U.S. regulators say Apple made anticompetitive deals with the publishers ahead of its iPad tablet launch two years ago to break Amazon.com's (NASDAQ:AMZN - News) dominance in the digital book market. European Commission officials also are investigating those pacts for antitrust violations.
Three publishers have agreed to settle with the DOJ: CBS Corp.'s (NYSE:CBS - News) Simon & Schuster, News Corp.'s (NASDAQ:NWS - News) HarperCollins and Lagardere's Hachette Book Group. The government will continue to litigate its civil antitrust case vs. Apple and publishers Macmillan and Penguin Group.
Attorney General Eric Holder said the conspiracy resulted in consumers paying millions of dollars more for e-books because pricing power was taken away from e-book retailers like Amazon and Barnes & Noble (NYSE:BKS - News).
"We allege that executives at the highest levels of these compa nies — concerned that e-book sellers had reduced prices — worked together to eliminate competition among stores selling e-books, ultimately increasing prices for consumers," Holder said. The DOJ wants to restore retail price competition, he says.
If Apple is ruled part of the price-fixing conspiracy, it would face considerable damages from private lawsuits, including class-action suits by consumers and a possible antitrust lawsuit from Amazon, says Herbert Hovenkamp, a professor at the University of Iowa College of Law.
"The damages potential is quite big," he said.
Private suits often follow a government antitrust investigation.
Apple's defense may be that it dealt with each publisher individually and was not part of any conspiracy among the publishers, says Bob Lande, a professor at the University of Baltimore Law School. Apple could say it simply accepted the deals it was offered, he says.
Apple declined to comment. Apple shares fell a fraction Wednesday.
S&P analyst Scott Kessler reiterated his buy rating on Apple stock Wednesday, saying the antitrust charges "do not alter our view of (Apple's) overall prospects.
According to the complaint, the publishers were unhappy that e-book sellers, especially Amazon, had cut digital book prices. They worked together to enter into contracts that eliminated price competition among bookstores selling e-books.
The publishers agreed to pay Apple a 30% commission on e-books sold via its iBookstore and promised that no other e-book seller would sell a digital book at a lower price than Apple. The publishers forced e-book vendors to accept those terms.
Before those contracts, retailers regularly sold e-book versions of new releases and bestsellers for $9.99. Consumers now typically pay $12.99, $14.99 or more for sought-after e-books due to the conspiracy, the DOJ says.
"If you try to buy a book now, you often will see that the price of the electronic or digital version is higher than the price of the hard-cover version, which is completely absurd," said Nicholas Economides, a professor at New York University's Stern School of Business.
If the facts are as Justice says, it's a "fairly conventional price fixing case," Hovenkamp said.
And if so, it's odd such companies would have conspired on something that looks on its face to be illegal, Economides says.