« Global Trade Talk

New US Lawsuit Accuses Apple of E-Book Price Fixing

By Edward Nawotka

First, the European Union, now the United States…

Hagens Berman, a consumer rights class-action law firm, today announced it has filed a nationwide class-action lawsuit claiming that Apple Inc. is guilty of illegal price fixing related to the Agency Model for pricing e-books. HarperCollins, Hachette, Macmillan, Penguin and S&S are also named in the suit.

The suit, filed in the U.S. District Court for the Northern District of California, “alleges that the publishers and Apple colluded to increase prices for popular e-book titles to boost profits and force e-book rival Amazon to abandon its pro-consumer discount pricing,” states the press release.

The lawsuit also claims “Apple and the publishers are in violation of a variety of federal and state antitrust laws, the Sherman Act, the Cartwright Act, and the Unfair Competition Act.” The class action seeks damages “for the purchase of e-books, an injunction against pricing e-books with the agency model and forfeiture of the illegal profits received by the defendants as a result of their anti-competitive conduct which could total tens of millions of dollars.”

If approved, “the lawsuit would represent any purchaser of an e-book published by a major publisher after the adoption of the agency model by that publisher.”

The same firm is also investigating e-book royalties on behalf of authors and has suggested that the USA’s Big Six are deliberately under-reporting the number of e-books sold. The accusation is based on “outdated accounting systems to track the sales of e-books,” according to the firm. The firm is also inviting authors ton contact them if they’ve “noticed inconsistencies in your royalty statements.” More information is online at www.hbsslaw.com/e-bookroyalties.

Read the full press release below about the Apple class action lawsuit below:

SAN FRANCISCO – Hagens Berman, a consumer rights class-action law firm, today announced it has filed a nationwide class-action lawsuit claiming that Apple Inc. (NASDAQ:AAPL) and five of the nation’s top publishers, including HarperCollins Publishers, a subsidiary of News Corporation (NASDAQ: NWSA), Hachette Book Group, Macmillan Publishers, Penguin Group Inc., a subsidiary of Pearson PLC (NYSE: PSO) and Simon & Schuster Inc., a subsidiary of CBS (NYSE: CBS), illegally fix prices of electronic books, also known as e-books.

Filed in the U.S. District Court for the Northern District of California, the lawsuit alleges that the publishers and Apple colluded to increase prices for popular e-book titles to boost profits and force e-book rival Amazon to abandon its pro-consumer discount pricing.

According to the suit, publishers believed that Amazon’s wildly popular Kindle e-reader device and the company’s discounted pricing for e-books would increase the adoption of e-books, and feared Amazon’s discounted pricing structure would permanently set consumer expectations for lower prices, even for other e-reader devices.

“Fortunately for the publishers, they had a co-conspirator as terrified as they were over Amazon’s popularity and pricing structure, and that was Apple,” said Steve Berman, attorney representing consumers and founding partner of Hagen Berman. “We intend to prove that Apple needed a way to neutralize Amazon’s Kindle before its popularity could challenge the upcoming introduction of the iPad, a device Apple intended to compete as an e-reader.”

The complaint claims that the five publishing houses forced Amazon to abandon its discount pricing and adhere to a new agency model, in which publishers set prices and extinguished competition so that retailers such as Amazon could no longer offer lower prices for e-books.

If Amazon attempted to sell e-books below the publisher-set levels, the publishers would simply deny Amazon access to the title, the complaint details. The defendant publishers control 85 percent of the most popular fiction and non-fiction titles.

Berman noted that while Amazon derived profit from the sale of its Kindle and related accessories, likely allowing the company to discount e-books, Apple was steadfast in maintaining the 70/30 revenue split it demanded with its App Store.

“Apple simply did not want to enter the e-book marketplace amid the fierce competition it knew it would face from Amazon and its discounted pricing,” Berman added. “So instead of finding a way to out-compete Amazon, they decided to choke off competition through this anti-consumer scheme.”

The complaint notes that Apple CEO Steve Jobs foreshadowed the simultaneous switch to agency pricing and the demise of discount pricing in an interview with The Wall Street Journal in early 2010. In the interview, he was asked why consumers would buy books through Apple at $14.99 while Amazon was selling the same book for $9.99. “The prices will be the same,” he stated.

While free market forces would dictate that e-books would be cheaper than the hard-copy counterparts, considering lower production and distribution costs, the complaint shows that as a result of the agency model and alleged collusion, many e-books are more expensive than their hard-copy counterparts.

“As a result of the pricing conspiracy, prices of e-books have exploded, jumping as much as 50 percent,” Berman said. “When an e-book version of a best-seller costs close to – or even more than – its hard-copy counterpart, it doesn’t take a forensic economist to see that this is evidence of market manipulation.”

Berman pointed out that The Kite Runner, for example, costs $12.99 as an e-book and only $8.82 as a paperback.

“What is most loathsome about the behavior of Apple and the publishers is that it is stifling the power of innovation, the very thing Apple purports to champion,” Berman added. “A few big-business heavyweights are taking a powerful advancement of technology that would benefit consumers and suffocating it to protect profit margins and market-share.”

