Apple v. Amazon v. World Trial Gets Underway

The U.S. Federal government’s case against Apple for price-fixing is under way. Last year the U.S. Department of Justice (DOJ) accused Apple and five ebook publishers of attempting to fix the prices of ebooks, claiming that there was a conspiracy to affect the e-book market. Here’s an explanation of the law suit against Apple.

It all started while Apple was developing, but had not yet released, the iPad. At that time, Amazon was king of the ebook market, with its Kindle and being top dog in the online book space generally. Amazon’s deal with publishers of ebooks was the same as with regular books: they would buy the ebook from the publisher for about 50% of the suggested retail price, and then re-sell it on their site at a retail price of their choosing. Sometimes even at a loss in order to be extremely competitive.

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However, some publishers wanted to change that up for ebooks, to a system where they would get to set the retail price, and the retailer would take a cut (a commission) of that retail price. This is known as the agency model of book pricing.

Along came the iPad, which some publishers, and Apple, saw as an opportunity to make the paradigm shift to the agency model. Publishers with whom Apple inked a deal included Harper Collins, Penguin, Simon & Schuster, Hachette, and Macmillan.

Part of the deal that Apple had with these publishers was that the publishers would always give Apple the best price. In fact, Apple’s contract with the publishers included that no other retailer could undercut Apple’s price for a given ebook sold in the Apple ebook store. If they did, the publisher had to extend a discounted price to Apple to make up the difference.

It is this last bit which lead to the allegations of price-fixing.

In the suit, Steve Jobs is quoted as saying to the publishers “We’ll go to the agency model, where you set the price, and we get our 30 percent, and yes, the customer pays a little more, but that’s what you want anyway.”

According to the Justice Department’s lawyer “The publishers needed a facilitator and a go-between… a company large enough to give the publishers the confidence that their conspiracy would prove successful. And that company was Apple.”

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