5 Comments

Summary:

New York, the District of Columbia and fifteen other states have joined the e-book pricing class action suit against Apple, Macmillan and Penguin, for a total of 31. The amended complaint reveals details that were previously redacted, including an e-mail from Steve Jobs.

Lawsuit legal gavel

New York, the District of Columbia and fifteen other states have joined the e-book pricing class action suit against Apple, Macmillan and Penguin, bringing the total number of states involved so far to 31 (if you include DC and Puerto Rico). The amended complaint, released Friday, reveals details that were previously redacted, including an e-mail from Steve Jobs.

The states’ class action suit, which was filed the same day as the Department of Justice’s lawsuit, alleges that Apple and book publishers conspired to set e-book prices. Unlike the DOJ, the states seek monetary restitution for consumers. (They have already reached a settlement with Hachette, Simon & Schuster and HarperCollins.)

The states’ amended complaint makes public information that was redacted from the version filed in April. (It’s not clear why the information was originally redacted.) Much of the now-public information is duplicated in the Department of Justice filing against Apple and publishers, but some of it is new, including an e-mail from Steve Jobs. Among the content previously redacted and now public:

Negotiating on Apple’s take: Macmillan CEO John Sargent attempted to negotiate with Apple’s Eddy Cue on a way to make agency pricing less painful for publishers (publishers actually make more money under the wholesale model, where they are paid based on a book’s retail list price, than from the agency model). On January 11, 2010, Sargent wrote to Apple in an e-mail, “Am thinking a possible way to ease the financial pain for the publishers and authors of moving to the agency model. Could you take a reduced cut on hardcover first releases (where we are presently making 14.00 in revenue and would make 9.00 under your assumptions)?” Apple did not agree to take less than its customary 30 percent cut.

Publisher e-mail: A “Conspiring Publisher executive” e-mailed his or her parent company’s CEO on January 21, 2010:

[Eddy Cue] … was eloquent on why they would be a great partner, that price could and would be experimented with as Apple want [sic] to drive high revenues; that this would be for a one year term; that one major publisher (clearly RH) was out and that ne [sic] need the five majors in but maybe four. He said that he was sure he would close on two today and two tomorrow. Amazon is in town being provocative and with, as Jeff Trachtenberg said to me this morning, ‘a swagger in their step’. I’m off to the AAP so will try and discover what is going on.”

Trachtenberg is the book publishing reporter at the Wall Street Journal. Amazon had just announced it would raise its royalty rate to 70 percent on many self-published titles.

Steve Jobs e-mail: In late January 2010, Steve Jobs became directly involved in the agency pricing negotiations “after Eddy Cue could not secure one of the Conspiring Publisher’s commitment directly from an executive.” Jobs “wrote to an executive at the parent company, in part”:

As I see it, [Conspiring Publisher] has the following choices:

1. Throw in with Apple and see if we can all make a go of this to create a real mainstream ebooks market at $12.99 and $14.99.

2. Keep going with Amazon at $9.99. You will make a bit more money in the short term, but in the medium term Amazon will tell you they will be paying you 70% of $9.99. They have shareholders too.

3. Hold back your books from Amazon. Without a way for customers to buy your ebooks, they will steal them. This will be the start of piracy and once started, there will be no stopping it. Trust me, I’ve seen this happen with my own eyes.

Maybe I’m missing something, but I don’t see any other alternatives. Do you?

Note that Jobs predicts that in the absence of credible competitors, Amazon would begin offering publishers less favorable terms.

Pricing tiers: Here’s how Apple calculated its e-book prices in publisher contracts:

E-mails to Barnes & Noble: Once five publishers and Apple had enacted agency pricing, the complaint says the five publishers “worked together to force” Random House to adopt it as well. On March 4, 2010, in an exchange also identified in the DOJ’s filing, Penguin CEO David Shanks sent Barnes & Noble’s then-CEO Steve Riggio an e-mail reading in part, “Random House has chosen to stay on their current model and will allow retailers to sell at whatever price they wish…I would hope that [Barnes & Noble] would be equally brutal to Publishers who have thrown in with your competition with obvious disdain for your welfare…I hope you make Random House hurt like Amazon is doing to people who are looking out for the overall welfare of the publishing industry.”

The state complaint additionally says that Shanks was trying to get Barnes & Noble to “stop any promotion or advertising of Random House titles,” and when Barnes & Noble continued to do so, “Shanks went back to Barnes & Noble again. Following this contact, Barnes & Noble’s management decided not to feature Random House in any future advertising.” I asked Barnes & Noble for a statement and a spokeswoman told me the company has no comment. (This is interesting but does not prove the states’ claim that all five publishers acted against Random House, since only one publisher is mentioned.)

“The Club”: In September 2009 as the publishers considered “windowing,” or staggering the print and digital releases of a book, they “referenced themselves in one email as ‘the Club!’” This was in reference to windowing discussions and not to agency pricing discussions with Apple.

The states’ amended complaint (5/11/12)
The states’ original complaint (4/11/12)
The Department of Justice’s complaint (4/11/12)

  1. Cospiracy to fix price is clear

    Share
  2. RH
    Competition is better.

    Share
  3. If these tidbits are the best the DoJ has, they will lose.

    Share
  4. David Thomas Tuesday, May 15, 2012

    This is such dramatic trash. It is perfectly normal for a client to play hardball with vendors — Amazon certainly does it all the time. When Sargent speaks of “publishers” you have to remember that his company is made up of 9 or so separate divisions, each referred to as a “publisher” and makes their own contracts, etc. Shanks is merely interested in gaining market share at Random’s expense: all publishing is a zero-sum game. The “fixed price” was Amazon’s $9.95 — subsidized by Amazon, and as Jobs is quoted saying above, “You will make a bit more money in the short term, but in the medium term Amazon will tell you they will be paying you 70% of $9.99. They have shareholders too.” So, golly gee, a set of separate corporations act in their own best interests for long term planning, and their scum? Resale price maintenance has been a function in the publishing industry for a long time. As I’ve said before, the states have more to gain for their constituents by focusing on collecting sales taxes from internet sales then they’ll ever recover through this suit. Is anyone so naive to think that State’s Attorney’s would never do anything for political expediency? The evidence and the price data don’t make their case.

    Share
    1. David, it’s a good point that a lot of this is business negotiations among people who know each other well. Also, as I noted above, e-mails from one publisher are not evidence of all five working together.

      As you note, it’s important to remember as you read these complaints that they are written by people who are arguing one position, choosing which e-mails to include, etc. That seems obvious, but it’s worth keeping in mind as you read both the publishers’ filings and the state and DOJ’s filings.

      Share

Comments have been disabled for this post