The ending has yet to be written in the U.S. Justice Department’s antitrust case against Apple and two of its e-book publishing partners, Macmillan and Penguin, but based on court documents filed on Wednesday and the Justice Department’s previous work under the Obama Administration, there are a few likely outcomes.
The most certain of these: The entire “agency model” of e-book publishing, which sees publishers setting in advance the final retail price of e-books sold through online outlets like Amazon’s Kindle e-bookstore and Apple’s iBookstore, will be severely hampered by the lawsuit.
“The industry put a lot of effort into, and cared a great deal about, moving e-books toward an agency model,” said Spencer Waller, a professor of antitrust law at Loyola University in Chicago and former Justice Department antitrust lawyer, who spoke TPM about the Apple case in a phone interview. Waller is not affiliated with the case nor with any of its parties.
The “agency model” differs from the “wholesale model” that publishers commonly use for selling books, doing so in bulk to retailers at a set price, and then allowing retailers to charge whatever they wish to readers.
The government’s antitrust case against Apple and five publishing companies — Hachette, HarperCollins, Macmillan, Penguin and Simon & Schuster, three of which, Hachette, HarperCollins and Simon & Schuster, have agreed to settle — alleges that the five companies originally colluded with Apple to shift the industry over to an agency model, charging a minimum $12.99 for new release e-books compared to the $9.99 Amazon was charging under its wholesale model.
Now, if the publishers had independently and individually set up their own agency models with retailers like Apple and Amazon, there would be no antitrust issues. It’s the fact that they colluded that drew the government’s ire.
As Waller explained: “This lawsuit and a private lawsuit threaten the ability for the publishing industry to continue in this [agency model] fashion.”
The “private lawsuit” that Waller refers to is a class-action filed in California in August against Apple and the five publishing companies on behalf of all e-book customers in August, seeking “tens of millions” in damages.
The lead attorney representing consumers in that case, Steve Berman of the law firm Hagens Berman, released a statement in the wake of the Justice Department’s lawsuit filing on Wednesday, championing the government’s move but underlining the importance of the private suit.
“While Attorney General Holder’s actions, if successful, will put an end to the anticompetitive actions, our class-action is designed to pry the ill-gotten profits from Apple and the publishers and return them to consumers,” Berman said.
Apple, Penguin and Macmillan still have a chance to reach a settlement with the government at any point during the case. But Waller further explained to TPM that if Apple, Penguin and Macmillan decline to reach a settlement with the government and fight it out in court, and if they lose, then the private lawsuit will get a boost.
“Even in a civil case, if the government wins, it’s prima facie evidence for any private party,” Waller told TPM. “If the government were to prevail in court, it would be very helpful for the plaintiffs.”
That said, the case isn’t as bad as it couldn’t have been, nor is it unique.
The Justice Department could have charged Apple and publishers will criminal violations, but it declined to do so, pursuing a civil case that seeks next-to-nothing (for the large companies, at least) in the way of damages (only a few million dollars for the expenses of filing the case, according to Waller).
“This case isn’t unique but it’s important,” Waller told TPM. “It’s not unprecedented because this administration has pursued more civil, Sherman Act antitrust cases than its predecessors.”
Waller gave several examples of the Obama Administration’s increased focus on pursuing alleged antitrust violations across various industries, including the healthcare industry in the case of the government’s 2010 lawsuit against Blue Cross and Blue Shield of Michigan (recently upheld), and a 2009 Justice Department probe of Silicon Valley over alleged “anti-poaching” or anti-recruiting agreements between major tech companies like Google, Apple and Intel, which ended in a settlement.