Yesterday, Apple was sued over a “fast booting” patent. Today, a new class-action lawsuit has been filed against Apple and 5 major book publishers. The lawsuit claims that they “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.”
This lawsuit claims that Apple and Hachette, HarperCollins, MacMillan, Penguin, and Simon & Shuster illegally worked together to enable an “agency model” as the standard for e-book sales instead of a “wholesale model”. In addition, the complaint insists that the strategy used was unfair and anticompetitive because e-book prices rose after the agreements were finalized.
In November 2007, Amazon revolutionized the book publishing industry by releasing the Kindle, a handheld digital reader for electronic books or eBooks.Using proprietary electronic inktechnology, the Kindle replicated the appearance of ink on paper and introduced numerous efficiency-enhancing characteristics, including portability and other advantages of a digital format.
A major economic advantage to eBook technology is its potential to massively reduce distribution costs historically associated with brick-and-mortar publishing. But publishers quickly realized that if market forces were allowed to prevail too quickly, these efficiency enhancing characteristics would rapidly lead to lower consumer prices, improved consumer welfare, and threaten the current business model and available surplus (profit margins). So, faced with disruptive eBook technology that threatened their inefficient and antiquated business model, several major book publishers, working with Apple Inc. (Apple), decided free market competition should not be allowed to work together they coordinated their activities to fight back in an effort to restrain trade and retard innovation. The largest book publishers and Apple were successful.
When the iBookstore was first introduced by Apple, they used an “agency model” where publishers set the price for their content and Apple would take a 30% cut. The same model is used for the iTunes Store for music and App Store.
The class-action lawsuit suggests that this is a “direct result of the anticompetitive conduct as intended by the conspiracy, the price of the eBooks soared” and “bring claims under federal and state antitrust laws to enjoin the illegal conduct and to obtain damages.”