Anti-Trust Suit Charges Apple, Publishers Conspired to Raise Price of eBooks

An antitrust class action claims Apple conspired with five major publishers to raise the price of e-books, dominate the market and force Amazon to stop selling at a discount. The conspiracy worked so well that e-books now cost as much or more than paperbacks, the class claims, Courthouse News Service reported. 

The suit traces the history of e-books, noting that when Amazon introduced the Kindle back in November 2007, its “electronic ink” technology was such a hit that supplies of the original Kindle sold out in less than six hours.

Besides portability and instant delivery, e-books greatly reduce the costs associated with brick-and-mortar publishing. But the suit, filed in U.S. District Court in San Francisco, says large publishing houses quickly realized that e-publishing also represented a huge threat to their profit margins.

Amazon was selling Kindle e-books for $9.99 or less, while hardcover editions of the same books sold for more than $20. Faced with this threat to their business model, the suit says, publishers teamed up with Apple to “fight back in an effort to restrain trade and retard innovation.”

Restrain trade

Besides Apple, the suit names Hachette Book Group, HarperCollins, MacMillan, Penguin and Simon & Schuster. The named plaintiffs are Anthony Petru, of Oakland, Calif., and Marcus Mathis, of Natchez, Miss.

The suit charges the defendants with violating the Sherman Anti-Trust Act and various other anti-trust and consumer protection statues.

“Given Amazon’s first-mover advantage and ever growing installed user base, publishers knew that no single publisher could slow down Amazon and unilaterally force an increase in e-book retail prices. If one publisher acted alone to try and raise prices for its titles, that publisher would risk immediately losing a substantial (and growing) volume of sales,” the suit charges.

“Not wanting to risk a significant loss of sales in the fastest growing market (e-book sales), the publishers … solved this problem through coordinating between themselves (and Apple) to force Amazon to abandon its pro-consumer pricing.”

Support from Apple

The suit says the conspiracy would not have succeeded without Apple's support.

“Apple had strong incentives to help the [publishers] restrain trade and increase the price of eBooks. If Amazon continued to solidify its dominant position in the sale of eBooks, strong network effects would make it difficult to dislodge Amazon. Moreover, Amazon’s pro-consumer pricing meant that to enter the e-books market Apple would likely be forced to sell at least some e-books near or below its wholesale costs for an extended period of time.”

The Kindle was a threat not only to the publishers' business model but also to Apple's, the suit charges.

“Apple is competing to be – and has become – a dominant manufacturer of mobile devices, such as Apple’s iPod, iPhone and iPad devices. … Apple knew that if Amazon could establish the Kindle as the dominant e-book reader by subsidizing the purchase of e-books, Amazon could then use the Kindle platform (and its large installed user base) to distribute other digital media. Notably, Apple had successfully used a virtually identical strategy to gain a virtual monopoly on the distribution of digital music files through its iPod device and its associated iTunes store,” the suit argues.

The suit was filed by attorney Jeff Friedman of Hagens Berman Sobol Shapiro LLP, a Berkeley, Calif., law firm