DOJ, Antitrust & E-Books.... (thanks, Emily!) [From the WSK today, 4/11/12]

TECHNOLOGY

Updated April 11, 2012, 12:27 p.m. ET

U.S. Sues Apple, Publishers Over E-Book Pricing

By CHAD BRAY, BRENT KENDALL and JEFFREY A. TRACHTENBERG

The U.S. hit Apple Inc. AAPL -0.15%and five of the nation's largest publishers with an antitrust lawsuit, alleging they conspired to raise prices in the fast-growing e-book market.
Three of the publishers agreed to settle the suit, which could upend the model that has led the price of many best-selling e-books to rise to $12.99 or $14.99 from $9.99 several years ago.
"Defendants' ongoing conspiracy and agreement have caused e-book consumers to pay tens of millions of dollars more for e-books than they otherwise would have paid," the lawsuit said, describing CEO-only meetings of publishers at Manhattan restaurants at which the alleged conspiracy was hashed out.
The lawsuit, filed by the Justice Department in Manhattan federal court, alleges Apple and the publishers reached an agreement where retail price competition would cease, retail e-books prices would increase significantly and Apple would be guaranteed a 30% commission on each e-book sold.

The U.S. filed an antitrust lawsuit Wednesday against Apple Inc. and five of the nation's largest publishers, alleging they conspired to limit competition for the pricing of e-books. Ashby Jones joins Markets Hub with details. Photo: AP Photo/Mark Lennihan.

Read More

• What is 'Agency Pricing'?
• Law Blog: Key Excerpts From the Lawsuit

The three publishers that agreed to settle are Lagardere SCA's Hachette Book Group, CBS Corp.'s CBSA +0.93%Simon & Schuster Inc. and News Corp.'s NWSA +1.23%HarperCollins Publishers LLC. News Corp. also owns The Wall Street Journal.
Those three publishers agreed to terminate their agreements with Apple regarding e-books and refrain from limiting any retailer's ability to set e-book prices for two years. That could help Amazon.com Inc. AMZN +0.98%resume deep discounts on new e-books.
Also named in the suit are Pearson PSO +1.61%PLC's Penguin Group (USA) and Macmillan, a unit of Verlagsgruppe Georg von Holtzbrinck GmbH.
Simon & Schuster confirmed that it settled but declined further comment. Apple declined to comment. Macmillan denied any collusion. The other three publishers didn't immediately respond to requests for comment.

Court Documents

The U.S. filed an antitrust suit against Apple and some publishers over e-book pricing. See the court document.

View Document

Three of the publishers—Hachette, HarperCollins and Simon & Schuster—have agreed to a settlement. Here is that settlement.

View Document

• More photos and interactive graphics

Previously

• E-Book Readers Face Sticker Shock Dec. 15, 2011
• U.S. Warns Apple, Publishers March 9, 2012
• Apple Holds Out as E-Book Pricing Settlement Nears April 5, 2012

Referring to the settlement and its e-reading devices, Amazon said, "This is a big win for Kindle owners, and we look forward to being allowed to lower prices on more Kindle books."
The agreement between Apple and the publishers allegedly occurred ahead of the introduction of the iPad in 2010, when Amazon.com had driven e-book pricing down to $9.99 for newly released and best-selling e-books, according to the lawsuit.
The conspiracy to limit competition, the lawsuit says, aimed to limit Amazon's ability to discount e-books.

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When Apple started selling its iPad, the publishers shifted from a "wholesale" model, under which retailers set the price of books, to an "agency" model in which publishers set the retail price and retailers take a cut.
The lawsuit included a remark by the late Steve Jobs, head of Apple, describing his company's strategy for negotiating with the publishers: "We'll go to [an] agency model, where you set the price, and we get our 30%, and yes, the customer pays a little more, but that's what you want anyway."
The suit alleges that the publishers' chief executives met starting in September 2008 or earlier "in private dining rooms of upscale Manhattan restaurants" and "no legal counsel was present at any of these meetings."
It also describes how Apple executives worked with the publishers in late 2009 and early 2010, as the iPad launch approached, to fine-tune the new pricing model. In January 2010, each of the five publishers "entered into a functionally identical agency contract with Apple that would go into effect simultaneously in April 2010," the Justice Department said.
The government said publishers "regularly communicated" to "exchange sensitive information and assurances of solidarity." They "took steps to conceal their communications with one another, including instructions to 'double delete' e-mail and taking other measures to avoid leaving a paper trail," the government said.
John Sargent, chief executive of Macmillan, in a message sent Wednesday to authors, agents and illustrators, said Macmillan didn't collude with anyone. Reaching a settlement with the Department of Justice, he added, would be particularly difficult when "you know you have done no wrong."
Mr. Sargent, observing that publishers actually earn less money on each e-book sale under the agency model than the traditional wholesale model, described his decision to embrace agency pricing as "the loneliest" one he has ever made.
"The government's charge is that Macmillan's CEO colluded with other CEO's in changing to the agency model," he wrote. "I am Macmillan's CEO and I made the decision to move Macmillan to the agency model. After days of thought and worry, I made the decision on January 22nd, 2010 a little after 4:00 AM, on an exercise bike in my basement. It remains the loneliest decision I have ever made, and I see no reason to go back on it now."
He also sounded several other themes. The settlement proposed by the Department of Justice, he wrote, could have enabled Amazon to "recover the monopoly position it had been building" prior to the adoption of agency pricing. He also said that a settlement "would have a very negative and long term impact on those who sell books for a living, from the largest chain stores to the smallest independents."
A spokesman for Amazon declined to respond to Mr. Sargent's comment.
A spokesman for Bertelsmann AG's Random House Inc., which was the only major publisher not to initially agree to the agency pricing model and thus wasn't a defendant to the suit, declined comment on the suit or the settlements. Random House did adopt the agency pricing model last year.
—Thomas Catan and Jessica E. Vascellaro contributed to this article.