Published: August 09, 2011
Hagens Berman Files Class-Action Lawsuit Against Apple and Publishers
SAN FRANCISCO - (BUSINESS WIRE) - Hagens Berman, a consumer rights class-action law firm, today announced
it has filed a nationwide class-action lawsuit claiming that Apple Inc.
(NASDAQ:AAPL) and five of the nation's top publishers, including
HarperCollins Publishers, a subsidiary of News Corporation
(NASDAQ:NWSA), Hachette Book Group, Macmillan Publishers, Penguin Group
Inc., a subsidiary of Pearson PLC (NYSE:PSO), and Simon & Schuster Inc.,
a subsidiary of CBS (NYSE:CBS), illegally fix prices of electronic
books, also known as e-books.
Filed in the U.S. District Court for the Northern District of
California, the lawsuit alleges that the publishers and Apple colluded
to increase prices for popular e-book titles to boost profits and force
e-book rival Amazon to abandon its pro-consumer discount pricing.
According to the suit, publishers believed that Amazon's wildly popular
Kindle e-reader device and the company's discounted pricing for e-books
would increase the adoption of e-books, and feared Amazon's discounted
pricing structure would permanently set consumer expectations for lower
prices, even for other e-reader devices.
"Fortunately for the publishers, they had a co-conspirator as terrified
as they were over Amazon's popularity and pricing structure, and that
was Apple," said Steve Berman, attorney representing consumers and
founding partner of Hagen Berman. "We intend to prove that Apple needed
a way to neutralize Amazon's Kindle before its popularity could
challenge the upcoming introduction of the iPad, a device Apple intended
to compete as an e-reader."
The complaint claims that the five publishing houses forced Amazon to
abandon its discount pricing and adhere to a new agency model, in which
publishers set prices and extinguished competition so that retailers
such as Amazon could no longer offer lower prices for e-books.
If Amazon attempted to sell e-books below the publisher-set levels, the
publishers would simply deny Amazon access to the title, the complaint
details. The defendant publishers control 85 percent of the most popular
fiction and non-fiction titles.
Berman noted that while Amazon derived profit from the sale of its
Kindle and related accessories, likely allowing the company to discount
e-books, Apple was steadfast in maintaining the 70/30 revenue split it
demanded with its App Store.
"Apple simply did not want to enter the e-book marketplace amid the
fierce competition it knew it would face from Amazon and its discounted
pricing," Berman added. "So instead of finding a way to out-compete
Amazon, they decided to choke off competition through this anti-consumer
scheme."
The complaint notes that Apple CEO Steve Jobs foreshadowed the
simultaneous switch to agency pricing and the demise of discount pricing
in an interview with The Wall Street Journal in early 2010. In
the interview, he was asked why consumers would buy books through Apple
at $14.99 while Amazon was selling the same book for $9.99. "The prices
will be the same," he stated.
While free market forces would dictate that e-books would
be cheaper than the hard-copy counterparts, considering lower production
and distribution costs, the complaint shows that as a result of the
agency model and alleged collusion, many e-books are more expensive than
their hard-copy counterparts.
"As a result of the pricing conspiracy, prices of e-books have exploded,
jumping as much as 50 percent," Berman said. "When an e-book version of
a best-seller costs close to - or even more than - its hard-copy
counterpart, it doesn't take a forensic economist to see that this is
evidence of market manipulation."
Berman pointed out that The Kite Runner, for example, costs
$12.99 as an e-book and only $8.82 as a paperback.
"What is most loathsome about the behavior of Apple and the publishers
is that it is stifling the power of innovation, the very thing Apple
purports to champion," Berman added. "A few big-business heavyweights
are taking a powerful advancement of technology that would benefit
consumers and suffocating it to protect profit margins and market share."
According to the lawsuit, Apple and publishers were concerned that
Amazon's $9.99 uniform pricing for bestsellers would create market
pressures for other e-booksellers - including Apple - to do the same,
cutting into profitability.
The lawsuit goes on to claim that because no publisher could
unilaterally raise prices without losing sales, they coordinated their
activities, with the help of Apple, in an effort to slow the growth of
Amazon's e-book market and to increase their profit margin on each
e-book sold.
The lawsuit claims Apple and the publishers are in violation of a
variety of federal and state antitrust laws, the Sherman Act, the
Cartwright Act, and the Unfair Competition Act.
The named plaintiffs, Anthony Petru, a resident of Oakland, California,
and Marcus Mathis, a resident of Natchez, Mississippi, each purchased at
least one e-book at a price above $9.99 after the adoption of the agency
pricing model.
Once approved, the lawsuit would represent any purchaser of an e-book
published by a major publisher after the adoption of the agency model by
that publisher.
The lawsuit seeks damages for the purchase of e-books, an injunction
against pricing e-books with the agency model and forfeiture of the
illegal profits received by the defendants as a result of their
anticompetitive conduct, which could total tens of millions of dollars.
Hagens Berman invites potential plaintiffs to contact the office at ebooks@hbsslaw.com
or by phone at 206-623-7292.
You can learn more about this case by visiting www.hbsslaw.com/ebooks.
About Hagens Berman
Seattle-based Hagens Berman Sobol Shapiro LLP represents whistleblowers,
investors and consumers in complex litigation. The firm has offices in
Boston, Chicago, Colorado Springs, Los Angeles, Phoenix, San Francisco
and Washington, D.C. Founded in 1993, HBSS continues to successfully
fight for investor rights in large, complex litigation. More about the
law firm and its successes can be found at www.hbsslaw.com.
Visit the firm's class-action law blog at www.classactionlawtoday.com.
Firmani + Associates Inc.
Mark Firmani, 206-443-9357
mark@firmani.com
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