Apr 112012

True to their alleged word, the U.S. Department of Justice filed a lawsuit against Apple and five book publishers “for conspiring to increase the prices that consumers pay for e-books.” Three of the publishers, Hachette, HarperCollins and Simon & Schuster, have already agreed to a proposed settlement, which I imagine puts some nasty writing on the wall for the other two hold-outs (Macmillan and Penguin). But how does Apple fit into all this? Earlier today at the E-books Press Conference, where the lawsuit was announced, Attorney General Eric Holder attempted to set the stage:

Beginning in the summer of 2009, we allege that executives at the highest levels of the companies included in today’s lawsuit – concerned that e-book sellers had reduced prices – worked together to eliminate competition among stores selling e-books, ultimately increasing prices for consumers.   As a result of this alleged conspiracy, we believe that consumers paid millions of dollars more for some of the most popular titles.

During regular, near-quarterly meetings, we allege that publishing company executives discussed confidential business and competitive matters – including Amazon’s e-book retailing practices – as part of a conspiracy to raise, fix, and stabilize retail prices.   In addition, we allege that these publishers agreed to impose a new model which would enable them to seize pricing authority from bookstores; that they entered into agreements to pay Apple a 30 percent commission on books sold through its iBookstore; and that they promised – through contracts including most-favored-nation provisions – that no other e-book retailer would set a lower price.   Our investigation even revealed that one CEO allegedly went so far as to encourage an e-book retailer to punish another publisher for not engaging in these illegal practices.

So publishers allegedly met regularly with the intent of fixing e-book prices. Whatever figure the publishers allegedly agreed to, Apple would receive a 30% “commission” to host the content in its iBookstore. Coincidently, this same 30% is what Apple charges developers to host apps in its App Store. And what Apple takes for facilitating in-app purchases. It’s not a “commission”; it’s the cost for Apple to host, market and facilitate the monetary transactions for e-book content provided by publishers. Whatever price is set, however it is set, Apple gets 30%. How does this make them a party to price-fixing again?

It stands to reason that the three stooges that buckled under the DoJ will force the other two publishers to settle as well. But Apple? Notsomuch. You may have heard that Apple is a company that doesn’t mind digging its heels in when it feels like its being slighted. I think being painted as a price-fixer would fall pretty neatly into that category. 1997 Apple might be content to take it in the shorts from the government; 2012 Apple will feel no such compunction. I hope Mr. Holder has clean laundry in his drawers and has stockpiled ample foodstuff, cuz there’s a siege a comin’.

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