99, for less money than the physical books cost and often at a loss in order to drive up demand for e-books and thus, the Amazon Kindle.

The plaintiffs believe that Apple, about to release the iPad that it hoped with compete with the Kindle as an e-reader, and publishers, annoyed at Amazon's low prices, worked together to force Amazon to drive up prices. They did this by forcing Amazon to stop using discount pricing and start using the agency model.

The agency model allows publishers to set prices for their e-books, with the online store taking a portion of the price. Previously Amazon had bought e-books from publishers and set its own low prices. In the agency model, according to Ars Technica, Amazon would not be allowed to sell e-books at prices lower than those set by the publishers. Since the publishers in question supposedly control 85% of the popular books on Amazon, it was inevitable that Amazon would have to raise e-book prices – and it since has.

If the Hagens Berman claims are true, then Apple and five publishers are guilty of collusion and violating anti-trust laws by preventing free trade and driving up prices.

It sounds like a good argument, but where's the proof?

Unfortunately for Apple, there might be some. A conversation between Apple founder, Steve Jobs, and Walt Mossberg from The Wall Street Journal at the unveiling of the iPad was documented in The New Yorker, and shows evidence that Apple knew about Amazon's price hike before it happened, reports Ars Technica. Mossberg apparently asked Jobs why anyone would pay more for an e-book from Apple when they could pay less and get it from Amazon. Jobs said that the price difference would soon be eliminated because publishers were unhappy with Amazon's low pricing.

If the case is approved, Hagens Berman says the lawsuit would cover anyone who has purchased an e-book from Amazon after the price hike and seeks to stop the agency pricing model as well as claim as damages all the illegal profits made by the six defendants.

That could means tens of millions of dollars being paid out by Apple and the five publishers.

However, there are a few odd things about this lawsuit. One is that the plaintiffs are two seemingly unconnected people from different parts of the US. If this really is an anti-trust issue, why aren't Amazon or the FTC bringing it to court?

Another is that Apple allows iPad owners to download Kindle apps onto their iPads, basically allowing Amazon to sell its e-books on the iPad. Doesn't sound much like competition. Furthermore, many of Amazon's e-books are still priced at $9.99 or well below.

In the eyes of some observers, this looks more like an attempt by Hagens Berman to pull in some billable hours than a serious lawsuit based on irrefutable proof. But only time (and the courts) will tell if there is an actual case to be had here.

Megan Wasson is a Monitor contributor.

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