Apple E-book Price-Fixing Trial Begins

An anonymous reader writes "Technology giant Apple is to begin its defence against charges by the US government that it tried to fix the prices of e-books. The iPad-maker is accused of working with publishers in 2009 to set prices in an effort to compete in the e-book market dominated by Amazon. Quotes from Steve Jobs' official biography have been cited as evidence in the case."

Re:cheaper books?

[Anonymous Coward]

No it's not, it's copyright infringement.

Re:Still confused

[Sockatume]

Apple's iBook publishing deals included a clause that no other eBook outlet could get a better price than Apple. So, yes, they were engaged in price-fixing that directly favoured them as a seller. In a wholesale bookselling model that's not quite so terrible - you can compete by eating into your margins - but in an agency model where the selling price is set by the publisher isn't allowed to be any lower than on iBooks, you're fucked.

Re:Still confused

[Sockatume]

You can, in principle, sell content through your app using the in-app-purchasing API*, but Apple has to get a 30% cut. Under most "agency model" ebook deals, the publisher gets 70% of the purchase price, leaving the retailer with zero. (This is why the only thirdparty content stores you'll find on the App Store are publisher outlets like Dark Horse, and not retailers/resellers.)

*The IAP API is horribly unsuitable for that purpose, but that seems rather moot.

Re:cheeper bookes?

[marsu_k]

I think the word you're looking for is "condone". Condoming an island country could prove to be extraordinarily difficult.

Re:Comments

[Daemonik]

" What I have trouble determining in this shift from physical media to digital is how the artists are making out in this brave new world."

A couple of artists that sell e-books direct through Amazon have become millionaires actually. http://blog.nathanbransford.com/2011/03/amanda-hocking-and-99-cent-kindle.html [nathanbransford.com]

The problem with e-book prices, in the main, is the perception of value. When they are listed next to the retail prices for the paperback version and it's still cheaper to have a paperback shipped to your home, then something is very very wrong. When the e-book version of a book that has been out of print for a decade or more hits the market for $9.99, you know that's not a fair price.

Re:Still confused

[Daemonik]

For non-agency titles (in other words, titles that Amazon purchases to sell under the wholesale model,) Amazon reserves the right to set and change the price as it sees fit, although it will still remit the same wholesale amount back to the publisher or author. If Amazon drops its price for a title below that of Apple or Barnes & Noble, even without the knowledge of the publisher or author, Apple and Barnes & Noble have the right to match Amazon's price.

Read that through again. The blogger you are sourcing is misrepresenting what a "Most Favored Nation" agreement is. When a retailer, such as Amazon, buys a product at wholesale, either a book or a pipe fitting, they have the right to set whatever price they wish for that item. If they're cutting into their own profit that doesn't matter and is not illegal, the manufacturer/distributor/publisher was paid their asking price. This is not a MFN clause, it's standard retail practice. Apple's deal changed that. Retailers could no longer set their own prices. If they didn't charge the price the publishers demanded then they would not be sold any books, and several publishers did withhold books from Amazon until they agreed to their scheme. They could no longer use pricing as a competitive tool against Apple, which is why Apple is in court and not Amazon.

Re:Still confused

[idunham]

Here's the situation:
Apple has an agreement with the publishers that says "No one is permitted to sell for less than this."
In other words, they tell potential ebook sellers "Sure you can try to compete, but don't think you can sell more / establish yourself / give consumers a better deal by selling at a lower price."
Now, here's the purpose of the Sherman Antitrust Act [wikipedia.org]:
"To protect the consumers by preventing arrangements designed, or which tend, to advance the cost of goods to the consumer."
Sounds pretty obvious that what Apple is doing is an example of what the Sherman Antitrust Act is about, doesn't it?
And here's how the law starts:

Every contract, combination in the form of trust or otherwise, or conspiracy, in restraint of trade or commerce among the several States, or with foreign nations, is hereby declared to be illegal.

