On Wednesday, the Department of Justice formally filed a lawsuit against Apple and five book publishing giants — Simon & Schuster, Hachette, HarperCollins, Penguin Group, and Macmillan — alleging that the companies engaged in an "anticompetitive" price-fixing scheme, thus preventing discount retailers like Amazon.com from undercutting the market. Attorney General Eric Holder said the suit is meant to protect American consumers who have unfairly "paid millions of dollars more" than necessary for popular titles, and to ensure that "cutting-edge technologies are available at the lowest possible price." Here, a guide to the unfolding case:
How did Apple and the publishers allegedly fix prices?
In recent years, book publishers have individually set their own prices for various titles. The problem now, the DOJ alleges, is that Apple and the named publishers are "conspiring to increase the prices that consumers pay for e-books" by agreeing to the same (higher) prices across the board, thereby making it nearly impossible for book buyers to find a good deal on e-books. For its part, Apple received 30 percent commission for any e-books sold through its iBookstore.
And this hurts Amazon?
While the online bookseller continues to do well in the e-book market, price-fixing could spell disaster for its model, in which the popular e-tailer is allowed to set its own bargain prices. And as Apple's iPad and its book platform become more popular, if e-books cost the same amount on Amazon as they do in the iBookstore, consumers may have less reason to buy from Amazon.
What do the book publishers say?
Holder confirmed Wednesday that Simon & Schuster, Hachette, and HarperCollins have agreed to a proposed settlement in which they'll end their deals with Apple, and be barred from entering into discount-limiting partnerships for two years. Apple, Macmillan, and Penguin, on the other hand, are prepared to argue that the pricing agreements actually "enhanced competition in the e-book industry," which had previously been dominated by Amazon.
What happens next?
While the DOJ would like to see a return to "a wholesale model, where retailers decide what to charge customers," some analysts say that the agency model, in which book publishers set the prices, won't go away entirely. One unnamed person familiar with the case tells Bloomberg that Random House, which is not included in the lawsuit, has agreements with Apple and Amazon that lets the book publisher set its own e-book prices. But if the DOJ has its way, book buyers might see a return to Amazon's ultra-low prices, or what one of the publishing house's CEOs allegedly called "the wretched $9.99 price point."
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