Q. What’s the status of the e-book price fixing lawsuit against Apple and other publishers?
A. Last April, the Justice Department filed an antitrust lawsuit against Apple and five major publishers: Simon & Schuster, HarperCollins, Hachette, Penguin Group and Macmillan – collectively, five of the “big six” U.S. publishers.
The government alleged that the publishers had set up a new model for the sale of e-books – the so-called “agency model.” The agency model was, at its core, simple: the retail price of the e-book set by the publisher would be absolute – no discounts could be given by the seller.
Under the agreements, electronic versions of bestsellers and newly released titles were to be priced in tiers. All bestselling and newly released titles bearing a hardcover list price between $25.01 and $35.00, for example, were priced at $12.99, $14.99, or $16.99, with the retail e-book price increasing in relation to the hardcover list price.
Soon after the agreements between Apple and the publishers were signed, the publishers presented Amazon with an ultimatum – adopt the agency model or lose the right to sell e-book versions of new hardcover titles. Not surprisingly, Amazon capitulated.
Specifically, the government alleged in its complaint: “Apple facilitated the Publisher Defendants’ collective effort to end retail price competition by coordinating their transition to an agency model across all retailers. Apple clearly understood that its participation in this scheme would result in higher prices to consumers. Apple was perfectly willing to help the Publisher Defendants obtain their objective of higher prices for consumers by ending Amazon’s “$9.99” price program as long as Apple was guaranteed its 30 percent margin and could avoid retail price competition from Amazon.”
Three of the publishers immediately settled with the Justice Department – Hatchette, Harper Collins, and Simon & Schuster. Apple and two other publishers, however, said they would keep fighting the charges.
In December 2012, Penguin also settled, leaving only Apple and Macmillan to fight on (the case is scheduled for trial next June). The clear impetus for Penguin’s settlement, however, was its pending proposed merger with Random House later this year – it wants the proposed Penguin Random House company to begin life with “a clean sheet of paper.” In the settlement, Penguin agrees to end its existing agreements with Apple’s e-book publishing unit, and not enter into new agreements for two years that would prevent retailers from offering discounted Penguin e-books.
What does this mean to authors? Consumers are already paying lower prices for the e-book versions of the publishers who previously settled, so if you are a Penguin author, you may now see slightly lower royalties on your e-book sales. However, generally lower prices result in at least some greater volume, so it may be a wash.
The odd part of all this is that Random House, the biggest publisher by market share (appx. 17%), which wasn’t a party to the lawsuit, already had agreements both with Apple and Amazon that let it set prices for its e-books – the very essence of the agency model. But Random House, as a result of its merger with Penguin, presumably will be bound to Penguin’s two-year period in which it cannot preventing Amazon from offering discounts on its books.