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E-books Antitrust Litigation

Date Filed: August 9, 2011
Court: U.S. District Court, Northern District of California
Type of Case: Antitrust Litigation
Case Number: 11-MD-02293
Status: Active
Company Name: Apple Inc., HarperCollins Publishers, Hachette Book Group, Macmillan Publishers, Penguin Group Inc. and Simon & Schuster Inc.
Stock Symbol: NASDAQ:AAPL

Hagens Berman has filed a nationwide class-action lawsuit claiming that Apple Inc. and five of the nation’s top publishers, including HarperCollins Publishers, Hachette Book Group, Macmillan Publishers, Penguin Group Inc. and Simon & Schuster Inc. illegally fix prices of electronic books, also known as e-books.

Filed in the U.S. District Court for the Northern District of California, the lawsuit alleges that the publishers and Apple colluded to increase prices for popular e-book titles to boost profits and force e-book rival Amazon to abandon its pro-consumer discount pricing.

According to the suit, publishers believed that Amazon’s wildly popular Kindle e-reader device and the company’s discounted pricing for e-books would increase the adoption of e-books, and feared Amazon’s discounted pricing structure would permanently set consumer expectations for lower prices, even for other e-reader devices.

The firm believes that Apple was involved in the scheme. The complaint alleges that Apple believed that it needed to neutralize the Kindle when it entered the e-book 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 complaint claims that the five publishing houses forced Amazon to abandon its discount pricing and adhere to a new agency model, in which publishers set prices. This would prevent retailers such as Amazon from offering lower prices on e-books.

Apple had already established such a model on its App store, taking 30 percent revenue on sales while the publishers receive 70 percent.

If Amazon defied the publishers and tried to sell e-books below the publisher-set levels, the publishers would simply deny Amazon access to the title, the complaint details. The defendant publishers control 85 percent of the most popular fiction and non-fiction titles.

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.

While free market forces would dictate that e-books would be cheaper than their hard-copy counterparts, considering lower production and distribution costs, the complaint shows that as a result of the agency model and alleged collusion, many e-books are more expensive than their hard-copy counterparts.

According to the complaint, the prices of e-books have risen as much as 50 percent since the switch to an agency model.

The lawsuit claims Apple and the publishers are in violation of a variety of federal and state antitrust laws, the Sherman Act, the Cartwright Act and the Unfair Competition Act.

The named plaintiffs, Anthony Petru, a resident of Oakland, California, and Marcus Mathis, a resident of Natchez, Mississippi, each purchased a least one e-book at a price above $9.99 after the adoption of the agency pricing model.

Once approved, the lawsuit would represent any purchaser of an e-book published by a major publisher after the adoption of the agency model by that publisher.

The lawsuit seeks damages for the purchase of e-books, an injunction against pricing e-books with the agency model and forfeiture of the illegal profits received by the defendants as a result of their anticompetitive conduct, which could total tens of millions of dollars.

Updates:

Aug. 6, 2013: U.S. District Court Judge Denise Cote has provided preliminary approval to a series of settlements between states, consumers, and five publishers. Today settlements between 23 states, Penguin and Macmillan were given preliminary approval. Settlements between Minnesota and HarperCollins, Hachette, and Simon & Schuster were also preliminarily approved.  These settlements will now proceed to the final stage of the approval process. Under the proposed settlement, all consumers who purchased ebooks between April 1, 2010, and May 21, 2012, live in one of the states covered by the settlements, and make a claim will be compensated for alleged increases in the price of ebooks.

May 22, 2013: Penguin has agreed to a $75 million settlement. More information is available here.

May 15, 2012: United States District Judge Denise Cote has issued the first substantive ruling in the case, rejecting Apple and the publishers’ motion to dismiss. The judge’s order can be read here.

Dec. 20, 2011: The Court today appointed Hagens Berman lead counsel in the case.

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