An Apple Store employee sells Apple's new iPad to a customer at the 5th Avenue Apple Store in New York.
The
Justice Department sued Apple Wednesday, alleging the technology giant
and five major publishers conspired to push up the prices of e-books and
limit retail price competition.
The lawsuit, filed in Manhattan
federal court by the Justice Department's Antitrust Division, alleges
Apple and the publishers had a common interest in fighting Amazon.com’s
practice of selling e-books for as little as $9.99, and decided to work
together to raise prices.
The government alleges that Apple and
the publishers reached an agreement to stop competing on price, allowing
e-book prices to rise significantly. Apple would be guaranteed a 30
percent “commission” on each e-book sold, according to a court document detailing the complaint.
The
conspiracy has caused e-book consumers to pay “tens of millions of
dollars more for e-books than they otherwise would have paid,” the
Justice Department said.
News Corp's HarperCollins Publishers Inc,
CBS Corp's Simon & Schuster Inc and Lagardere SCA's Hachette Book
Group agreed to settle with the Justice Department. The settlement
terms were not immediately disclosed.
The two publishers the
Justice Department is proceeding to litigate against are Pearson Plc's
Penguin Group and Macmillan, a unit of Verlagsgruppe Georg von
Holtzbrinck GmbH.
The agreement between Apple and the publishers allegedly occurred ahead of the introduction of the iPad in 2010.
“To
effectuate their conspiracy, the publisher defendants teamed up with
defendant Apple, which shared the same goal of restraining retail price
competition in the sale of e-books,” the Justice Department said.
Tom
Neumayr, a spokesman for Apple, declined to comment on the lawsuit, but
some publishers responded to the allegations, including Macmillan Chief
Executive Officer John Sargent.
“Macmillan did not act illegally. Macmillan did not collude,” he said in a letter on the company’s website. Sargent noted that the filing of the lawsuit came after discussions with the government that lasted for months.
“But the terms the DOJ demanded were too onerous,” he continued.
“After
careful consideration, we came to the conclusion that the terms could
have allowed Amazon to recover the monopoly position it had been
building before our switch to the agency model. We also felt the
settlement the DOJ wanted to impose would have a very negative and long
term impact on those who sell books for a living, from the largest chain
stores to the smallest independents.”
U.S. Attorney General Eric
Holder told a press conference that the proposed settlement would give
retailers such as Amazon and Barnes & Noble the freedom to reduce
e-book prices.
The Justice Department’s complaint mentions an
e-mail from an executive at an unnamed publisher that points out that,
given Amazon’s bargaining strength, the publishers knew they had to work
together to compel the online retailer to raise prices.
“We’ve
always known that unless other publishers follow us, there’s no chance
of success in getting Amazon to change its pricing practices,” the
e-mail said, adding that “without a critical mass behind us Amazon won’t
‘negotiate,’ so we need to be more confident of how our fellow
publishers will react.”
The European Union is also investigating allegations of conspiracy to fix the prices of e-books.
Shares of Apple were little changed in trading Wednesday.
Already
the world’s most valuable company, Apple’s valuation hit the $600
billion mark for the first time Tuesday. Only one other company --
Microsoft -- has reached that valuation. It rose to that level around
the turn of the valuation at the height of the technology stock craze.
Collusion
between managers of U.S. firms and other domestic or foreign firms over
pricing or other monopolistic actions, is expressly forbidden by the
Sherman Antitrust Act of 1890, the cornerstone of U.S. antitrust policy
and can result in imprisonment or substantial fines.
In November
2001, the Justice Department reached a settlement with Microsoft over
allegations of anti-competitive actions related to its software.
(Msnbc.com is a joint venture of Microsoft and Comcast’s NBC Universal unit.)
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