Apple, booksellers oppose proposed e-book price-fixing settlement

The DOJ's proposal would allow Amazon.com to set the price of e-books, critics say

A proposed settlement of the U.S. Department of Justice's e-book price-fixing case against three large publishers would damage the U.S. publishing industry and would single out Apple for restrictions on e-book pricing, lawyers for the tech firm wrote in comments to the agency.

The proposed settlement -- between the DOJ and three of five publishers the agency charged in April with price fixing -- is "a threat to ebook competition," lawyers for Apple wrote in comments to the DOJ. "In a misguided attempt to reshape the market according to its own preferences, the government seeks to impose a business model that will result in dramatic and long-lasting harm."

Apple, also a defendant in the case, has declined to settle the case and is scheduled for trial in June 2013. Apple, Barnes and Noble and the American Booksellers Association were among the organizations filing comments opposed to the proposed settlement between the DOJ and publishers Hachette Book Group, HarperCollins Publishers and Simon and Schuster.

The settlement, if approved in court, would require the publishers to allow retailers to set their own prices for e-books. The settlements would also prohibit the publishers from discussing pricing with competitors for five years and prohibit them from constraining retailer efforts to offer discounts for two years.

About 800 of the 868 comments the DOJ received were opposed to the settlement, the agency said. Many people and groups opposed to the settlement said it would allow Amazon.com to lower prices and create an e-book-selling monopoly.

"The role of Amazon as protagonist in all of this is troubling," Apple's lawyers wrote. "Amazon is by any measure or standard the industry monopolist, a dominant presence in the ebook and physical book marketplace. It routinely uses its leverage across both markets to impose its will on authors and publishers. That is undeniable."

Before a new e-book selling model involving Apple and book publishers, independent book sellers were getting underpriced by Amazon.com, added lawyers from the American Booksellers Association. Before the new pricing model, "indie bookstores were concerned that Amazon had a 90 percent share of the growing e-book market, and that this one retailer was selling e-books at a price far lower than indie stores could even purchase these e-books for resale," the association's lawyers wrote.

The DOJ, in documents released Monday, defended the antitrust lawsuit and proposed settlement in a response to the comments it received. In April 2010, when Apple released its iPad, "virtually overnight the retail prices of many bestselling and newly released e-books published in this country jumped 30 to 50 percent -- affecting millions of consumers," the agency's lawyers wrote.

Many of the critics of the settlement are acting for their own self-interests, the DOJ said.

"Many critics of the settlements view the consequences of the conspiracy -- higher prices -- as serving their own self-interests, and they prefer that unfettered competition be replaced by industry collusion that places the welfare of certain firms over that of the public," the DOJ's lawyers wrote. "That position is wholly at odds with the purposes of the federal antitrust laws -- which were enacted to protect competition, not competitors."

Apple complained that the settlement would require it to renegotiate e-book prices with the settling publishers in a seven-day period. "This artificially compressed time frame is not a foundation for a productive, long-term relationship," Apple's lawyers wrote. "There is a risk that the settling defendants will refuse to negotiate commercially reasonable terms and simply pull their titles from the iBookstore. That would be flatly against the public interest."

Apple called the settlement an "experiment in government intervention."

The Consumer Federation argued in favor of the proposed settlement, saying the so-called agency pricing model employed by Apple and the publishers unnaturally props up the declining specialty bookstore industry. The Authors Guild has argued that specialty bookstores allow customers to browse shelves in a way that's superior to browsing for books online, the consumer group noted.

The only way to save an old model of selling books in specialty bookstores is "by ending price competition and allowing collusion to set prices," the group's lawyers wrote. "Unfortunately for the bookstores, the readers who need the functions of the specialty bookstores don't value them enough to pay for the services they provide. Since the specialty bookstores cannot compete on price or service, cartel agency pricing is the only solution, a solution in which consumers are forced to pay a higher price, but get services that they are unwilling to pay for."

Grant Gross covers technology and telecom policy in the U.S. government for The IDG News Service. Follow Grant on Twitter at GrantGross. Grant's e-mail address is grant_gross@idg.com.

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