View full sizeA digital book is displayed on an Apple iPad. Apple Inc. and book publishers Hachette, HarperCollns, Macmillan, Penguin and Simon & Schuster were accused by the U.S. Justice Department of conspiring to fix prices of digital books.At private dinners in some of Manhattan’s finest restaurants, senior executives of the country’s biggest book publishers met to commiserate about their rapidly changing industry.
Also on the menu: colluding with Apple to raise e-book prices that cost customers more than $100 million by charging an extra $3 to $5 per book, the U.S. Department of Justice charged Wednesday in an antitrust lawsuit. The publishing houses are Hachette, HarperCollins, Macmillan, Penguin and Simon & Schuster.
Executives allegedly met several times starting in September 2008, including at the Chef’s Wine Cellar at Picholine near Lincoln Center, to discuss how they could work together and eliminate competition among retailers, according to the government. They were desperate to get Amazon.com, which makes the Kindle e-book reader, to raise its $9.99 price for new releases and best-sellers because it was so much lower than hardcover prices, according to the suit.
Apple allegedly began working with the publishers in late 2009 and early 2010 as it was about to launch its iPad and "shared the same goal of restraining retail price competition in the sale of e-books," the lawsuit said. The government said the conspirators agreed that instead of selling their books to retailers and letting them decide what price to charge, the publishers would use the "agency model." That meant the retailers could sell the books, but not alter the publisher’s set retail price — generally $12.99 or $14.99. The scheme called for Apple to be guaranteed a 30-percent commission on each e-book sold, the lawsuit said.
Steve Jobs, the late Apple CEO, described his company’s strategy for negotiating with the publishers as, "We’ll go to (an) agency model, where you set the price, and we get our 30 percent and yes, the customer pays a little more, but that’s what you want anyway," according to the suit.
The government’s lawsuit detailed regular communications between executives, pointing to phone records and emails with instructions to "double delete" the messages so as not to leave a paper trail while they discussed "sensitive information and assurances of solidarity."
Three of the book houses — Hachette, HarperCollins and Simon & Schuster — agreed to a proposed settlement Wednesday that would require them to allow retailers to set their own e-book prices and terminate anticompetitive agreements with Apple, Attorney General Eric Holder said. The lawsuit against Apple, Macmillan and Penguin will go forward in federal court in New York.
Macmillan Chief Executive Officer John Sargent said in a letter to authors, illustrators and agents that the company has not settled because it is "hard to settle a lawsuit when you know you have done no wrong."
"Macmillan did not act illegally. Macmillan did not collude," he said.
Apple did not immediately respond to a request for comment.
Apple’s iBookstore has yet to become a major force, but publishers believes the new price model has reduced Amazon’s market share from around 90 percent to around 60 percent, with Barnes & Noble’s Nook in second at 25 percent. The iBookstore is believed to have 10 percent to 15 percent.
Some consumers may receive restitution, including those in Connecticut and Texas, which were part of the lawsuit. Hachette and HarperCollins agreed to provide $52 million to consumers, using a formula based on the number of states participating and the number of e-books sold in each state. Other states in the case may sign onto the agreement.
Readers frustrated by the price of e-books are increasingly "borrowing" copies from their local library for their Kindles or iPads, local librarians said. Patrons can download the e-book, which automatically expires after a set amount of time and becomes available for the next reader.
At the Summit Free Public Library, the number of e-books that patrons download has increased to about 25 items a day from 1 to 2 times a day when the program first started in January 2011, assistant director Alexandria Arnold said.
"We have heard repeatedly from people that they were really surprised that they had to spend so much money on e-books once they got their reader," said Arnold, who coordinates the library’s e-book program. "Our e-book circulation has been increasingly steadily over the last 16 months — yes, absolutely."
The Associated Press contributed to this report.