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U.S. Now Paints Apple as ‘Ringmaster’ in Its Lawsuit on E-Book Price-Fixing

According to the Justice Department, that e-mail is part of the evidence that Apple was the “ringmaster” in a price-fixing conspiracy in the market for e-books, a more direct leadership role than originally portrayed in the department’s April 2012 antitrust lawsuit against Apple and five publishing companies.

In its suit, the government said that Apple and the publishers conspired to fix e-book prices as part of a scheme to force Amazon to raise its e-book price from a uniform $9.99 to the higher level noted by Mr. Jobs in the e-mail, which publishers wanted. That, the department said, resulted in higher prices to consumers and ill-gotten profits for Apple and its partners.

The e-mail was released on Tuesday as part of the government’s filing before the trial in the case, set to begin on June 3 in New York.

Two days after Mr. Jobs’s e-mail to Mr. Murdoch, HarperCollins, the publishing company owned by News Corporation, signed an agreement with Apple to force all sellers of electronic books to adopt the new pricing model, the government said.

Apple is the only defendant left in the lawsuit after five publishing companies — Hachette, HarperCollins, Macmillan, Penguin and Simon Schuster — agreed last year and earlier this year to settle the charges.

Tom Neumayr, a spokesman for Apple, said the company did not conspire to fix prices on e-books.

“We helped transform the e-book market with the introduction of the iBookstore in 2010, bringing consumers an expanded selection of e-books and delivering innovative new features,” Mr. Neumayr said. “The market has been thriving and innovating since Apple’s entry, and we look forward to going to trial to defend ourselves and move forward.”

The Justice Department’s latest filings in the case also paint a picture of an Apple willing to use its power in mobile apps to strong-arm reluctant partners. That is especially evident in the accusations the department makes about Apple’s dealings with Random House, the last major publisher to resist striking an e-books deal with Apple.

In July 2010, Mr. Jobs, Apple’s former chief executive, told the chief executive of Random House, Markus Dohle, that the publisher would suffer a loss of support from Apple if it held out much longer, according to an account of the conversation provided by Mr. Dohle in the filing. Two months later, Apple threatened to block an e-book application by Random House from appearing in Apple’s App Store because it had not agreed to a deal with Apple, the filing said.

After Random House finally agreed to a contract on Jan. 18, 2011, Eddy Cue, the Apple executive in charge of its e-books deals, sent an e-mail to Mr. Jobs attributing the publisher’s capitulation, in part, to “the fact that I prevented an app from Random House from going live in the app store,” the filing reads.

The newly released documents also quote David Shanks, chief executive of Penguin, as saying that Apple was the “facilitator and go-between” for the publishing companies in arranging the agreement.

And the documents quote Mr. Dohle as saying that an Apple executive counseled him that the publishing company could threaten to withhold e-books from Amazon to force Amazon to accept the higher prices. Random House was not named as a defendant in the lawsuit.

The price-fixing suit charges that Apple advised publishers to move from a wholesale pricing model, which let retailers charge what they wanted, to a system that allowed publishers to set their own e-book prices, a model known as agency pricing.

The publishers said Amazon was pricing e-books below their actual cost, putting financial pressure on the publishers that they said would drive them out of business. The dispute underscored the extent to which competition from digital retailers like Amazon was transforming the traditional book industry.

Three of the publishers, HarperCollins, Simon Schuster and Hachette, settled with the government immediately. Penguin, Macmillan and Apple originally decided to fight the charges. But in December, to clear the way for its merger with Random House, Penguin settled, followed by Macmillan in February.

The settlements call for the publishers to lift restrictions imposed on discounting and other promotions by e-book retailers. The companies are also prohibited from entering into new agreements with similar restrictions until December 2014.

The publishers must also notify the government in advance about any e-book ventures they plan with each other, and they are prohibited for five years from agreeing to any kind of so-called most-favored-nation clause with any retailer, which establishes that no other retailer is allowed to sell e-books for a lower price.

