Department of Justice Sues Apple, 5 Publishers Over Alleged E-Books Price-Fixing Scheme

Department of Justice Sues Apple, 5 Publishers Over Alleged E-Books Price-Fixing Scheme

NEW YORK - (Mealey's) The U.S Department of Justice, Antitrust Division, sued Apple Inc. and five book publishers in federal court in New York on April 11, alleging that Apple and the publishers engaged in a conspiracy to fix prices of digital books in violation of federal antitrust laws; three of the publishers agreed to settle the lawsuit (United States of America v. Apple, Inc., et al., No. 1:12-cv-02826-UA, S.D. N.Y.).

(Complaint.  Document #81-120426-009C.  Proposed final judgment.  Document #81-120426-010X.  Competitive impact statement.  Document #81-120426-011X.)

The five book publishers named in the complaint, which was filed in the U.S. District Court for the Southern District of New York, are Hachette Book Group Inc.; HarperCollins Publishers L.L.C.; Penguin Group; Simon & Schuster Inc.; and Verlagsgruppe Georg von Hotzbrink GmbH and Holtzbrink Publishers LLC d/b/a Macmillan (collectively, Macmillan).  The three settling publishers are Hachette, HarperCollins and Simon & Schuster.

Conspiracy Alleged

The government alleges that Apple and the publishers agreed to increase retail prices and to guarantee Apple a 30 percent commission on each e-book it sold.  The government describes a scheme wherein each publisher entered into an "Apple Agency Agreement" that gave each publisher the power to set Apple's retail prices for e-books and promised to raise retail e-book prices at other e-book outlets.  The publishers then imposed agency agreements on their other retailers so that the retailers had no power to alter the prices set by the publishers.  Prior to the conspiracy, retailers were able to establish the retail prices for e-books, which fostered price competition, the government says.

The government contends that the evidence of a conspiracy includes practices that facilitated a horizontal conspiracy, direct discussions of collective action to force Amazon to raise its prices for e-books, efforts to conceal communications, motives to enter the conspiracy and a sudden and contemporaneous shift from past behavior.

Specifically, the government alleges that "[s]tarting no later than September of 2008 and continuing for at least one year, the Publisher Defendants' CEOs (at times joined by one non-defendant publisher's CEO) met privately as a group approximately once per quarter."

The government describes other meetings between the publishers' executives and says that an Apple executive contacted each publisher at the end of 2009 and kept each publisher informed of its negotiations with the other publishers.

Anti-Competitive Effects

"Defendants' conspiracy and agreement to raise and stabilize retail e-book prices by collectively adopting the agency model and Apple price tiers led to an increase in the retail prices of newly released and bestselling e-books.  Prior to the Defendants' conspiracy, consumers benefitted from price competition that led to $9.99 prices for newly released and bestselling e-books.  Almost immediately after Apple launched its iBookstore in April 2010 and the Publisher Defendants imposed agency model pricing on all retailers, the Publisher Defendants' e-books for most newly released and bestselling e-books rose to either $12.99 or $14.99," the government contends.

The government alleges that the scheme constitutes a per se violation of Section 1 of the Sherman Act.

Settlements

The proposed final judgment against the settling defendants requires them to terminate the Apple Agency Agreements with Apple and the agreements setting the retail prices of e-books with the retailers.

The proposed final judgment provides that the defendants may not "restrict, limit or impede an E-Book Retailer's ability to set, alter, or reduce the Retail Price of any E-Book or to offer price discounts or any other form of promotions to encourage consumers to Purchase one or more E-Books" for two years.

Counsel

The government is represented by Acting Assistant Attorney General for Antitrust Sharis A. Pozen, Deputy Assistant Attorney General Joseph F. Wayland, Chief Counsel for Competition Policy and Intergovernmental Relations Gene Kimmelman, Director of Civil Enforcement Patricia A. Brink, Director of Litigation Mark W. Ryan, Chief Litigation III Section John R. Read, Assistant Chief Litigation III Section David C. Kully and Attorneys Litigation III Section Daniel McCuaig, Nathan P. Sutton, Mary Beth McGee, Owen M. Kendler, William H. Jones II and Stephen T. Fairchild of the DOJ in Washington, D.C.

Hachette is represented by Paul Yde of Freshfields Bruckhaus Deringer in Washington.  HarperCollins is represented by Clifford H. Aronson of Skadden, Arps, Slate, Meagher & Flom in New York.  Simon & Schuster is represented by Helene D. Jaffe of Proskauer Rose in New York.

Macmillan is represented by Joel M. Mitnick of Sidley Austin in New York.  Penguin is represented by Daniel F. McInnis of Akin Gump Straus Hauer & Feld in Washington.

Apple is represented by Richard Parker of O'Melveny & Myers in Washington.

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