AG Gansler Charges U.S. Publishers, Apple with Antitrust Law Violations
15 states allege companies colluded in price-fixing scheme for e-books
Baltimore, MD (April 11, 2012) - Attorney General Douglas F. Gansler joined state attorneys general from 14 states and Puerto Rico today in charging three of the nation's largest book publishers and Apple Inc. with colluding to fix the sale prices of electronic books. The states' antitrust case, which was filed in federal court in Austin, Texas, cites the defendants for violating the states' antitrust laws and the federal Sherman Antitrust Act.
"Conspiring to manipulate prices violates antitrust laws and raises costs for consumers," said Attorney General Gansler. "It's troubling that three of the nation's largest publishing companies worked together and with Apple to eliminate free-market competition – thereby allowing publishers to artificially inflate prices -- as Marylanders face severe economic challenges."
The antitrust action stems from a two-year state-led investigation, coordinated with the U.S. Department of Justice, into allegations that the defendants conspired to raise e-book prices. For years, retailers sold e-books through a traditional wholesale distribution model, under which retailers – not publishers – set the price of e-books. Amazon, for example, commonly sold best-selling e-books for $9.99. However, the investigation revealed that Penguin, Simon & Schuster and Macmillan conspired with other publishers and Apple to artificially raise prices by imposing a distribution model in which the publishers set the prices for bestsellers at $12.99 and $14.99.
When Apple prepared to enter the e-book market, the publishers and Apple agreed to adopt an "agency" distribution model as a mechanism to allow them to fix prices. To enforce their price-fixing scheme, the publishers and Apple relied on contract terms that forced all e-book outlets, like Amazon and Barnes and Noble, to sell their products at the same price. Because the publishers agreed to use the same prices, retail price competition was eliminated. According to the states' enforcement action, the coordinated agreement to fix prices resulted in e-book customers paying more than $100 million in overcharges.
The states' antitrust action seeks to reverse the effects of the defendants' anti-competitive conduct and to obtain damages for customers who paid artificially inflated prices for e-books.
The states have reached an agreement in principle with Harper Collins and Hachette to provide significant consumer restitution and injunctive relief.
Maryland was joined in the enforcement action by Texas and Connecticut, which led the investigation, as well as by Alaska, Arizona, Colorado, Illinois, Iowa, Missouri, Ohio, Oregon, Pennsylvania, Puerto Rico, South Dakota, Tennessee, Vermont and West Virginia.