Edward Wyatt reported from Washington and Nick Wingfield from Seattle.

Article source: http://www.nytimes.com/2013/05/15/technology/us-now-paints-apple-as-ringmaster-in-its-lawsuit-on-e-book-price-fixing.html?partner=rss&emc=rss

Media Decoder Blog: Macmillan Settles With Justice Department on E-book Pricing

11:58 a.m. | Updated Macmillan said on Friday that it had agreed to settle a lawsuit brought by the Department of Justice over the pricing of e-books, asserting that the potential costs of continuing to fight the action were too high.

The agreement means that all five major publishing houses have settled the charges brought by the government last spring.

Apple, which is also a defendant, will continue to trial in June, according to the Department of Justice. A company spokeswoman declined to comment on Friday.

In a letter addressed to authors, illustrators and agents, Macmillan’s chief executive, John Sargent, said that the risks were too great to go it alone.
“Our company is not large enough to risk a worst case judgment,” he said. “In this action the government accused five publishers and Apple of conspiring to raise prices. As each publisher settled, the remaining defendants became responsible not only for their own treble damages, but also possibly for the treble damages of the settling publishers (minus what they settled for). A few weeks ago I got an estimate of the maximum possible damage figure. I cannot share the breathtaking amount with you, but it was much more than the entire equity of our company.”

In a suit filed last April, the Justice Department accused the publishers and Apple of conspiring in e-mails and over lavish dinners to set the price of e-books at an artificially high level. The publishers had moved from a wholesale pricing model, which allowed retailers to charge what they wanted, to a system that allowed publishers to begin setting their own e-book prices, a model known as “agency pricing.”

The defendants said they were trying to protect themselves from Amazon, which was pricing e-books below their actual cost, putting financial pressure on the publishers that they said would drive them out of business.

Nevertheless, three publishing houses, HarperCollins, Simon Schuster and Hachette, settled with the government immediately. Penguin, Macmillan and Apple decided to fight the charges. But in December, to clear the way for its merger with Random House, Penguin settled too.

The terms of the Macmillan settlement mirrors that agreed to by the other publishers. Macmillan will immediately lift restrictions it has imposed on discounting and other promotions by e-book retailers and will be prohibited until December 2014 from entering into new agreements with similar restrictions. The publisher must also notify the government in advance about any e-book ventures it plans with other publishers.

Macmillan had been holding firm that it wouldn’t settle, and analysts offered varying explanations for the sudden turnabout. James McQuivey, an analyst for Forrester Research, said that potential merger talks might be one motivation. The publishing industry has begun to consolidate to respond to the threat from Amazon, and when Penguin and Random House announced last October that they would merge, it fueled speculation that more alliances would follow.

“This was a fight not worth fighting in the first place,” Mr. McQuivey said of the lawsuit, “and given the likely nature of merger conversations behind the scenes, that’s where you finally decide the litigation is an obstacle to those talks, which are much more important.”

But Mike Shatzkin, the founder and chief executive of the Idea Logical Company, a publishing consultant, downplayed the role of a potential merger. “There have been no rumors and no signs that Macmillan is merging,” he said. “I would actually take their statement at face value.”

He said he thought it was more likely that Macmillan realized that their stand on pricing was having no effect on the market. E-book prices have been declining steadily but not precipitously since the settlement with the first three publishers went into effect last September. “Their settling doesn’t change the overall market, and it looks much more that way to them now than when they were originally fighting,” Mr. Shatzkin said.

Article source: http://mediadecoder.blogs.nytimes.com/2013/02/08/citing-potential-damages-macmillan-settles-with-justice-department-on-e-book-pricing/?partner=rss&emc=rss

U.S. Now Paints Apple as ‘Ringmaster’ in Its Lawsuit on E-Book Price-Fixing

Media Decoder Blog: Macmillan Settles With Justice Department on E-book Pricing

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