http://books.google.com/books?id=biU3AAAAIAAJ&pg=PA209 [google.com]

Re:Still confused

[Daemonik]

Prior to Apple's arrangement with publishers, retailers like Amazon could buy e-books wholesale and offer whatever prices they chose. Apple colluded with the publishers to change from a wholesale to an agency model FORCING all other retailers to abide by agency terms and removing the wholesale option. Amazon tried to fight this and several publishers stopped selling books through Amazon until they caved, solely because of Apple's backing. If Apple hadn't supported the agency model and they hadn't colluded with the other publishers, none of them would have risked cutting off their largest customer, Amazon to strong-arm them into the new terms.

Re:Still confused

[Teun]

If Apple truly charges 'too much', then it is nothing but an opportunity for an enterprising individual to start a competing business and provide better prices.

And that's exactly the problem here, Apple's exclusive contract forbids the publishers to get into a deal with anyone else.

At least not at a competitive price.

Re:GIVE APPLE THE NEEDLE !!

[CMYKjunkie]

Printing Geek here: Paperback book would be roughly $0.01 or LESS per text page (depending on the run length of total copies) and $0.04 per cover. All of this includes binding and shipping. So, let's look at a 300 page paperback: about $3.10 per printed copy. Now, think of a large run book with text page cost at $0.005 or $0.0025 per page: ~$1.54 or ~$0.79 per copy. I think the lower range of prices is even more likely considering the junk paper stock and black ink only for paperbacks.

Keep in mind these cost are assuming domestic US production of books! I don't think I can pick up one of my kids books and not see "PRINTED IN CHINA" on the back.

Re:Still confused

[Anonymous Coward]

You're not getting it at all. Apple is accused of convincing the publishers to not ALLOW Amazon to sell the book to YOU for a lower price, not SELL the book to Amazon for a lower price. Amazon wanted the flexibility to lower the -retail- price to their customers, even if it meant eating into Amazon's own margins. Amazon could even sell the book for LESS than what the publisher charged and eat the loss, in order to gain market share. Retailers do this all the time (look up Loss Leaders). The accusation is that Apple and the Publishers 'conspired' to rob Amazon of this option. The publishers literally -set- the -retail- price Amazon was required to sell the book at (still leaving Amazon a profit I assume), but not giving Amazon any pricing flexibility.

Who do you think decides how much a can of Campbell's Soup costs at your local supermarket? NOT Campbell's. Each supermarket makes best wholesale deal with Campbell's it can for soup, but then decides for ITSELF what today's price on the shelves will be. Different supermarkets set their prices (and therefore their margins) based on what they think will earn them the most profit over all. This is normal commercial practice. The 'agency model' subverts that kind of competition.

http://www.macstories.net/stories/understanding-the-agency-model-and-the-dojs-allegations-against-apple-and-those-publishers/ [macstories.net]

Re:Purchasers.

[Thruen]

Funny story, this is completely wrong. I've seen everyone saying that's how it works in comments, but if you actually look into what they're being accused of, this isn't it. You could still set your own prices to whatever you like, but after doing so Apple will lower their prices. The thing that apparently makes this non-competitive is that Apple still gets their 30% instead of taking the cut that you would have to in order to sell the book for less. From all of the actual facts I've been able to find, other retailers could still actually set whatever price they wanted. Of course, you could only find this out by actually reading whole articles, which apparently nobody does because at the end of articles explaining this, readers still claim it's what you describe. It's kind of scarey how many people think they fully understand the case but have no idea what an MFN clause actually is or how Apple included it in their contract. Most people even assume a MFN clause is illegal, which isn't true unless it violates other laws, same as any other clause of a contract. Apple just took it from the usual wholesale system and applied it to the agency system they wanted to use, and this supposedly makes it illegal. Mind you, the most important piece of evidence in the case I've been able to find is a quote from Jobs' biography that doesn't admit to any wrongdoing or collusion at all, it only shows how they felt about Amazon's price model and what they wanted to do themselves.