Federal and state officials have filed antitrust suits against Apple and five major book publishers, for allegedly conspiring to keep the prices of e-books high. The U.S. Department of Justice's antitrust division said that the price fixing raised the average cost of an e-book by $2 to $3.
In announcing the federal action filed in the U.S. District Court of New York, Sharis Pozen, the acting head of the Justice Department's antitrust division, said in a statement that the agency alleges "these executives knew full well what they were doing." She added that the individuals cited took "steps to make sure the prices consumers paid for e-books were higher."
The federal suit contends that the publishers illegally worked together in the summer of 2009 to raise prices, in reaction to Amazon selling e-books at $9.99 apiece. Instead, they agreed to the "agency model," in which e-book prices were set by publishers at $12.99 to $14.99.
The agreement between Apple and the publishers, the suit said, meant that "retail price competition would cease (which all the conspirators desired), retail e-book prices would increase significantly (which the publisher defendants desired) and Apple would be guaranteed a 30% 'commission' on each e-book it sold (which Apple desired)."
Pozen noted a quote by Steve Jobs, co-founder and CEO of Apple, in the recent best-selling biography of him, that "the customer pays a little more" in the arrangement Apple set up with publishers, but that's what publishers "want anyway."
In addition to the federal legal action, another lawsuit was filed by 16 state attorneys general against Apple, Simon & Schuster, Hachette Book Group, HarperCollins Publishers, Macmillan and Penguin Group.
Justice said that Hachette, HarperColllins, and Simon & Schuster have already reached a settlement, in which book retailers could sell e-books at reduced prices. Hachette and HarperCollins have also agreed to a settlement with the states, and to pay $51 million in restitution to buyers of e-books.
Terms Were 'Too Onerous'
An agreement for a restitution fee is still being negotiated with Simon & Schuster, according to news sources.
In a letter posted Wednesday on literary site Tor.com, Macmillan CEO John Sargent wrote that his company "did not collude" or act illegally. He said that, while it's "always better if possible to settle these matters before a case is brought," even though it's "hard to settle a lawsuit when you know you have done no wrong," the terms that Justice demanded "were too onerous."
Sargent said that the terms of a settlement "could have allowed Amazon to recover the monopoly position it had been building before our switch to the agency model."
Sargent quoted Author's Guild President Scott Turow, who said that "our government may be on the verge of killing real competition in order to save the appearance of competition."