Apple Sued by U.S. Gov't, Won't Even Dignify it With a Public Response
April 11, 2012 4:50 PM
Apple and UK firm appear ready to fight DOJ lawsuit on e-book collusion, despite other publishers settling
The U.S. Department of Justice has filed a formal antitrust lawsuit against gadgetmaker Apple, Inc. (
) and several top book publishers, claiming they conspired to drive up profits at the expense of free competition.
I. Apple Profits From E-Book Price Bump
Controversial business mogul Rupert Murdoch, owner of News Corp. (
), sent shockwaves through the e-book industry when he
brokered a deal with Apple
to sell best-sellers for as much as $14.99 USD on the
first generation iPad
But the so-called "agency pricing" scheme didn't necessarily benefit the publishers.
The e-book price increase was the brain-child of late Apple CEO Steve Jobs.
[Image Source: The New York Times]
It all stemmed from a scheme spearheaded by late Apple CEO Steve Jobs. He wrote one of the publishers in an email published by the DOJ, "Throw in with Apple and see if we can all make a go of this to create a real mainstream e-books market at $12.99 and $14.99."
Walter Isaacson biography
of the late chief executive, Mr. Jobs recalled his pitch as, "We'll go to [an] agency model where you set the price, and we get our 30%, and, yes, the customer pays a little more, but that's what you want anyway."
Under the scheme, Apple would get 30 percent of the cost -- similar to its app revenue split. That worked out to about $3.90 USD on a $12.99 book, or $4.50 on a $14.99 book. While the publisher's total take might have been a bit higher than the cut of the $9.99 e-book pioneer Amazon.com, Inc. (
) charged, it was clear Apple was pocketing the majority of the price increase.
II. Cornerstone of Deal was Apparent Collusion
But the publishers bought the deal, as it allowed them to push for similar terms with Amazon. In fact, Apple's deal reportedly demanded that any publisher selling books in iTunes could not sell its books for a lower price at a rival outlet. The publishers used the deal as ammo to broker more lopsided deals with Amazon in that they pocketed a higher rate and bumped the price.
Faced with threats of severed supply, Amazon begrudgingly caved in and
raised its prices
. The publishers' gamble had paid off.
The price transition was widely viewed as more destructive to Amazon's sales than Apple's given that Amazon sold to budget-savvy customers, where as Apple peddled its product to consumers willing to pay steep markups for perceived quality.
Apple's e-books deal offered little benefit to consumers. [Image Source: Getty Images]
Amazon already offered cross-platform e-books and unlike Google Inc.'s (GOOG) efforts, Apple's iPad e-book store did not look to offer out-of-print works. In other words, while the iPad drove up e-book prices, it did little to put e-books in the hands of consumers that would not already have had them. Thus the deal did not seem to benefit anyone but Apple and the publishers, at the expense of customers.
But just because Apple's deal wasn't good for customers, didn't necessarily mean it was illegal. Or did it?
III. DOJ Takes Action
Antitrust laws in the U.S. and Europe prevent top competitors in a market from making joint pricing decision (colluding) to drive up prices on consumer goods. By all appearances that was precisely what Apple and the publishers had just orchestrated.
Thus over a year after the iPad launch, pressure on Apple began to turn up:
Dec. 6, 2011: The
European Commission opens a formal antitrust investigation
in e-book price fixing.
Dec. 7, 2011: The U.S. Department of Justice
opens up a sister investigation
into the price fixing.
Mar. 1, 2012: Top e-book publisher Random House (owned by private German firm Bertelsmann AG) announced it is bumping prices for libraries
by 300 percent
Mar. 7, 2012: Apple's
third generation iPad
Mar. 8, 2012: Rumors break that the DOJ
is preparing to sue Apple
Apr. 11, 2012: Rumor had it that the
suit would land today
The U.S. DOJ today made good on rumors and
filed a suit
against Apple and five publishers -- News Corp.'s HarperCollins; CBS Corp.'s (
) Simon & Schuster; UK publisher Pearson plc's (
) Penguin and MacMillan units; and The Hatchett Group, a subsidiary of French publisher Hatchette Livre, which in turn is a child of French conglomerate Lagardère (
Only Apple and one publisher are fighting the suit. Apple wouldn't even dignify the U.S. government with a public response. [Image Source: AP]
To recap, that's two U.S. media conglomerates, plus Apple, a UK media congomerate, and a French multi-industry conglomerate who have been targeted in the suit.
Sharis Pozen, head of the DOJ's antitrust division, told reporters, "This took place at the highest levels of these companies. Executives knew full-well what they were doing.This action drove up e-book prices virtually overnight. Let me be clear: When companies enter agreements that prevent price competition, that is illegal."
Similar litigation is expected to drop shortly in the EU.
IV. Publishers Rush to Settle, Apple and UK Publisher Alone Vow to Fight
While the EU tends to seek punitive damages, the primary goal of the DOJ appears to be to enable a market "reset" scrapping the price-fixing provisions of Apple's deal and forcing e-book makers to cooperate with Amazon on lower priced options.
The deal could be a big boost to Amazon's
increasingly promising tablet efforts
. It could also boost Barnes & Noble, Inc. (
have proven a solid challenger to larger players like Amazon or Apple.
