Rare Book Monthly

Articles - May - 2012 Issue

Department of Justice Sues Apple, Five Book Publishers

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The Department of Justice sued Apple and five publishers for price fixing e-books.

The long rumored lawsuit by the U.S. Department of Justice against the world's most valuable company, Apple, and five book publishers for conspiracy to fix prices, was finally filed last month. The basic claim is that the companies conspired to force Amazon to raise its prices on electronic books. As a result, books that generally were being sold for $9.99 each had their prices raised to $12.99 or $14.99.

When Amazon began offering e-books in 2007, it offered them at a price substantially lower than printed copies. Their $9.99 price left the company little room for profit. Sometimes, the price resulted in a loss. However, Amazon was more concerned with building a business than making a short-term profit. The low book prices helped spur sales of its e-book reader, the Kindle, and made Amazon the overwhelming choice for those who purchased e-books. Amazon held an estimated 90% of the market.

According to the Department of Justice complaint, the five publishers (Hachette, HarperCollins, MacMillan, Penguin, and Simon & Schuster) “feared that lower retail prices for e-books might lead eventually to lower wholesale prices for e-books, lower prices for print books, and other consequences the publishers hoped to avoid.” Each feared consumers would come to expect a $9.99 price point, and wanted to disabuse them of such expectations as soon as possible. However, they “concluded that unilateral efforts to move Amazon away from its practice of offering low retail prices would not work, and they thereafter conspired to raise retail e-book prices and to otherwise limit competition in the sale of e-books.”

Just as the publishers were facing this price conundrum, Apple let it be known that it would be releasing its tablet computer, the iPad, which doubles as an electronic reader, and was considering selling e-books too. According to the complaint, Apple believed it could “trounce Amazon by opening up its own e-book store.” However, Apple was not looking for loss leaders or low margin businesses. Anyone who has ever purchased an Apple product realizes this. So, when Apple and the publishers discussed the former's interest in selling their e-books, “Apple learned that the Publisher Defendants shared a common objective with Apple to limit e-book retail price competition.” The parties also realized that the publishers wanted the price of e-books to be substantially higher than $9.99. As a result of these discussion, the DOJ continues, “Defendants reached an agreement whereby retail price competition would cease, retail e-book prices would increase significantly, and Apple would be guaranteed a 30% 'commission' on each e-book it sold.”

The DOJ then claims the parties, to effectuate their price fixing conspiracy, changed the model by which electronic books were sold. Instead of the “wholesale model,” by which publishers sold their e-books at a wholesale price, and the retailers sold them for whatever they wished, the publishers adopted an “agency model.” Under this model, the retailers acted as “agents” for the publishers. The publishers set the price, and their “agents,” the retailers, all had to sell their books for the same set price. There would be no price competition. The retailers would receive a fixed percentage commission on each e-book they sold. The publishers would get their wish – higher retail prices for e-books – and Apple would have its demand fulfilled, that no one would be permitted to undercut their retail price. Apple bought into this plan, according to the complaint, knowing it “would result in higher prices to consumers.”

The complaint concludes that once the publishers reached their agency agreement with Apple, the publishers limited price competition among themselves, and e-books that previously sold for $9.99 now sold for $12.99 and $14.99. As a result, consumers have been forced “to pay tens of millions of dollars more for e-books than they otherwise would have paid.” The DOJ asked the court to declare this practice illegal and prevent further “injury to consumers” by the parties.

The DOJ cites numerous meetings and telephone conversations by the publishers, both among themselves and with Apple, during which the scheme was allegedly hatched. Within a three day period in January 2010, all five publishers signed agreements with Apple, and the agency agreements all went into effect on the same day, April 3, 2010, the release date of the iPad.

When Macmillan led the way in enforcing the agency model on Amazon, the latter responded by discontinuing the sale of their books. However, when the other four backed up Macmillan with the same terms, the complaint says Amazon was forced to back down. The five represented almost half of Amazon's e-book business. The publishers had succeeded in enforcing the terms of its agreement with Apple on Amazon. Amazon had to raise prices to consumers.

Almost immediately after filing the claim, the Department of Justice announced that three of the publishers – Hachette, HarperCollins, and Simon & Schuster – had reached a settlement with them. The settlement would require terminating their agreements with Apple and refraining from further limiting the prices at which retailers may sell their e-books. However, Apple and the other two publishers have indicated they plan to fight the charges. Apple described the charges as “simply not true,” and says, to the contrary, they have “broken Amazon's monopolistic grip” on the e-book field. It compared the publishers' setting the prices on their iBookstore to “apps” developers setting their prices on Apple's App Store.

