E-Book Anti Trust Lawsuit

The US Justice Department on April 11, 2012 filed an antitrust lawsuit against Apple and major book publishers, accusing them of colluding to keep the retail price of e-books higher. Three big publishers investigated by the US DOJ--Hachette Book Group, Simon and Schuster and HarperCollins--have settled the case, while the other big two publishers, Macmillan and Penguin Group USA, refused to settle, and are now facing USDOJ lawsuit. The lawsuit alleges that Apple and the publishers conspired to limit e-book price competition, causing "e-book consumers to pay tens of millions of dollars more for e-books than they otherwise would have paid". However, if consumers get any money, it has to come from states as sixteen states, led by Connecticut AG George Jepsen and Texas AG Greg Abott, filed a lawsuit against Apple and three publishers--Macmillan, Penguin, and Simon and Schuster--on April 11, 2012, while settled with two other publishers, Hachette and HarperCollins. According to the states' lawsuit, the damage to customers is approximately $100 million, or $5 per e-book. The DOJ investigation against Apple and five big publishers began last year (2011) when they had adopted a new pricing model, called the agency model, under which publishers would set the retail prices of e-books and retailers would get a commission. This new model, agency model, is significantly different from the traditional book pricing model, called the wholesale model. Under the wholesale model, publishers would charge the retailers half the cover price in lieu of giving them latitude of setting their own pricing structure. The agency model was originally suggested to the publishers in early 2010 by the then-CEO of Apple, Steve Jobs, as the publishers were becoming increasingly nervous about Amazon's e-book selling practices. Amazon, at that time, often used to sell e-books at $9.99. Prior to the iPAD launch in early 2010, Jobs insisted on the so-called "most favored nation" status as part of the agency model under which the publishers would set the retail price and no retailers could sell e-books below that price. It is this clause of "most favored nation" that came under the radar of USDOJ investigation. Apple was then on the verge of ramping up of its iBookstore through its iPAD platform, posing a direct challenge to the hegemony of Amazon Kindle. The agency model has been responsible for lowering the Amazon's market share from 90 percent to around 60 percent, while Barnes and Noble's Nook stood at 25 percent and iBookstore gained prominence to by capturing a market share of 10 to 15 percent.