A nasty lawsuit is being leveled against Apple and five other companies, and this time not by another smartphone manufacturer, but by the United States of America. Selling ebooks is all fun and games until someone starts price-fixing.
Cue the “dun dun” and let’s break down the situation as the hammer falls.
United States of America vs. Apple
CNET is reporting the the United States Department of Justice has filed a lawsuit against Apple and five other publishers — including Simon Schuster Inc., Hachette Book Group, Penguin Group USA, Macmillan, and HarperCollins — in a New York District Court. The Department of Justice had been investigating Apple and the publishers for allegedly price-fixing electronic books.
The lawsuit centers on Apple‘s so called “most favored nation” status with the publishers, allegedly established through negotiations when the iPad came out two years ago. Apparently, the deal was that publishers could not sell ebooks through Kindle or Nook or any other competitive platform for less than they were selling them through iBooks. In return, the publishers could set the price at whatever they wanted, so long as Apple receive 30 percent of the profits.
This “agency pricing model” was a huge change for the industry. Previously, retailers like Amazon used wholesaler agreements with publishers and often sold ebooks at a loss in order to gain market share. Apple touted the new model as a win for publishers, and by forbidding the ebooks to be sold at a cheaper price the entire industry was forced to shift to the new model.
Backroom deals always blow up in your face.
It appears, however, that Department of Justice considers the arrangement a violation of the Sherman Act, and Apple‘s “agency pricing model” just another method of price fixing. Ganging up in dark, smoky rooms to fix prices goes against US antitrust law, and the DOJ traditionally very aggressive in these kinds of cases.
According the complaint filed by the DOJ, “Apple facilitated the publisher defendants’ collective effort to end retail price competition by coordinating their transition to an agency model across all retailers.”
Rumors were swirling that settlements were bing negotiated with several of the publishers, but apparently those negotiations have failed.
Four Patents to Watch
Fellow Mac|Lifer Seamus Bellamy did a nice job spotlighting the 4 Patents that Fuled the Mobile War. If you have not seen it, check it out. Most of the Law Apple columns that cover patent lawsuits between Apple and the competition involve one or more of these patents.