A set of court filings made public on Tuesday (via Reuters), shows the U.S. Department of Justice [DOJ] accused Apple (AAPL) in April 2012 of engaging in a horizontal price-fixing scheme with major U.S. publishers to set the prices of e-books it was selling, and thereby help set the market.
In a filing dated April 26 and released on Tuesday, Apple denies the allegations of colluding with some of the U.S.’s largest publishers to push up prices as it was preparing to launch its iPad in early 2010, saying it negotiated separate consumer-friendly agreements with each.
The publishers were News Corp’s HarperCollins Publishers Inc, Simon and Schuster, Hachette Book Group, Macmillan and Penguin (Apple remains the only defendant in the case, as the named publishers have already settled with the DOJ).
Apple’s filing also says that the publishers were at the time battling online retailer Amazon.com (AMZN) over its practice of selling eBooks at a much lower price than the publishers wanted. Apple claims that the publishers had decided, independent of Apple, to stop Amazon’s success, which at the time had an estimated 90% share of the e-book market, by eliminating discounts on wholesale book prices of e-books and to sell hardcover books in physical book stores first in a practice called “windowing”.
According to the filing, when Apple approached publishers to set up its iBookstore in 2010, the publishers weren’t pleased with terms that included Apple receive a 30% commission, that publishers not undersell them, and that the “windowing” practice be scrapped. Each publisher, says Apple in the filing that described tough negotiations in detail, had a different counterproposal.[via Reuters] “Early — and constant — points of negotiation and contention were over Apple’s price caps and 30 percent commission. After Apple sent draft agency agreements to each publisher CEO on January 11, each immediately opposed Apple’s price tiers and caps,” Apple said in its filing, a document that runs to 81 pages.
For its part, the DOJ claims that Apple and the named publishers drove e-book pricing up by an average of $2 to $3 in a three-day period in early 2010. Apple disputes this, saying that e-book demand “exploded” with Apple’s iPad launch, and the average retail price of an e-book dropped to $7.34 from $7.97, or about 63 cents per book.
Apple’s e-book price fixing trial is scheduled to begin on June 3.