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US files lawsuit against Apple

Source : BUSINESS_STANDARD
Last Updated: Wed, Apr 11, 2012 20:50 hrs

Apple Inc and two publishers, Macmillan and Penguin, were accused by the US Justice Department of conspiring to fix prices of digital books to undermine Amazon.com Inc's dominance of the industry.

Three other publishers, CBS Corp's Simon & Schuster, Lagardere SCA's Hachette Book Group and News Corp's HarperCollins, also named in the government's antitrust lawsuit, settled their cases, according to court filings.

"Apple clearly understood that its participation in this scheme would result in higher prices to consumers," the department said in its complaint filed on Wednesday in federal court in Manhattan.

US antitrust officials have increased their scrutiny of Cupertino, California-based Apple's business practices in digital publishing, mobile computing and music retail as the maker of the iPad and owner of iTunes has become the world's most valuable company.

"If the allegations are true, this was an orchestrated effort to get Amazon to stop discounting electronic versions of books," said Allen Grunes, a lawyer with Brownstein Hyatt Farber Schreck LLP in Washington. "To the extent that Apple was involved in the plot, it reflects badly" on the company, he said.

Under the settlements with the Justice Department filed on Wednesday, the three companies agreed to cancel contracts with Amazon, Google and other e-booksellers that allowed the publishers to set prices, according to the filing.

Apple, Penguin and Macmillan want to protect the agency model that lets publishers - not vendors - set e-book prices, said people familiar with the matter on April 5, who declined to be identified because they weren't authorised to speak publicly.

When Apple came out with the iPad in 2010, it let publishers set prices for e-books as long as it got a 30 per cent cut and the publishers agreed to offer their lowest prices through Apple.

This so-called agency model overtook Amazon's practice of buying books at a discount from publishers and then setting its own price for e-reader devices.

Apple, Macmillan, which is a unit of Verlagsgruppe Georg von Holtzbrinck GmbH, and Pearson Plc's Penguin, refused to engage in settlement talks with the Justice Department. The three companies deny they colluded to raise prices for digital books, according to two people familiar with the matter who weren't authorised to speak publicly. They will argue that pricing agreements between Apple and publishers enhanced competition in the e-book industry, which was dominated by Amazon, which sold its digital books for $9.99 each.

The settlement called for Simon & Schuster, Hachette and HarperCollins to hold off on entering into contracts for two years that would prevent retailers from discounting books, according to court papers.

Gina Talamona, a spokeswoman for the Justice Department, declined to comment on the suit and settlements.

Tom Neumayr, a spokesman for Apple, Erin Crum, a spokeswoman for HarperCollins, Sophie Cottrell, a spokeswoman at Hachette Book Group USA and Penguin spokeswoman Erica Glass didn't immediately respond to phone calls and e-mails seeking comment. Adam Rothberg, a spokesman at Simon & Schuster, declined to comment.

Apple, Penguin and Macmillan want to protect the agency model that lets publishers - not vendors - set e-book prices, said people familiar with the matter on April 5, who declined to be identified because they weren't authorised to speak publicly.

Sales of e-books rose 117 per cent in 2011, generating $969.9 million, Publishers Weekly reported Februray 27, citing estimates from the Association of American Publishers. By eliminating printing and shipping costs, digital versions generate higher profit margins than physical copies.

Consumers and competition can be hurt when a group of companies agrees to benchmark prices against those charged to rivals even if none of the firms dominate an industry, said Fiona Scott-Morton, a Justice Department economist, in an April 5 speech in Washington, signaling the antitrust division's thinking on the issue of most-favored-nation clauses.

The suit was filed in Manhattan, where US District Judge Denise Cote is supervising pretrial proceedings in a group of at least 27 antitrust suits by private parties against Apple and the publishers.

"There is substantial overlap as to the identity of the defendants as well as the factual allegations giving rise to the antitrust claims in the different cases," the government said in its filing on Wednesday.


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