DOJ Could Sue Apple As Soon As Today Over E-Books, Works to Settle With 5 Publishers
April 11, 2012 9:15 AM
comment(s) - last by
Apple is not part of the settlement talks with DOJ
The U.S. Department of Justice (DOJ) could
sue Apple this week
over allegations regarding raised prices of e-books via an agency sales model.
Last December, the European Commission opened a formal antitrust investigation into whether five international e-book publishers had been partaking in anticompetitive practices with the help of Apple and its e-book store iBooks. The five e-book publishers include
Hachette Livre (Lagardère Publishing France), Harper Collins (News Corp., U.S.A.), Simon & Schuster (CBS Corp., U.S.A.), Penguin (Pearson Group, United Kingdom) and Verlagsgruppe Georg von Holzbrinck (owner of inter alia Macmillan, Germany).
Traditionally, publishers sell physical books to retailers for about half of the cover price, which is considered a wholesale model. Retailers then had the ability to sell those books to customers for a lower price if they wanted to.
But when e-books came along, this model was challenged. Amazon started selling best sellers for as low as $9.99 to encourage its Kindle e-reader sales. Publishers were not happy.
Apple then came along
, and publishers began to worry that it would take over the book industry the way Apple's iTunes took over the music industry, where customers would choose to purchase cheap, digital books instead of physical books.
However, Apple struck a deal with publishers in 2010. An agency model was implemented, where publishers were allowed to set the price of a book and Apple would take a 30 percent cut. The only restriction was that publishers were not allowed to let rivals sell the same book at a lower price.
This model helped Apple because its original iPad launch occurred in 2010, which was coupled with iBooks. To assure a successful launch of the device, DOJ believes Apple cut the agency model deal with publishers, which turned out to be an anticompetitive move.
After the European Commission opened an investigation of this agreement, DOJ climbed aboard as well. After looking further into the situation,
DOJ threatened Apple and the five publishers with a lawsuit
just last month for allegedly conspiring to raise prices, which violates federal antitrust laws.
Now, DOJ may sue Apple as soon as today while still working to reach a potential settlement with the five publishers, according to
. Nothing has been set in stone, but DOJ does plan to pursue Apple.
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Tip of the Iceburg
4/11/2012 11:40:52 AM
The problem is that Apple now uses its dominant size and market position to
terms to other companies. Apple no longer negotiates with anyone. When AT&T sells an iPhone, Apple gets all the profit. When AT&T sells a similarly priced Android (or any other phone OS) AT&T takes a large chunk of the profit and the manufacturer gets almost nothing. Android sales now effectively subsidize iPhone sales.
How is it possible that Apple has negotiated such contracts without abusing its dominant position? They didn't.
And this extends to every supplier in their supply chain. In order to get Apple's business they have to be willing to shift nearly all the profit to Apple. If you don't get Apple's business you have to close up shop.
If this reduced profit was then passed on to the end user this could be portrayed as benefiting the market and the consumer. The fact that Apple just pockets the money does not benefit anyone, and thus is an abuse of their market power. Suppliers get harmed, customers get harmed and competition gets harmed. Only Apple wins, and they win because they cheat by manipulating the market.
The only solution I see to this problem is to break Apple into two companies. A software/services company and a hardware company.
So long as Apple controls both sides, competitors can not enter the market, and they simply can't compete.
“So far we have not seen a single Android device that does not infringe on our patents." -- Microsoft General Counsel Brad Smith
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