US DOJ Defends eBook Price-Fixing Suit Against Apple, Publishers

The US Department of Justice (DOJ) this week responded to criticisms of its antitrust suit against Apple and the five biggest book publishers, in which it accuses them of colluding to raise the price of ebooks and illegally harm competitors such as Amazon. Three of the publishers immediately settled with the DOJ, but this action triggered a round of public comments. It is these comments that the DOJ responded to this week.

According to the DOJ, what happened here is very clear. Before Apple entered the ebook market with its iBooks software and service, most ebooks were sold in a so-called “wholesale model,” utilized by Amazon, with most new books costing $9.99. When Apple entered the market, prices rose suddenly and markedly, with new books then costing $12.99 to $16.99. Apple, the DOJ claims, acted as the “hub” in a conspiracy with publishers to raise prices and thus harm consumers.

Apple’s pricing model, called the “agency pricing model,” isn’t illegal. But Apple acted as a go-between for the publishers, ensuring that prices were consistently much higher than before. This act is illegal, the DOJ notes, for both the orchestrator of the collusion—Apple—and the publishing company are participants, which are ostensibly competing against each other.

Of course, those in the publishing industry feared that Amazon was gaining a near monopoly with ebooks and that by lowering prices, Amazon was harming the overall value of books. But Amazon’s actions were not illegal, unlike those undertaken by Apple and the publishers. And although the DOJ understands the “frustration” that lower prices must have caused in publishing circles, it also believes that these complaining companies don’t understand US antitrust law.

“Federal antitrust laws … were enacted to protect competition, not competitors,” the DOJ explains. Put another way—and this is a sharp difference between antitrust law in the United States and Europe, incidentally—they were enacted to protect consumers, not businesses. And while Amazon’s actions were obviously consumer-friendly, Apple’s collusion with the publishers was as obviously harmful to consumers.

“The United States … does not object to the agency method of distribution in the ebook industry [that is used by Apple], only to the collusive use of agency to eliminate competition and thrust higher prices onto consumers,” the DOJ response adds. “When Apple launched its iBookstore in April of 2010, virtually overnight the retail prices of many bestselling and newly released ebooks published in this country jumped 30 to 50 percent, affecting millions of consumers.”

The DOJ continues, “The seismic shift in ebook prices was not the result of market forces, but rather came about through the collusive efforts of Apple and five of the six largest publishers in the country. That conduct … is illegal under the federal antitrust laws.”

And though the DOJ responses were obviously designed to answer complaints, it’s worth noting that many comments came out in favor of the DOJ action against Apple and the publishers. “Those in support largely commented favorably on the government’s efforts to end the conspiracy that cost ebook purchasers millions of dollars, and restore competition to the ebook market.” Those who complained, meanwhile, had an economic incentive in seeing higher ebook prices. “They have an interest in seeing consumers pay more for ebooks, and hobbling retailers that might want to sell ebooks at lower prices.”