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.