Meanwhile, the parties are facing litigation in several other venues. Fifteen states have reportedly already reached an agreement with the three publishers which will require a substantial cash payment from them. A private class action suit may affect residents of other states. The European Commission is investigating the claims, and reportedly has received settlement offers from Apple and four of the publishers (Penguin being the lone holdout). A class action suit has been brought in Canada, and Australia is reportedly considering action.

Rare Book Monthly

  • <b>19th Century Shop:</b> Charles Darwin on sexuality and the transmission of hereditary characteristics: Autograph Letter Signed to Lawson Tait. Down, 17 January [1877].
    <b>19th Century Shop:</b> MILTON, JOHN. <i>Paradise Lost. A Poem written in ten books.</i> London: 1667. A very rare example with the contemporary binding untouched and with a 1667 title page.
    <b>19th Century Shop:</b> Hamilton secures the ratification of the Constitution: <i>The Debates and Proceedings of the Convention of the State of New-York, assembled at Poughkeespsie, on the 17th June, 1788.</i>
    <b>19th Century Shop:</b> The social contract “Man is born free, and everywhere he is in chains”: ROUSSEAU, JEAN-JACQUES. <i>Principes du Droit Politique [Du Contract Social]</i>. Amsterdam: Michel Rey, 1762
    <b>19th Century Shop:</b> “The first English textbook on geometrical land-measurement and surveying”: BENESE, RICHARD. <i>This Boke Sheweth the Maner of Measurynge All Maner of Lande…</i>
  • <b>Swann Auction Galleries:</b> Luis de Lucena, <i>Arte de Ajedres,</i> first edition of the earliest extant manual on modern chess, Salamanca, circa 1496-97. Sold for $68,750.
    <b>Swann Auction Galleries:</b> Carte-de-visite album with 83 images of prominent African Americans & abolitionists, circa 1860s. Sold for $47,500.
    <b>Swann Auction Galleries:</b> Gustav Klimt, <i>Das Werk,</i> Vienna & Leipzig, 1918. Sold for $106,250.
    <b>Swann Auction Galleries:</b> Man Ray, <i>[London Transport] – Keeps London Going,</i> 1938. Sold for $149,000.
    <b>Swann Auction Galleries:</b> Thomas Jefferson, Letter Signed, to Major-General Nathanael Greene, promising reinforcements against Cornwallis, 1781. Sold for $35,000.
    <b>Swann Auction Galleries:</b> Nicolas de Fer, <i>L’Amerique Divisee Selon Letendue de ses Principales Parties,</i> Paris, 1713. Sold for $30,000.
    <b>Swann Auction Galleries:</b> Russell H. Tandy, <i>The Secret in the Old Attic,</i> watercolor, pencil & ink, 1944. Sold for $35,000.
    <b>Swann Auction Galleries:</b> Ernest Hemingway, <i>Three Stories & Ten Poems,</i> first edition of the author's first book, Paris, 1923. Sold for $23,750.
    <b>Swann Auction Galleries:</b> Walker Evans, <i>River Rouge Plant,</i> silver print, 1947. Sold for $57,500.
  • <b>Chiswick Auctions: Summer Books. August 22, 2018</b>
    <b>Chiswick Auctions, Aug. 22:</b> Adams (Richard). <i>Watership Down,</i> FIRST EDITION, author inscription on front free end paper, folded map tipped in, original boards, dust-jacket. £800 to £1,200
    <b>Chiswick Auctions, Aug. 22:</b> Bowles (John). <i>Several Prospects of the Most…la Ville de Londres, avec des Remarques Historiques fort Succinctes, qui les Regardant,</i> 20 double page engraved plates only, of 23, 1724. £200 to £300
    <b>Chiswick Auctions, Aug. 22:</b> Auden (W.H.). <i>Our Hunting Fathers,</i> FIRST SEPARATE EDITION, 1 of 22 copies, COPY B OF 5 PRINTED ON NORMANDIE, original patterned wrappers, Cambridge, for Frederic Prokosch, 1935. £800 to £1200
    <b>Chiswick Auctions: Summer Books. August 22, 2018</b>
