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Sam Costello

iPod Minis: DOJ Sues Apple, Stolen Phone Tracking, AT&T Unlocks Phones

By April 12, 2012

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After weeks of rumors that it would happen, the U.S. Dept. of Justice yesterday sued Apple and five major publishers, alleging price fixing in the ebook market. While the evidence included in the complaint is substantial, the crux of the issue is the so-called agency model, by which publishers set the prices for their ebooks and retailers like Amazon or Apple have to honor those prices. The agency model was introduced around the time of the iBookstore, since the publishers then had a partner with enough leverage that they could force Amazon to raise the $9.99 price it was charging for bestsellers. Many ebooks from big publishers have since risen in price to $12.99-$14.99.

The Verge has the best overview of the suit and the evidence that I've seen. On its face, and with the evidence included in the complaint, things don't look good for the defendants (especially the internal discussions Apple reportedly had about dividing the digital content market to let Amazon have books, while it would keep audio and video), but there are miles to go before this case sleeps.

Three publishers--HarperCollins, Simon & Schuster and Hachette--have already settled with the DOJ. EBook sellers will reportedly now be able to set prices on those publishers' books as they see fit. Apple, MacMillan, and Penguin have not settled.

It's hard to know where to come down on this. It's true that by adopting the agency model, Apple and the publishers have raised ebook prices. Those increases aren't substantial--remember, we're talking about an increase from $9.99 to $12.99 or $14.99--but they're nevertheless real.

On the other hand, the introduction of the iPad/iBookstore/agency model combination broke what was shaping up to be a monopoly position for Amazon in the ebook space (or maybe, maybe, a duopoly for Amazon and Barnes & Noble), and we know that the DOJ doesn't look kindly on monopolies. Amazon was achieving that monopoly by using its huge market present and deep pockets to sell its most popular ebooks at a loss, thereby undercutting any business that couldn't afford to do the same (i.e., most). The DOJ's suit grants Amazon the freedom to return to that practice--a practice that results in lower prices for consumers, but may drive competitors out of business and drive job losses at both competitors and publishers.

It's hard to see a really good outcome here, no matter the result of the suit. And given that, it's a bit hard to understand that DOJ's motivation. Is the cost of popular ebooks rising a few dollars really the most important legal issue facing the U.S. economy right now?

In other news:

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