As expected, the U.S. Department of Justice has filed a civil claim against Apple and a handful of e-book publishers including Hachette, Simon & Schuster, Penguin Group and HarperCollins, accusing the defendants of anti-competitive agreement in restraint of trade. You can read the whole filing here and very interesting it is indeed.
Recall what the basic complaint is. There are, in theory, two ways that you can sell something through the retail chain. You the producer decide upon the final price and then tell the retailers how much they can earn out of that total price. Or you can simply sell to the retailers and let them make their own determinations of that final price. The first is called the agency model (ie, the retailers are your agents) and the second the wholesale model.
Sure, under the wholesale model you can suggest what that final price should be, even print it on the product, but you cannot force people not to discount from it: you've sold the goods to them and they are theirs to price as they wish.
Books have traditionally been sold on the wholesale model and this is what Amazon was doing with e-books. Along came Apple and a new agreement with the publishers and they switched to the agency model and lo and behold, e-book prices went up.
That's roughly where we were until this claim was filed. But there's a problem with our immediately assuming that there's something wrong with what happened. Sure, maybe it was a cartel making prices rise. But that prices have risen does not prove the actions of a cartel.
For example, say that the $9.99 price point being established by Amazon wasn't in fact that perfect sweet spot that maximised profits for the publishers. If they're free to move to another pricing model (and there's nothing that says that agency pricing is in itself illegal or even dubious) which does get to that sweet spot of perhaps, just imagine, $12.99, then they'll all move to that profit maximising point, free market or cartel.
So, in order to show that the agency model with Apple is in fact either damaging or illegal then the government has to show that there has been conspiracy, an agreement to take uncompetitive collective action.
Which is exactly what the government says that it has proof of in this claim. It's always a mistake to judge a case purely on what the prosecution says about it so I'll not hazard a guess as to whether they have proven this. But it is very, umm, interesting reading if you know what I mean.
It's worth noting that agency models aren't really all that robust. They tend to need either legal support, laws that allow producers to insist upon it (as the UK had for many years with retail price maintenance and as I believe that France still does for books although I may be out of date there) or the sort of collusion alleged here. For it's always just too tempting for a new entrant into the market to move to a wholesale model and thus destroy the agency agreements' usefulness.
I'll not try to guess how this is going to play out in the US courts. But I would add one more thing. There is a very similar case being prepared in Europe, by the European Commission. Into the very sam
e point: possible collusion in a cartel in setting up the agency model for e-books. And if the EU finds that there has been such collusion in a cartel then they can fine the participating companies up to 10% of their global turnover.
Note, while in practice the fines tend to be related to revenues from the products that we colluded over, that's not what the actual limitation is. The limit is 10% of total global turnover. That's the sort of sum that would seriously hurt. It's possible that this is the largest uncertainty over Apple stock right now: how will this case play out and who, if anyone, is going to get fined how much?
My own impression, and it is just an impression not something I would like to try and have to prove, is that the US is perhaps more aggressive in chasing such behaviour, in uncovering it through the courts, while the EU tends to be more aggressive in publishing it once it is uncovered. And we can be absolutely certain that the EU will be looking at the evidence the US uncovers and that they'll be basing their own findings upon it.
