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Apple, publishers sued by feds, accused of conspiracy to fix e-book prices [San Jose Mercury News, Calif.](San Jose Mercury News (CA) Via Acquire Media NewsEdge) April 12--Federal and state authorities Wednesday accused Apple (AAPL) and five major book publishers of conspiring to raise prices for e-books, in a case that could produce lower prices in the future while potentially limiting Apple's growing clout in the online media business. Publishers and their allies defended the pricing policies that prompted a federal antitrust lawsuit, denying collusion but saying they needed to combat the market dominance of another tech titan, the online retailer Amazon. Even so, authorities said three publishers had agreed to a settlement requiring them to reverse those policies. And while Apple had no comment Wednesday, legal experts said the case suggests the government is paying close attention to the Cupertino computer-maker's role in online commerce, where it serves as gatekeeper to all kinds of consumer purchases through its popular iTunes and App Store platforms. In one of several colorful anecdotes recounted in the lawsuit, federal authorities cite a statement attributed to Apple founder Steve Jobs by his biographer, in which Jobs described his approach to the publishers as, "you set the price, we get our 30 percent and yes, the customer pays a little more, but that's what you want anyway." The suit makes Apple's conduct appear "pretty blatant," said David Balto, an antitrust attorney and former federal regulator. "And that's going to invite more intensive scrutiny of all of Apple's practices." Two other publishers, meanwhile, hotly disputed the allegations in the lawsuit, which described the price-fixing scheme as arising from a series of secret meetings in backrooms of exclusive Manhattan restaurants, where the CEOs of major U.S. publishing houses allegedly gathered in 2008 and 2009 to bemoan Amazon's practice of selling e-books at the heavily discounted price of $9.99. Ultimately, the suit claims Apple helped coordinate an agreement by five publishers -- Hachette, HarperCollins, Macmillan, Penguin and Simon & Schuster -- to adopt a policy that raised the price of individual e-books by an average of $2 to $3. "As a result of this conspiracy, we believe that consumers paid millions of dollars more for some of the most popular titles," said U.S. Attorney General Eric Holder, who announced the lawsuit at a Washington, D.C., news conference. Officials in 16 states, led by Texas and Connecticut, filed a separate action on similar grounds. Authorities say the conspiracy was aimed directly at Amazon. The online retailer's early success in the e-book market has prompted some critics to accuse Amazon of selling titles at a loss to boost the popularity of its own Kindle readers. But according to the lawsuit, the publishers also worried Amazon's e-book prices could drive down the wholesale prices that publishers could charge, both for e-books and traditionally printed books. Apple, meanwhile, was preparing to launch its iPad and wanted to compete in the e-book market. But, the suit says, Apple was concerned that Amazon's pricing "had reduced retailer margins on e-books to levels that Apple found unattractive." By the end of 2009, as Apple was starting to approach publishers about distributing e-books on its own platform, the suit says the publishers told Apple executive Eddy Cue they were ready to adopt a blanket policy in which they would set the retail price for their titles. Until then, most publishers sold books to retailers at roughly half the cover price, while letting retailers decide how much to charge consumers. Under the new policy, publishers would require retailers to sell at a set price, while granting the retailer a fixed commission. Apple agreed, the suit says, while insisting on a 30 percent commission and requiring the publishers to guarantee that Apple could sell e-book titles at the lowest price offered by any retailer. By actively pressuring all the publishers to accept those terms, the suit says Apple "knowingly served as a critical conspiracy participant" in making sure the publishers imposed the same prices on all retailers. While three publishers agreed to a settlement without admitting wrongdoing, two others said they will fight the suit. In separate statements, Penguin and Macmillan insisted Wednesday that they acted independently in adopting the new pricing model, which they say allowed other retailers like Barnes & Noble to compete in the e-book market. Apple has also been criticized for imposing strict price conditions and other restrictions on publishers who wanted to sell subscriptions for online magazines and other publications through Apple's App Store. It relaxed those rules last year, however, amid reports that U.S. and European antitrust authorities were examining Apple's approach to selling online publications, videos and music. The e-book lawsuit contains a brief reference to another, potentially explosive allegation: Without citing evidence, the suit says Apple at one time considered "illegally dividing" the digital media market by letting Amazon have the e-books business if Apple could dominate online music and video. Sales of digital media represent a tiny slice of Apple's overall revenue, analysts say, but they are important to the appeal of Apple's popular iPads and other gadgets. The popularity of Apple's online platforms give it "tremendous market power," Balto added. "Apple has the ability to significantly impact competition in the market." Stanford law professor Mark Lemley cautioned that the allegations in the e-book case haven't been proved. But he said the suit puts Apple on notice the government is watching its actions closely. "Being sued by the government for violating the antitrust laws is always going to be a wake-up call," Lemley added. Mercury News staff writer John Boudreau contributed to this report. Contact Brandon Bailey at 408-920-5022 or follow him at Twitter.com/BrandonBailey. ___ (c)2012 the San Jose Mercury News (San Jose, Calif.) Visit the San Jose Mercury News (San Jose, Calif.) at www.mercurynews.com Distributed by MCT Information Services |