According to the lawsuit, Apple and publishers were concerned that Amazon’s $9.99 uniform pricing for bestsellers would create market pressures for other e-booksellers – including Apple – to do the same, cutting into profitability.

The lawsuit goes on to claim that because no publisher could unilaterally raise prices without losing sales, they coordinated their activities, with the help of Apple, in an effort to slow the growth of Amazon’s e-book market and to increase their profit margin on each e-book sold.

The lawsuit claims Apple and the publishers are in violation of a variety of federal and state antitrust laws, the Sherman Act, the Cartwright Act, and the Unfair Competition Act.

The named plaintiffs, Anthony Petru, a resident of Oakland, California, and Marcus Mathis, a resident of Natchez, Mississippi, each purchased a least one e-book at a price above $9.99 after the adoption of the agency pricing model.

Once approved, the lawsuit would represent any purchaser of an e-book published by a major publisher after the adoption of the agency model by that publisher.

The lawsuit seeks damages for the purchase of e-books, an injunction against pricing e-books with the agency model and forfeiture of the illegal profits received by the defendants as a result of their anticompetitive conduct which could total tens of millions of dollars.

Hagens Berman invites potential plaintiffs to contact the office at ebooks@hbsslaw.com or by phone at 206-623-7292.

You can learn more about this case by visiting www.hbsslaw.com/ebooks.

About Hagens Berman

Seattle-based Hagens Berman Sobol Shapiro LLP represents whistleblowers, investors and consumers in complex litigation. The firm has offices in Boston, Chicago, Colorado Springs, Los Angeles, Phoenix, San Francisco and Washington, D.C. Founded in 1993, HBSS continues to successfully fight for investor rights in large, complex litigation. More about the law firm and its successes can be found at www.hbsslaw.com. Visit the firm’s class-action law blog at www.classactionlawtoday.com.

Contact: Mark Firmani, Firmani + Associates Inc., 206.443.9357 or mark@firmani.com.

This entry was posted in Global Trade Talk and tagged , , , , , , . Bookmark the permalink. Both comments and trackbacks are currently closed.

3 Comments

  1. Posted August 10, 2011 at 12:14 pm | Permalink

    This article completely ignores the fact that Amazon undercuts prices no matter how much anyone else discounts them. In other words, if Apple priced the $12.99 book at $9.99, then Amazon would price it at $6.99. If Apple matched the $6.99, Amazon would drop it to $3.99. No matter how low Apple sells an ebook at, Amazon will undercut them – down to giving it away for free.

    I’m not a big defender of Apple or of the Big 6, but what Amazon is trying to do is to force EVERYONE else out of the publishing picture. To pretend they’re hard done by because not everyone wants to let them have control is ridiculous. Amazon is not protecting consumers or authors. It is making sure it gets the whole pie and no one else gets anything.

    That being said, Apple and the Big 6 have dug their own grave with their own faulty practices. There is no one for authors and the reading public to get behind in this argument. Everyone is being motivated by greed and greed only.

  2. Bruce MacAlister
    Posted August 11, 2011 at 11:04 am | Permalink

    I understand Ms Feddersen’s concern about Amazon undercutting everyone. But there are laws to control that. If you sell something at a loss and make it up on related things you sell, it’s usually considered illegal. It’s abused quite a bit by the big companies but if it goes too far or is very visible to the voting public some law firm will often step in the take them to court. In the case of Amazon, any outrageous “loss leader” activity (selling eBookcs at a loss to sell Kindles, for example) would probably be very visible and the possible settlement would be profitable enough for a contingency law firm to take on.

  3. John Doe
    Posted August 11, 2011 at 1:05 pm | Permalink

    I think it is a shame that everyone out there thinks ebooks should be so cheap to begin with. The paper and manufacturing costs are the smallest piece of a book budget. Let’s not forget the $300K advance that an author might get before they even write word one on a page. Or the $1M publicity campaign that the “big 6″ put out on one idividual title to get people to buy the damn thing. Oh and then there is Amazon who thinks that every eBook should be $9.99. That is a crime in of itself. Do we think that a Classic title is no more or less expensive than say a Steven King title? All books should be equal!! Amazon doesn’t care about making money on the book sale, they care about making Big money on their Kindle sales. And if you think the author makes more royality money from the Amazon model and not the Agency model, perhaps you should all do a little more insider industry research. Why does it seems that Apple and the Publishers are the bad guys, and Amazon is the good guy!? What is wrong with this picture! If an eBook is priced at $14.95 and you can get the same used paperback book for $8.95, why the hell would you by the eBook! Seems really unlogical!

  • SIGN UP NOW!
    Enter your email address below to receive daily news updates from Publishing Perspectives.
    Click here to learn more about our newsletters
  • Monetize Your Backlist

    Organized by Publishing Perspectives

    Hear experts from publishing and technology discuss strategies and tools you can use to generate more revenue from your backlist content.

    What: Monetizing the Backlist event
    When: 9am–1pm on April 24, 2014
    Where: Scholastic Headquarters, NYC

    Buy your tickets now!