Tuesday, May 15, 2012

News: Developments in the E-Book Pricing Lawsuits and Further Thoughts

There were new developments on Friday in the ongoing legal disputes over agency pricing. (If you don’t know the background of this dispute, see my post from last month here.) Sixteen states and the District of Columbia DC joined the fifteen states (and Puerto Rico) already accusing publishers of overcharging customers under the agency model. They also filed an amended complaint. (For those interested, that can be found here.)

This lawsuit by the states is separate from the pending action brought by the Department of Justice. The DOJ suit accused publishers of collusion in the establishment of agency pricing, while not taking issue with the pricing scheme itself. In fact, there seems to be a solid argument that under a 2007 Supreme Court decision, the agency pricing model is not illegal at all. (See information on the case Leegin, in my post from March anticipating the DOJ’s actions.) It is important to note that in the settlements signed by HarperCollins, Hachette and Simon & Schuster shortly after the DOJ’s suit was filed last month, none of the companies had to pay any fines or restitution.

The original lawsuit by the states was filed the same day as the DOJ suit, and the same companies which settled with the DOJ also settled with the states. In the case of the state’s suit, the companies did pay fines and restitution. As it stands right now, two publishers—Penguin and Macmillan—along with Apple are fighting both the federal and the state lawsuits. 

From what I can tell, the companies may have an easier time beating back the state lawsuit. By accusing the companies of overcharging, the states are taking on the agency model itself, something that the DOJ chose not to do, possibly because of the precedent of Leegin.  Although, I am not fully informed on the legal definitions, the issue of collusion in the establishment of agency pricing, brought by the DOJ, seems to be an easier argument to win. Yet, in some ways, the collusion and overcharging arguments are bound together.  With amendments to their lawsuit yesterday, the states made public previously redacted information. The information seems to show that higher prices were the desired effect of agency pricing. There are some excerpts in this article from PaidContent, including an excerpt of a communication from Steve Jobs.

The communication from Jobs seems to shows that, in the publisher’s negotiations with Apple, both were trying to raise the price of e-books above the $9.99 price point that had been established by Amazon as the standard. (For hardcovers with a price range of $25.01-27.50, which represents most fiction, the suggested e-book price was $12.99.) Some might see that as a clear case of overcharging, but price doesn’t tell the whole story. When Amazon was charging $9.99, it was buying e-books under the wholesale model.  Furthermore, the $9.99 price point was likely a loss-leading price point. Publishers did not want Amazon to become essentially the “only” retailer for e-books through their ability to discount. Such power would allow Amazon to negotiate better terms for all books with publishers, leading to less revenue and eventually less ability to development content. Publishers were looking for a way to expand the number of retailers who could sell e-books, and to temper the power of Amazon. Apple was not willing to take a loss to match Amazon’s $9.99 price, and thus Apple and the publishers felt that agency pricing necessitated higher prices. If agency pricing itself is legal, which it seems to be, then higher prices under agency pricing should be legal as well. The only problem is if the agency model was established through collusion. 

This will likely be a lengthy process and I look forward to covering the issue more. This is a complicated issue and I make no claims to have gotten everything right. I welcome your comments.

No comments:

Post a Comment