The E-book Investigations: Are Publishers And Apple Breaking The Law?
December 8, 2011 | 9:09 am
By Paul Biba
There is a good analysis of the current legal difficulties of publishers in paidContent. Much more in the article:
It’s been a week to forget for publishers after both the Justice Department and the European Commission announced investigations into e-book pricing tactics. Meanwhile, dozens of law firms are steaming ahead with a class action to reclaim money for customers who allegedly overpaid for books on the iPad. So what’s going on – is this an illegal conspiracy or much ado about nothing? Here’s a guide:
Who Is Investigating the Publishers?
Before Congress today, the head of the Justice Department’s antitrust division reportedly confirmed months of rumors by stating that the federal government and state attorneys general are investigating the electronic book industry. Earlier this week, the European Commission said it has begun formal investigations to follow up on raids of publishers’ offices that took place in March.
What is the Conspiracy?
The case turns on “agency pricing,” a scheme under which the publishers set the price for e-books on the iPad. In return, Apple (NSDQ: AAPL) collects a commission.
What is the Point Of Agency Pricing?
Publishers watched in horror as Amazon (NSDQ: AMZN) decided to build up its market share in e-books by selling prized titles for less than $10. Amazon sometimes sold at a loss. This set a low floor for e-book prices and also threatened the sale of more expensive hard cover books. The agency model lets publishers set higher prices and ensure customers don’t become used to cheap e-books.
What’s the Problem with Agency Pricing?
The class action suits complain that agency pricing is an illegal cartel. Here is how one complaint describes it: “As a direct result of this anti-competitive conduct as intended by the conspiracy, the price of e-books has soared. The price of new best-selling e-books increased to an average of $12 – $15—an increase of 30 to 50 percent.”