Apple (News - Alert) is famous for its strict control of its property, both tangible and intellectual. The ebook settlement was the result of a suit the DOJ brought against Apple and five major publishers back in April of 2012.
The scheme was to control the price of ebooks and not let the market dictate the price.
“We told the publishers, 'We'll go to the agency model, where you set the price, and we get our 30 percent, and yes, the customer pays a little more, but that's what you want anyway,’” Steve Jobs (News - Alert) told his biographer Walter Isaacson.
The agency model pays the merchant through commission. Apple collects 30 percent from the majority of the products it sells in iTunes. Using this model, the publisher sets the price of ebooks between $11.99 and $14.99, and the DOJ alleged it cost consumers around $100 million.
According to the Department of Justice, not only did Apple fix prices, but it also pushed the price on to Amazon, forcing it to sell the books at the same price instead of the $9.99 it charged.
The DoJ doesn’t have documentation or paper trail that proves a deal was signed with specific language.
Only three publishers - Hachette, HarperCollins and Simon & Shuster - have settled. The remaining two, Macmillan and the Penguin Group, disagreed with the settlement, suggesting it was unfair because they have to fight the allegation the government levied against the publishers in a trial next June.
The settlement stipulates the three publishers have to abandon the pricing scheme they hatched up with Apple. As part of the settlement, Hachette and HarperCollins agreed to a financial settlement against 15 states including the Commonwealth of Puerto Rico for $52 million.
U.S. District Judge Denise Cote in New York wrote in her decision that the settlement "appears reasonably calculated to restore retail price competition to the market.”
“Although the birth of a new industry is always unsettling,” she added, “there is a limited ability to foresee how the market will evolve. What is clear, however, is the need for industry players to play by the antitrust rules when confronted with new market forces."
The three publishers have to phase out the agency model contracts and they are restricted from using similar limitations on prices for the next two years. It further stipulates the publishers have to terminate contracts with other retailers when the contract allows for a termination, except for Apple, but if the retailer wishes to terminate the contract they can do so with just a 30-day notice.
The 45-page settlement goes into detail regarding contracts, MFN (most favored nation) clauses, time limitations and price. What this means for book lovers is retailers will be able to set their own price and companies such as Amazon and Barnes & Noble will most likely give the 30-day notices to terminate the previous contracts as soon as possible, just before the Holiday season.
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Edited by Braden Becker