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Apple in hot water over ebook pricing

Consumer-rights law firm Hagens Berman has taken out a class-action suit against Apple and five major publishing houses over ebook pricing.

Consumer-rights law firm Hagens Berman has taken out a class-action suit against Apple and five major publishing houses over ebook pricing.

(Credit: Apple; Dollar Sign image by Anonymoususer, public domain)

The firm alleges that the agency model of pricing used by Apple, Hachette, HarperCollins, Macmillan, Penguin and Simon & Schuster is illegal price fixing, and violates various US federal and state antitrust laws.

Under the agency model, publishers set prices and retailers claim a 30 per cent commission on the gross sale price. Up until last year, ebooks were sold under the wholesale model, where the publisher sold the book to the retailer outright; the retailer could then set their own prices. Paper books are still sold under the wholesale model.

Apple already had an agency model in place on the iTunes app store prior to iBooks, which it launched in April 2010 with an agency model.

The lawsuit, filed 9 August 2011, claims that the five publishing houses and Apple conspired to increase prices and to force Amazon to adopt the agency model, abandoning its pro-consumer discount pricing. Amazon adopted the model in March last year.

The publishers had been concerned that Amazon's pricing would set expectations for lower prices that they weren't willing to meet, while Apple was worried that Amazon's freedom from the agency model and lower prices were damaging its market opportunity, according to Hagens Berman.

"Apple believed that it needed to neutralise the Kindle when it entered the ebook market with its own e-reader, the iPad, and feared that one day, the Kindle might challenge the iPad by digitally distributing other media like music and movies," the firm said.

The firm went on to add, "The complaint notes that Apple CEO Steve Jobs foreshadowed the simultaneous switch to agency pricing and the demise of discount pricing in an interview with The Wall Street Journal in early 2010. In the interview, he was asked why consumers would buy books through Apple at $14.99 while Amazon was selling the same book for $9.99. "The prices will be the same," he stated."

The result of all of that, concludes the lawsuit, is this: "As a direct result of this anti-competitive conduct as intended by the conspiracy, the price of ebooks has soared. The price of new bestselling ebooks increased to an average of US$12 to US$15 — an increase of 33 to 50 per cent. The price of an ebook in many cases now approaches — or even exceeds — the price of the same book in paper even though there are almost no incremental costs to produce each additional ebook unit."

Random House, which was the last publishing house to adopt the agency model, is not included in the suit.

Hagens Berman also filed a class-action suit one day prior, on 8 August 2011, against the six big publishing houses, on the grounds that they are under-reporting ebook sales and are therefore underpaying authors' royalties.