If you own a Kindle, you’ve likely already heard that three publishers have settled with the Department of Justice concerning an anti-trust suit alleging that publishers colluded to fix the price of ebooks.  Amazon has sent emails to Kindle owners alerting them that soon they should receive store credit that can be used to buy either ebooks or other merchandize from Amazon.  (Kindle owners can also request a check.)  These credits apply to ebooks purchased from the three publishers who have settled—Hachette, Harper Collins, and Simon & Schuster—that were purchased between April 2010 and May 2012.  Publishers Penguin and Macmillan, as well as Apple, are still fighting the charges.  No court date has yet been set, but it appears as though the case may not make it to court until next year.  Also, there is no word yet on how the announced merger between Penguin and Random House (the only major publisher not charged by the Department of Justice for price fixing) may affect Penguin’s role in the suit and ebook retailing in general.

Anti-Trust Update

Several questions come to mind with the announcement that Apple Inc. and five publishers have been sued for anti-trust violations on the pricing of e-books.  The one most people will be asking themselves is “What does this mean for me?”  Apple and two publishers, Macmillan and Penguin, have refused to settle and pledge to go to trial, with the next court date set for June 22.  However, three publishers (Simon and Schuster, Hachette, and HarperCollins) have already settled with the Department of Justice and 16 States Attorney Generals (including Ohio).  Assuming the settlements are approved, the publishers must renegotiate their contracts with Apple, as well as other e-book retailers, following the 60 day comment period and the termination of existing contracts.  This means that nothing will likely change until June at the earliest as far as the pricing of e-books is concerned.  At that time, the new contracts the three publishers who have settled make with retailers such as Amazon could allow for steep discounting any even bundling (Buy One, Get One, for example).  But there will be limits on how inexpensively retailers will be able to sell e-books, because they will not be permitted to set the prices so low that the publisher’s catalog is sold at a loss.  In other words, the new contracts can “prevent e-book retailers from cumulatively selling that Settling Defendant’s e-books at a loss over the period of the contract.” (Full text of the case filed.)  

Another question is how will the settlements and future litigation affect libraries?  As of now, not at all.  The settlements that have already been reached apply only to individual people, not business or libraries.  However, a Seattle Law firm, Hagen Bermans, is still pursuing the possibility of a class action suit that could include business and libraries. But because state action supersedes private class action suits, if all 50 states become involved in anti-trust cases and settlements, which is a possibility, the class action may not be able to go forward.  

Publishers and Apple Inc Being Sued for Anti-Trust Violations

The past two days have seen some real shake ups in the e-book market.  Yesterday, it was reported that the “Big Six” publishers—HarperCollins, Random House, Hachette, Simon & Schuster, Penguin, and Macmillan—are refusing to sign new contracts with Amazon.  The online bookseller is looking to increase the co-op promotional fees (money the publishers pay a bookseller to promote their titles), and publishers are refusing to sign on to the increase.

Perhaps even more significant is the anti-trust suit filed today by the US Department of Justice against Apple Inc and five of the Big Six publishers, HarperCollins, Hachette, Simon & Schuster, Penguin, and Macmillan.  The claim is that the publishers colluded amongst themselves and with Apple to set e-book prices.  In anticipation of the launch of the iPad in 2010, publishers started using the agency model in 2009 when selling their books to e-book retailers.  In the agency model, publishers set the price of books and the retailer takes a percentage (usually 30%) cut of the sale.  This differs from the traditional wholesale model where publishers would sell books to retailers who would then set whatever price they wanted.

In his letter supporting the publishers, President of the Authors Guild, Scott Turow, explains the benefits of the agency model: “Two years after the agency model came to bookselling, Amazon is losing its chokehold on the e-book market: its share has fallen from about 90% to roughly 60%. Customers are benefiting from the surprisingly innovative e-readers Barnes & Noble's investments have delivered, including a tablet device that beat Amazon to the market by fully twelve months.  Brick-and-mortar bookstores are starting to compete through their partnership with Google, so loyal customers can buy e-books from them at the same price as they would from Amazon.  Direct-selling authors have also benefited, as Amazon more than doubled its royalty rates in the face of competition.”

However, Attorney General Eric Holder sees the publishers’ business model differently.  He cites secret business luncheons attended by publishers to discuss fixing the prices of e-books.  “As a result of this alleged conspiracy, we believe that consumers paid millions of dollars more for some of the most popular titles,” he said.

In addition to the federal suit, 16 states, including Ohio, have also filed their own anti-trust suits against publishers.  Several settlements have already been reached at both the federal and state levels, but Apple, Macmillan, and Penguin insist they will keep fighting the charges in court.

Find more about the anti-trust suits at these sites:

http://www.wired.com/epicenter/2012/04/doj-terms-settlement-ebook/

http://news.cnet.com/8301-13578_3-57412452-38/doj-announces-three-e-book-settlements-but-not-with-apple/?tag=breaking