Concerned about Amazon.com’s low pricing of ebooks, publishers had taken measures as early as 2009 such as “windowing,” a practice of delaying ebook releases to benefit sales of hardcover editions, Apple said in a filing in an ebook price-fixing lawsuit.
The U.S. Department of Justice in an antitrust lawsuit in April last year alleged that Apple and five publishers had conspired to raise ebook prices.
The publishers had also pursued in 2009 an agency model to sell ebooks where the publisher would set the price or a price range for each ebook and the retailer, acting as an agent, would receive a commission on each ebook sale, and also discussed raising wholesale prices of ebooks, Apple said in the filing before the U.S. District Court for the Southern District of New York.
Into this environment, Apple stepped in to negotiate with publishers to set up its own iBooks ebook store. It favored an agency model that gave it 30 percent commission, as the agency model had helped the company in its App Store, where the developer fixed the consumer price.
Apple engaged in “individual, one-on-one, and at times contentious negotiations” over the draft contracts with each publisher throughout January 2010, it said in the filing.
Hachette, for example, resisted Apple’s across-the-board prohibition on windowing. Hachette believed that it was important to retain all of its available tools to respond to the changing market conditions, including the ability to window, according to Apple’s filing.
Apple had just over two weeks until former CEO Steve Jobs publically unveiled the iPad on Jan. 27, 2010 to complete its initial content deals. By Jan. 22, four major publishers—Hachette, Macmillan, Penguin, and Simon & Schuster—had separately agreed to Apple’s terms.
Random House, which joined Apple’s ebook store one year later, in February 2011, had objected to the agency agreement in January 2010, while HarperCollins also objected to many of Apple’s terms including 30 percent agency commission, believing it too high, according to the filing.
Apple did not enter into or facilitate a conspiracy to eliminate price competition or raise prices in the ebook industry, the company said in the filing made public on the court website on Tuesday.
After the lawsuit was filed, Apple learned for the first time about allegations relating to various publisher meetings, phone calls, and dinners, it added.
Apple and the five publishers were accused of working together to raise prices of ebooks, in retaliation for competitor Amazon.com pricing most ebooks at $9.99 beginning in late 2007.
Defendants exercised their market power when they collectively increased the average price of trade ebooks, DOJ said in a filing on Tuesday. Average prices of trade ebooks sold by the defending publishers increased by 18.6 percent at Amazon and by 19.9 percent at Barnes & Noble through the transition to agency.
Apple counters that trade ebook prices came down after the agreements with the publishers. “The average retail price of ebooks in the alleged relevant market, trade ebooks, has decreased since the implementation of Apple’s first agency agreements on April 1, 2010,” it said in its filing.
The publishers who are defendants in the case have since settled with the DOJ.