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Upsetting the Apple Cart

The United States has filed suit against Apple Inc., Hachette SA, HarpperCollins, Penguin and Simon & Schuster in New York district court claiming the companies violated anti-trust laws by fixing e-book prices. Hachette, Simon & Schuster and HarperCollins have agreed to settle. Claims include that in 2009, top executives from the aforementioned companies conspired with Apple and allowed publishers to set their own prices.

This business model differed from the long standing "wholesale" one created by Amazon when it released the Kindle in 2007. At that time, Amazon began selling some of the most sought-after books for $9.99 in the hopes of improving sales. Under the "wholesale model", publishers received one half the list price of their works. This left publishers well compensated while at the same time, powerless over price.

The birth of the IPad however, gave publishers the ability to renegotiate because Apple allowed them to set prices and receive a percentage of sales. Ironically, each publisher arrived at the same price, hence the price fixing charge.

What is price fixing? It is an agreement among competitors to set prices at which their goods or services are sold. Some forms include, establishing or adhering to price discounts, adopting a standard formula for computing prices and holding prices firm.

The government's complaint, filed April 11, 2012 alleges violations of the Sherman Anti-Trust Act. Specifically, Section 1 of the Act. The complaint, in pertinent part, reads "together Apple and the Publisher Defendants reached an agreement whereby retail price competition would cease (which all of the conspirators desired), retail e-books would increase significantly (which Publisher Defendants desired), and Apple would be guaranteed a 30 percent "commission" on each e-book it sold (which Apple desired)." The complaint is filled with accusations of clandestine meetings between publisher representatives and Apple CEO's resulting in one of the most intricate conspiracies of our time. It is suspected that Apple and Penguin will follow suit and agree to settle as well.

- Stefanie L. DeMario, Esq.

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