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April 11, 2012

Miller Alleges U.S. Publishers Violate Antitrust Laws, E-Book Price-Fixing

(DES MOINES, Iowa)  Attorney General Tom Miller and 15 state attorneys general today alleged that three of the nation’s largest book publishers and Apple Inc. colluded to fix the sales prices of electronic books, or e-books.  The states’ antitrust case, which was filed in federal court in Austin, Texas, cites the defendants for violating the states’ antitrust laws and the federal Sherman Antitrust Act.

“We’re alleging that these publishers deliberately manipulated e-book prices.  That means consumers paid more than they should have, and that’s against the law,” Miller said.

The states' antitrust action stems from a two-year investigation, led by the Texas Office of the Attorney General and coordinated with the offices of the Connecticut Attorney General and the U.S. Department of Justice, into allegations that the defendants conspired to raise e-book prices.

For years, retailers sold e-books through a traditional wholesale distribution model, under which retailers – not publishers – set e-books’ sales prices. However, the investigation revealed that Penguin, Simon & Schuster and Macmillan conspired with other publishers and Apple to artificially raise prices by imposing a distribution model in which the publishers set the prices for bestsellers at $12.99 and $14.99.

When Apple prepared to enter the e-book market, the publishers and Apple agreed to adopt an agency distribution model as a mechanism to allow them to fix prices. To enforce their price-fixing scheme, the publishers and Apple relied on contract terms that forced all e-book outlets to sell their products at the same price.  Because the publishers agreed to use the same prices, retail price competition was eliminated.  According to the states’ enforcement action, the coordinated agreement to fix prices resulted in e-book customers paying more than $100 million in overcharges.

“By colluding to use the agency distribution model to effectively eliminate free market competition and allowing publishers – rather than the marketplace – to set the price of e-books, we allege that these practices violated antitrust laws, hurt competition and cost customers more money,” Miller said.

The states’ antitrust action seeks injunctive relief to reverse the effects of the defendants’ anti-competitive conduct as well as damages for customers who paid artificially inflated prices for e-books.

The states have reached an agreement in principle with Harper Collins and Hachette to provide $52 million dollars in nationwide consumer restitution and injunctive relief.

Iowa was joined in today’s enforcement action by attorneys general in Connecticut, Alaska, Arizona, Colorado, Illinois, Maryland, Missouri, Ohio, Pennsylvania, Puerto Rico, South Dakota, Tennessee, Texas, Vermont and West Virginia.

Defendants named in the States’ antitrust action:

  • Macmillan
  • Simon & Schuster
  • Penguin Group
  • Apple Inc.

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