Hagens Berman, a consumer rights class-action law firm, today
announced it has filed a nationwide class-action lawsuit claiming
that Apple Inc. (NASDAQ:AAPL) and five of the nation’s top
publishers, including HarperCollins Publishers, a subsidiary of
News Corporation (NASDAQ:NWSA), Hachette Book Group, Macmillan
Publishers, Penguin Group Inc., a subsidiary of Pearson PLC
(NYSE:PSO), and Simon & Schuster Inc., a subsidiary of CBS
(NYSE:CBS), illegally fix prices of electronic books, also known as
e-books.
Filed in the U.S. District Court for the Northern District of
California, the lawsuit alleges that the publishers and Apple
colluded to increase prices for popular e-book titles to boost
profits and force e-book rival Amazon to abandon its pro-consumer
discount pricing.
According to the suit, publishers believed that Amazon’s wildly
popular Kindle e-reader device and the company’s discounted pricing
for e-books would increase the adoption of e-books, and feared
Amazon’s discounted pricing structure would permanently set
consumer expectations for lower prices, even for other e-reader
devices.
“Fortunately for the publishers, they had a co-conspirator as
terrified as they were over Amazon’s popularity and pricing
structure, and that was Apple,” said Steve Berman, attorney
representing consumers and founding partner of Hagen Berman. “We
intend to prove that Apple needed a way to neutralize Amazon’s
Kindle before its popularity could challenge the upcoming
introduction of the iPad, a device Apple intended to compete as an
e-reader.”
The complaint claims that the five publishing houses forced
Amazon to abandon its discount pricing and adhere to a new agency
model, in which publishers set prices and extinguished competition
so that retailers such as Amazon could no longer offer lower prices
for e-books.
If Amazon attempted to sell e-books below the publisher-set
levels, the publishers would simply deny Amazon access to the
title, the complaint details. The defendant publishers control 85
percent of the most popular fiction and non-fiction titles.
Berman noted that while Amazon derived profit from the sale of
its Kindle and related accessories, likely allowing the company to
discount e-books, Apple was steadfast in maintaining the 70/30
revenue split it demanded with its App Store.
“Apple simply did not want to enter the e-book marketplace amid
the fierce competition it knew it would face from Amazon and its
discounted pricing,” Berman added. “So instead of finding a way to
out-compete Amazon, they decided to choke off competition through
this anti-consumer scheme.”
The complaint notes that Apple CEO Steve Jobs foreshadowed the
simultaneous switch to agency pricing and the demise of discount
pricing in an interview with The Wall Street Journal in early 2010.
In the interview, he was asked why consumers would buy books
through Apple at $14.99 while Amazon was selling the same book for
$9.99. “The prices will be the same,” he stated.
While free market forces would dictate that e-books would be
cheaper than the hard-copy counterparts, considering lower
production and distribution costs, the complaint shows that as a
result of the agency model and alleged collusion, many e-books are
more expensive than their hard-copy counterparts.
“As a result of the pricing conspiracy, prices of e-books have
exploded, jumping as much as 50 percent,” Berman said. “When an
e-book version of a best-seller costs close to – or even more than
– its hard-copy counterpart, it doesn’t take a forensic economist
to see that this is evidence of market manipulation.”
Berman pointed out that The Kite Runner, for example, costs
$12.99 as an e-book and only $8.82 as a paperback.
“What is most loathsome about the behavior of Apple and the
publishers is that it is stifling the power of innovation, the very
thing Apple purports to champion,” Berman added. “A few
big-business heavyweights are taking a powerful advancement of
technology that would benefit consumers and suffocating it to
protect profit margins and market share.”
According to the lawsuit, Apple and publishers were concerned
that Amazon’s $9.99 uniform pricing for bestsellers would create
market pressures for other e-booksellers – including Apple – to do
the same, cutting into profitability.
The lawsuit goes on to claim that because no publisher could
unilaterally raise prices without losing sales, they coordinated
their activities, with the help of Apple, in an effort to slow the
growth of Amazon’s e-book market and to increase their profit
margin on each e-book sold.
The lawsuit claims Apple and the publishers are in violation of
a variety of federal and state antitrust laws, the Sherman Act, the
Cartwright Act, and the Unfair Competition Act.
The named plaintiffs, Anthony Petru, a resident of Oakland,
California, and Marcus Mathis, a resident of Natchez, Mississippi,
each purchased at least one e-book at a price above $9.99 after the
adoption of the agency pricing model.
Once approved, the lawsuit would represent any purchaser of an
e-book published by a major publisher after the adoption of the
agency model by that publisher.
The lawsuit seeks damages for the purchase of e-books, an
injunction against pricing e-books with the agency model and
forfeiture of the illegal profits received by the defendants as a
result of their anticompetitive conduct, which could total tens of
millions of dollars.
Hagens Berman invites potential plaintiffs to contact the office
at ebooks@hbsslaw.com or by phone at 206-623-7292.
You can learn more about this case by visiting
www.hbsslaw.com/ebooks.
About Hagens Berman
Seattle-based Hagens Berman Sobol Shapiro LLP represents
whistleblowers, investors and consumers in complex litigation. The
firm has offices in Boston, Chicago, Colorado Springs, Los Angeles,
Phoenix, San Francisco and Washington, D.C. Founded in 1993, HBSS
continues to successfully fight for investor rights in large,
complex litigation. More about the law firm and its successes can
be found at www.hbsslaw.com. Visit the firm’s class-action law blog
at www.classactionlawtoday.com.
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