Department of Justice Spells Out Agency Pricing Plan in Opening Statement

In its opening statement today in U.S. vs. Apple et al, the highly anticipated ebook price-fixing antitrust trial, the Department of Justice laid out in detail how it believes Apple orchestrated a plan among the largest U.S. publishers to raise the price of ebooks.

A slick Powerpoint presentation used during the proceedings contain dozens of company emails between Apple vice president for Internet services, Eddy Cue, and senior executives from Hachette, HarperCollins, Macmillan, Penguin, Random House and Simon & Schuster. The government’s case hinges around proving that Apple acted as a hub for the publishers to communicate and conspire.

doj timeline

According to the Department of Justice, in late 2009, Apple began meeting with publishers about the iPad and its new ebook business. By the beginning of 2010, Apple had discussed the terms of the new agency agreements for selling ebooks and had sent publishers the agreements for review, with a late January deadline for signing them. By January 26, all of the publishers had signed the agreements, which, in effect, meant that prices of ebooks went up for many consumers.

ebook prices

The government also attempted to show that for the publishers — and for Apple — much of the impetus for going on the agency model was to break Amazon’s $9.99 pricing for ebooks. The first several slides were excerpts from Steve Jobs by Walter Isaacson, emails from Cue to Steve Jobs and internal publisher emails that discussed $9.99 pricing. According to an email from Cue to Jobs, publishers don’t “like” and are “unhappy” with that price point. In less convincing emails within publishers, Hachette’s former head of digital business development wrote to her senior leadership team that Apple believes the agency model is “the best chance for publishers to challenge the $9.99 price point.” In a similar email from Madeline McIntosh, Random House’s head of sales, operations and digital at the time, she wrote that Apple had come up with a plan to move off the $9.99 price point — agency pricing.

The government later attempted to show that the publishers were deliberately acting together. The DOJ displayed a chart of phone calls between the CEOs of the defendant publishers while the agency deals between Apple and the publishers were being negotiated.

publisher phone calls

The DOJ also showed emails from Macmillan CEO John Sargent and Penguin CEO David Shanks suggesting that they would not sign onto the new way of selling ebooks without the other publishers. For instance, on Friday, January 22, Shanks wrote to Cue, “My orders from London. You must have the fourth major or we can’t be in the announcement.”

In the final slide of the opening statement presentation, the government showed an email from Shanks saying that if he met with his competitors and a retailer, “the government would be all over that.”

While many book publishing industry observers believe that the Department of Justice is going after publishers and Apple at the behest of Amazon, many antitrust attorneys see an open and shut case in the favor of the DOJ.


One thought on “Department of Justice Spells Out Agency Pricing Plan in Opening Statement

  1. Theresa M. Moore

    The chart is missing some critical data: the average price of an ebook sold on Amazon. Without that, one cannot possibly argue that the decision to raise the price harms anyone, and the only entity harmed by raising prices is Amazon. Since time immemorial, it has always been the practice for a retailer to set a high price to begin with, then lower it slowly until the item is sold above cost. You are also faced with comparing your price for an outright sale to a licensing fee with DRM. Amazon has consistently bucked economic tradition by being willing to undercut everyone in price no matter how much that undercut hurts its bottom line. This in turn hurts suppliers of the content, who earn less per unit and do not benefit from the lower price. Maybe the DoJ should look at Amazon for the blame for this suit, which would never have materialized in the first place if the publishers decided to undercut Amazon.



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