eBook Pricing Becomes the Never Ending Story

If you thought the e-book pricing controversy was over, think again. Apple and major publishers, former partners in what was judged an unlawful price-fixing deal, have now fallen out over the proposed punishment for Apple.

To give the Cliff’s Notes version of events we’ve covered several times, once upon a time the likes of Amazon used the “traditional” model for eBook pricing: the publisher sets a wholesale price, then the retailer sets a retail price and pockets the difference (or uses a loss-leader.) Apple preferred the “agency model”: the publisher sets the retail price and the retailer takes a fixed percentage.

The publishers banded together and told Amazon they would cut off supplies unless it switched to the agency model (which it reluctantly did.) The government said this was unfair collusion and reached settlements with the publishers. Apple refused to reach a settlement and the case went to trial where the government won, successfully branding Apple as the ringleader of the collusion.

Although both the government settlements with the publishers and the court-ordered punishment of Apple each contain several measures, it’s the agency model that is causing the new dispute.

In the settlements, the publishers agreed they would not use the agency model for any new deals signed up until 2015. However, the court ruling says Apple must immediately scrap all existing e-book deals and negotiate new ones.

According to the publishers, that creates an unfair combined effect because, thanks to their own settlement, the new deals Apple will strike with the publishers can’t be under the agency model (something they’d prefer to use.) They believe this means they are effectively getting a harsher punishment than they had originally agreed as fair with regulators:

The provisions do not impose any limitation on Apple’s pricing behavior at all; rather, under the guise of punishing Apple, they effectively punish the settling defendants by prohibiting agreements with Apple using an agency model

Despite achieving their stated goal of returning price competition, Plaintiffs now seek to improperly impose additional, unwarranted restrictions on the Settling Defendants, thereby depriving each publisher of the benefit of its bargain with Plaintiffs

Both the publishers and Apple have now formally objected to the court order. Apple is also unhappy with the order’s other measures, which include Apple setting up a specialist department to check it doesn’t breach other anti-trust rules in the next five years, and book publishers being allowed to set up iOS apps that link directly to their own e-book stores.

The court will hear both sets of objections tomorrow (Friday) but will have the final say on the order.

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