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Class action lawsuit accuses Apple of price fixing on iBooks

updated 06:45 pm EDT, Tue August 9, 2011

Hagens Berman sues Apple over iBookstore prices

Seattle-area law firm Hagens Berman on Tuesday filed a class action lawsuit accusing Apple of colluding with publishers to fix iBookstore prices. The suit, submitted in a Northern District of California court by representing members Anthony Petru and Marcus Mathis, accuses Apple of making unfair deals with Hachette, HarperCollins, Macmillan, Penguin, and Simon & Schuster to artificially keep prices high. In adopting the agency pricing model, where the store takes a fixed cut but lets publishers dictate the price, Apple set terms that forced Amazon to abandon the wholesale model for the Kindle and raise its prices.

The complaint accused Apple and partners of violating the Sherman antitrust act, the Cartwright Act, and the Unfair Competition Act.

Lawyers argued a commonly held but never directly verified account of motivations behind the change. Publishers were reportedly worried that Amazon's prices would set artificially low expectations for e-book pricing, which rarely went above $10 on the Kindle Store at the time. Apple saw this as an opportunity and gave publishers the price control they wanted in return for a move that would neuter one of Amazon's key advantages.

Apple wanted to clear a path for the iPad and prevent Amazon from getting too much of an edge that it could then wield in Apple's more secure music and movie businesses.

With 85 percent of major books controlled by the top five publishers, Amazon had no choice but to give in, Hagens Berman said. Apple chief Steve Jobs allegedly gave hints that he would force a change by responding to a seeming 50 percent iBookstore price premium with word that "prices will be the same" on Amazon's store several weeks before they actually took effect.

As a class action, the lawsuit would call for Apple to pay damages relevant to the cost of each e-book as well as have the court order a ban on the agency pricing model. Apple would have to give up profits made using the model, which the lawyers estimated could represent "tens of millions of dollars."

Such lawsuits are common in the US and are often used as publicity vehicles for the firms that file them, guaranteeing the spotlight even if they lose or the case is tossed out. The case has fuel, however, as it joins government investigations in Connecticut, Texas, and the UK over similar concerns.

Critics of the investigations have noted that Amazon wasn't just offering lower prices but in many cases was price dumping, charging below the wholesale price to meet its $10 or lower target. Although it still paid publishers their owed amount, it was taking a knowing loss to gain market share. When a company has a large enough market share and uses this strategy, this can be considered an antitrust breach by unfairly wielding strength in one market, such as Amazon's regular sales, to stifle competitors that can't offer the same prices.



By Electronista Staff
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Comments

  1. aristotles

    Grizzled Veteran

    Joined: Jul 2004

    +16

    Confused. Agency model gives publishers control.

    Apple is accused of fixing prices when the actually adopted the agency model where the store takes a fixed cut but lets publishers dictate the price. The publishers are setting the price. Apple is just charging a flat fee.

  1. aristotles

    Grizzled Veteran

    Joined: Jul 2004

    +6

    Wholesale model was price fixing

    The wholesale model is actually a form of price fixing by the seller rather than the publisher where the seller dictated the price.

  1. tfmeehan

    Fresh-Faced Recruit

    Joined: Mar 2009

    +6

    In Seattle hmmm?

    Nothing suspicious about that is there?

    Both companies were out for themselves and Amazon lost. I'm sure they thought their price dumping scheme would win, especially in that category but it didn't. Apple gave the booksellers an alternative market (no, not as big but still an alternative) so they didn't have to fear Amazon as much.

  1. Inkling

    Mac Enthusiast

    Joined: Jul 2006

    +3

    Price fixing?

    It does sound strange to accuse Apple of price fixing when it was the one allowing publishers to set their own retail prices. I suspect the lawsuits centers on the attempts both Apple and Amazon are making to prohibit publishers from setting lower ebook prices anywhere else.

    The rules are stupid. Publishers aren't interesting in confusing customers with differing prices. They would simply like to take advantage of any special offers one retail outlet might offer without getting into contract troubles with another.

  1. Bobfozz

    Fresh-Faced Recruit

    Joined: Jul 2008

    0

    Class Action WIll Lose

    ANyone can set any price they want IF they own the product (publishers). Apple is taking a cut, like any distributor.
    I suggest, instead of making this a class action joke, like so many represented by greedy lawyers, the dumb phuq just NOT buy any eBooks using Apple's store. Why are people like him so irresponsible?

  1. testudo

    Forum Regular

    Joined: Aug 2001

    -1

    Re: Confused. Agency model gives publishers contro

    Confused. Agency model gives publishers control.

    Apple is accused of fixing prices when the actually adopted the agency model where the store takes a fixed cut but lets publishers dictate the price. The publishers are setting the price. Apple is just charging a flat fee.


    And yet, when music labels wanted an agency model, all we heard was howls and screams about the greedy labels and how dare they try to name their price for music when Apple knows better.

    Guess the confusion should be why are books different than music? Oh, right, because it's what Apple is doing, so it must be right.

  1. testudo

    Forum Regular

    Joined: Aug 2001

    -1

    Re: Wholesale model was price fixing

    The wholesale model is actually a form of price fixing by the seller rather than the publisher where the seller dictated the price.

    Um, know. The publisher still dictates the price. It's just the price they get, not what it sells for. The agency model (something Apple made up here, BTW) allows the seller to dictate the final price, and Apple gets a fixed cut. Both are still setting prices for their product.

    The only difference is that in the wholesale model, a company can use one product as a loss leader in order to drive overall sales (or corner the market, but usually it's about the former, not the latter). Or sell it to make only a scant profit for the sakes of promotion.

    In the 'agency model', the seller just dictates the final price. It is a huge difference, and less good for the consumer.

  1. testudo

    Forum Regular

    Joined: Aug 2001

    -1

    Re: Price fixing?

    It does sound strange to accuse Apple of price fixing when it was the one allowing publishers to set their own retail prices. I suspect the lawsuits centers on the attempts both Apple and Amazon are making to prohibit publishers from setting lower ebook prices anywhere else.

    Apple is being accused of conspiring with the publishers in this suit. The publishers are co-defendants. Despite the fact that Apple is the center of the universe, they're actually just one of six centers of this lawsuit.

    The conspiring comes from Apple creating this new sales model which, in turn, required Amazon to change their model (for that is the power Apple holds on many a markets). Both of which, in turn, artificially raised the prices of ebooks (so the complaint says).

    The rules are stupid. Publishers aren't interesting in confusing customers with differing prices. They would simply like to take advantage of any special offers one retail outlet might offer without getting into contract troubles with another.

    No, the publishers were concerned in the same way Music labels were concerned. That people were starting to think that all ebooks should be $10. And they wanted to change that, because they think ebooks should cost as much as the book themselves (or whatever). And Apple, trying to get into this market, used this knowledge (esp. considering the FUD they could spread about how Apple themselves killed the music market pricing) and worked out this new business model.

    This has nothing to do with 'special offers' from one over the other. It's the publishers wanting to make sure their market didn't turn into the fixed price music market.

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