The settlement and reduced e-book pricing could add extra fuel to Amazon's Kindle Fire.
Ms. Pozen discusses the potential of settlement, stating, "The settlement will begin to undo harm and restore price-competition. It will result in lower e-book prices and provide a more open and fair marketplace."
So far, HarperCollins [
], the Hatchette Group [
], and Simon & Schuster [
] -- also the target of lawsuits from state attorney generals -- agreed to settle.
Apple and the Pearson plc subsidiaries refused to settle. This could put them in a pretty bad spot. While the other publishers refused to admit guilt in their settlements (as is typically the case), their decision to opt to quickly settle looks rather damning.
The Cupertino gadgetmaker did not even dignify the U.S. government with a public response, yet. But soon it may have to respond in court.
DOJ [press release]
"A politician stumbles over himself... Then they pick it out. They edit it. He runs the clip, and then he makes a funny face, and the whole audience has a Pavlovian response." -- Joe Scarborough on John Stewart over Jim Cramer
DOJ Could Sue Apple As Soon As Today Over E-Books, Works to Settle With 5 Publishers
April 11, 2012, 9:15 AM
Kindle Fire Moves 4.7 Million Units, Cuts Into iPad's Market Share
March 14, 2012, 11:29 AM
DOJ Threatens Apple, Book Publishers with Lawsuit Regarding E-Book Sales
March 8, 2012, 9:55 AM
Random House Raises E-Book Prices for Libraries as Much as 300 Percent
March 5, 2012, 10:14 AM
Apple Launches Third Generation iPad with Retina Display, LTE; 16GB iPad 2 Drops to $399
March 7, 2012, 1:29 PM
Xiaomi Mi 6 - Flash Sale on April 28 in China
April 26, 2017, 7:45 AM
Apple Watch NikeLab Limited Edition unveiled.
April 22, 2017, 6:20 AM
What is the Apple’s iPhone 8 specifications and release date?
April 14, 2017, 5:43 AM
Xiaomi Mi Pad 3 tablet with Hexa –Core SoC, Android Marshmallow
April 6, 2017, 6:40 AM
Vivo launches V5 Plus IPL edition smartphone
April 4, 2017, 11:10 AM
Samsung S8 and S8 Plus: On Sale April 21 at Major Wireless Dealers
March 30, 2017, 7:35 AM
Most Popular Articles
Surface Pro 5 Rumors - New Release Date and Price
April 22, 2017, 6:45 AM
Apple Watch NikeLab Limited Edition unveiled.
April 22, 2017, 6:20 AM
Motorola Moto G5 Pus – Well Worth Considering Over the Others
April 25, 2017, 7:06 AM
SAPPHIRE PULSE Radeon RX 580 8GD5 – Great Value for the Money
April 20, 2017, 7:47 AM
Meet the Smartphone with four cameras - Alcatel Flashphone
April 5, 2017, 11:20 AM
Latest Blog Posts
Galaxy Note 8 – Available Second Half 2017
Apr 28, 2017, 7:30 AM
Google Android App – Huge improvement on Nighttime Photography
Apr 27, 2017, 7:40 AM
Google Co-Founder, Sergey Brin has an Airship
Apr 26, 2017, 6:43 AM
Samsung Galaxy S8 and S8 Plus – Lots of Glass that Breaks Easily
Apr 25, 2017, 7:20 AM
Samsung Galaxy S8 – Warning for Pet Owners
Apr 24, 2017, 5:59 AM
Sound Bars and the Costs?
Apr 23, 2017, 6:30 AM
Link your Brain to Your Computer – In Four Years…Maybe
Apr 22, 2017, 7:03 AM
Google Home can now identify users by their voice.
Apr 21, 2017, 7:15 AM
Amazon Lex – Now Available for Developers.
Apr 20, 2017, 6:58 AM
You can now use Instagram offline on your Android Smartphone
Apr 19, 2017, 8:00 AM
Now you can livestream to YouTube from your mobile device.
Apr 18, 2017, 8:05 AM
Google Home – Is It a Spy Device?
Apr 17, 2017, 7:30 AM
Apple added to self –driving test permit list
Apr 15, 2017, 6:21 AM
Project Scorpio – Coming on June 11
Apr 14, 2017, 6:20 AM
Looks Like Samsung Has Been Forgiven.
Apr 13, 2017, 6:50 AM
United Airlines - Blasted on China’s Social Network and the Stock Market
Apr 12, 2017, 6:50 AM
Amazon's Third-Party Sellers Hacked
Apr 11, 2017, 6:25 AM
Microsoft Surface Pro5 Details Revealed
Apr 9, 2017, 6:41 AM
Own An Android Phone? Then you could be hacked over Wi-FI
Apr 7, 2017, 6:47 AM
Apple confirms iOS 10.3 bug and its effect on iCloud Services
Apr 6, 2017, 6:30 AM
Apple Rolls Out New Version of Apple Music
Apr 5, 2017, 10:35 AM
Apple in the News
Apr 4, 2017, 9:03 AM
More Blog Posts
Copyright 2017 DailyTech LLC. -
Terms, Conditions & Privacy Information