U.S. Accuses And Sues Apple For Conspiracy Over E-Book Pricing: Should Apple Be Worried?

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The U.S. Department of Justice’s Antitrust Division has accused Apple Inc. and 5 other publishers of conspiracy to limit competition for the pricing of e-books and filed a lawsuit against them. The lawsuit, filed in Manhattan federal court alleges that Apple and the publishers reached an agreement where retail price competition would cease, retail e-books prices would increase significantly and Apple would be guarantee a 30% “commission” on each e-book sold.

Defendants’ ongoing conspiracy and agreement have caused e-book consumers to pay tens of millions of dollars more for e-books than they otherwise would have paid – The Lawsuit said.

According to the lawsuit the agreement between Apple and the publishers allegedly occurred ahead of the introduction of the iPad in 2010. The conspiracy to limit competition, the lawsuit says, aimed to limit Amazon’s ability to discount E-books. It is worth noting that the alleged agreement took place after Amazon had driven e-book pricing down to $9.99 for newly released and best-selling e-books, as per the lawsuit.

To achieve their goals, the publishers shifted from a “wholesale” model to sell books and e-books and replaced it with a so-called agency model, in which the publishers would set the retail price and give retailers no power to alter that price, the Justice Department said in the lawsuit.

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Apple and the 5 accused Publishers.

The publishers named in the lawsuit are: Simon & Schuster, HarperCollins, Hachette Pearson PLC’s Penguin Group (USA) and Macmillan, a unit of Verlagsgruppe Georg von Holtzbrinck GmbH. Interestingly the lawsuit quotes Apple’s Late CEO Steve Jobs who described Apple’s strategy for negotiating with the publishers as follows :

We’ll go to [an] agency model, where you set the price, and we get our 30%, and yes, the customer pays a little more, but that’s what you want anyway.

Now the big question that remains is that will this effect Apple’s sales?, especially the iPad sales which are where the E-Books are mostly read. Apple has largely been seen as a company which offers quality products and does so without meaning to upset its market position. Truth be told, a lot of people respect Apple. Whether or not this lawsuit could effect Apple’s iPad sales would depend largely on how the consumers see this latest development.

The lawsuit points to a particularly sinister mindset behind the agreement by saying that the publishers took steps to conceal their communications with one another, including instructions to ‘double delete’ e-mail and taking other measures to avoid leaving a paper trail.

could this lawsuit effect iPad sales?

The most interesting observation to be made in the coming days would be to see Apple’s response to this lawsuit, will they really be willing to go to the courts and battle the U.S. Department of Justice?

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