Apple, Publishing Companies Charged With
Illegal Price-Fixing Scheme in Marketing of eBooks
WASHINGTON, D.C. – Attorney General George Jepsen announced today that 16 states, led by Texas and Connecticut, have filed an antitrust lawsuit in U.S. District Court in Texas alleging Apple Inc. (Apple), and publishing companies Macmillan Publishers Ltd. (Macmillan), Penguin Group (USA), Inc. (Penguin) and Simon & Schuster engaged in an anticompetitive price-fixing scheme for marketing electronic books.
At the same time, Jepsen said he and Texas Attorney General Greg Abbott have reached agreements with two other publishers: Hachette Book Group, Inc. (Hachette) and HarperCollins Publishers, LLC, (HarperCollins). Although the details will be worked out over the next several weeks, the publishers have agreed to provide consumer restitution using a formula based on the number of states participating and the number of eBooks sold in each state.
“Publishers deserve to make money, but consumers deserve the price benefits of competition in an open and unrestricted marketplace,” said Attorney General Jepsen. “Those interests clearly collided in this case and we are going to work to ensure the eBook market is open once again to fair competition.”
The lawsuit and agreements by the states stem from a two-year antitrust investigation coordinated among the U.S. Department of Justice’s Antitrust Division (DOJ) and the offices of the Connecticut and Texas Attorneys General.
Jepsen made the announcement at a news conference in Washington with U.S. Attorney General Eric Holder, who announced that Department of Justice had filed a civil antitrust lawsuit on similar charges in the Southern District of New York against Apple, Penguin, Macmillan, Hachette, HarperCollins and Simon & Schuster. The Department of Justice also filed proposed settlements with Hachette, HarperCollins and Simon & Schuster that, if approved by the court, would resolve those lawsuits.
If accepted by the court, the DOJ’s proposed settlement would be in effect for five years. It would restore competition to eBook sales by ensuring that retailers agree to certain business reforms. In addition, the settling publishers would be required to establish effective antitrust compliance programs.
The states’ complaint alleges that the defendants conspired to raise eBook prices. For years, retailers sold eBooks through a traditional wholesale distribution model, under which retailers – not publishers – set sales prices for eBooks. However, the states’ investigation found that Macmillan, Penguin and Simon & Schuster conspired with other publishers and Apple to artificially raise prices by imposing a distribution model in which the publishers set the prices for bestsellers at $12.99 and $14.99.
The complaint alleges that when Apple prepared to enter the eBook market, the publishers and Apple agreed to adopt an agency distribution model as a mechanism to allow them to fix prices. To enforce their price-fixing scheme, the publishers and Apple relied on contract terms that forced all eBook outlets to sell their products at the same price. Because the publishers agreed to use the same prices, retail price competition was eliminated.
The complaint alleges that the coordinated agreement to fix prices resulted in eBook customers paying more than $100 million in overcharges.
The States’ lawsuit seeks damages, restitution, civil penalties and injunctive and equitable relief to prevent the illegal business practices from continuing.
Joining Texas and Connecticut in the lawsuit are: Alaska, Arizona, Colorado, Illinois, Iowa, Maryland, Missouri, Ohio, Oregon, Pennsylvania, South Dakota, Tennessee, Vermont and West Virginia and the Commonwealth of Puerto Rico.
Assistant Attorneys General Joseph Nielsen, Gary Becker and Kirsten Rigney, Paralegal Holly MacDonald and Assistant Attorney General Michael Cole, head of the Antitrust Department, are assisting the Attorney General in this matter. Jepsen is co-chair of the Antitrust Committee for the National Association of Attorneys General.