Is Apple to be the Subject of an Anti-Trust Lawsuit?
There has been talk about anti-trust proceedings against Google for sometime, with claims that their promotion of Google+ has been anti-competitive.
Reports in Bloomberg today however reveal that Apple could be entering the crosshairs of US legislators over their pricing of ebooks.
Apple, together with publishers Hachette SA, HarperCollins, Macmillan, Penguin and Simon & Schuster are being sued for allegedely fixing the price of ebooks.
Simon & Schuster, Hachette and Harper Collins are believed to have settled their suits, but neither Apple or Macmillan have entered settlement talks with the Justice Department yet.
They are set to argue that pricing agreements between Apple and the publishers actually improved competition in the sector, which has thus far been dominated by Amazon.
They want to protect the so called agency model, whereby publishers rather than vendors set the price of ebooks. The government in contrast want to return to a wholesale model, whereby retailers buy the books from publishers and can then charge what they like in their stores.
Also under discussion is the so called favored nation clause that Apple inserts into contracts with publishers. This forces publishers to offer Apple the lowest price on the market.
Consumers and competition could be hurt if several companies sign contracts that refer to prices charged to rivals even if those firms aren’t dominant, said Fiona Scott-Morton, a Justice Department economist, in an April 5 speech in Washington, signaling the antitrust division’s thinking on the issue of most-favored-nation clauses.
At stake is a rapidly expanding market for ebooks that rose 117% in 2011 to almost $1 billion. Due to the lack of physical costs, ebooks generally generate a much higher profit margin for retailers and publishers.
When Apple came out with the iPad in 2010, it let publishers set their own prices for e-books as long as it got a 30 percent cut and the publishers agreed to offer their lowest prices through Apple. This agency model overtook Amazon’s practice of buying books at a discount from publishers and then setting its own price for e-reader devices.