    <b>Chiswick Auctions, Aug. 22:</b> Barrie (J. M.) & Attwell (Mabel Lucie, illustrator). <i>Peter Pan & Wendy,</i> FIRST EDITION, 12 chromolithograph plates, publisher's blue cloth, original printed dust jacket, [c.1920]; and 3 others (4). £200 to £300
    <b>Chiswick Auctions, Aug. 22:</b> Bartolozzi (Francesco). Genius Calling Forth the Fine Arts to Adorn Manufactures and Commerce; Agriculture (Husbandry Aided by Arts and Commerce), glazed and framed. £200 to £300
    <b>Chiswick Auctions, Aug. 22:</b> A collection of engraved caricatures, including Gillray ([James]) Tales of Wonder!, 1802; Rowlandson (Thomas) Sports, Smock Racing, 1811;Irish Jaunting Carr, 1814. £400 to £600
    <b>Chiswick Auctions: Summer Books. August 22, 2018</b>
    <b>Chiswick Auctions, Aug. 22:</b> Bennett (Charles H, illustrator). <i>Æsop’s Fables,</i> 1875; Buchanan (Robert). <i>Ballad Stories of the Affections,</i> [1866]; Douce (Francis), The Dance of Death, 1833. £200 to £300
    <b>Chiswick Auctions, Aug. 22:</b> Chinese Illustrations. A group of 6 Cantonese rice paper illustrations, depicting scenes of torture with different instruments, gouache, c.340 x 220mm, original wrapper boards preserved, [c. 1800]. £200 to £300
    <b>Chiswick Auctions, Aug. 22:</b> Dulac (Edmund). <i>The Queen of Romania, The Dreamer of Dreams,</i> 5 coloured plates, [1915]; and others illustrated by Edmund Dulac. £300 to £400
    <b>Chiswick Auctions: Summer Books. August 22, 2018</b>
    <b>Chiswick Auctions, Aug. 22:</b> Fronth (Per). Xingu Chronicles, the portfolio, comprising 30 plates, photogravues in colours, each signed, dated and titled in pencil, each numbered 10/35, on wove paper, 790 x 600 x 60mm, 1997. £300 to £400
    <b>Chiswick Auctions, Aug. 22:</b> Pasternak (Boris). <i>Doctor Zhivago,</i> FIRST ENGLISH EDITION, original red publisher’s cloth, pictorial dust jacket, 4to, Collins & Harvill Press, 1958. £200 to £300
    <b>Chiswick Auctions, Aug. 22:</b> 13 sepia photographs of visitors to the Thermes Nationaux d’Aix-les-Bains, c. 150 x 105mm, c.1890 (12). £300 to £400
  • <b>Bonhams: September 25, New York</b>
    <b>Bonhams, June 12 results:</b> Ernst, Max. <i>Mr. Knife and Miss Fork</i>. Paris, 1932. DELUXE EDITION. Sold for $15,625
    <b>Bonhams, June 12 results:</b> Cage, John. Autograph musical leaf from his Concert for Piano and Orchestra, NY, 1958. Sold for $18,750
    <b>Bonhams, June 12 results:</b> Cage, John. Autograph musical leaf from his Concert for Piano and Orchestra, NY, 1958. Sold for $18,750
    <b>Bonhams: September 25, New York</b>
    <b>Bonhams, June 12 results:</b> Einstein, Albert. Signed Passport Photo for his US citizenship application. Bermuda, 1935. Sold for $17,500
    <b>Bonhams, June 12 results:</b> Verard, Antoine. Illuminated printed Book of Hours. Paris, 1507. Sold for $7,500
    <b>Bonhams, June 12 results:</b> Wetterkurzschlussel. German Weather Report Codebook - for Enigma use. Berlin, 1942. Sold for $225,000
    <b>Bonhams: September 25, New York</b>
    <b>Bonhams, June 12 results:</b> Morelos y Pavon, Jose Maria. Autograph letter signed to El Virrey Venegas, February 5, 1812. Sold for $6,250
    <b>Bonhams, June 12 results:</b> Milne, A.A. Complete set of <i>Winnie-the-Pooh</i> books. 4 volumes. All first issue points. London, 1924-1928. Sold for $5,250
    <b>Bonhams, June 12 results:</b> A 48-star American Flag, battle worn flown at Guadalcanal and Peleliu, 1942-1944. Sold for $35,000
    <b>Bonhams, June 12 results:</b> Locke, John. Autograph Letter Signed mourning the death of his friend, William Molyneaux, 2 pp, October 27, 1698. Sold for $20,000

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