News

Apple and US publishers face agency lawsuit

Five US publishers and Apple have been named in a US lawsuit alleging the companies "illegally fix prices of electronic books" and that the five publishers "forced Amazon to abandon its discount pricing and adhere to a new agency model, in which publishers set prices".

US law firm Hagens Berman filed the suit in a San Francisco Federal Court against Apple, along with Hachette Book Group, HarperCollins, Macmillan, Penguin and Simon & Schuster, over the agency model of e-book pricing. The same firm is also investigating claims that several large e-book publishers are under-reporting the number of e-books sold, paying authors less than their share of royalties.

The named plaintiffs in the pricing suit, Anthony Petru, a resident of Oakland, California, and Marcus Mathis, a resident of Natchez, Mississippi, each purchased a least one e-book at a price above $9.99 after the adoption of the agency pricing model. Worryingly for publishers, the law firm claims that once approved, the lawsuit would represent any purchaser of an e-book published by a major publisher after the adoption of the agency model by that publisher, and has called for "potential plaintiffs" to get in touch via an online form.

The law firm said it believed Apple was involved in the scheme. In a statement it said: "The complaint alleges that Apple believed that it needed to neutralize the Kindle when it entered the e-book market with its own e-reader, the iPad, and feared that one day the Kindle might challenge the iPad by digitally distributing other media like music and movies." It alleges if Amazon had defied the publishers and tried to sell e-books below the publisher-set levels, the publishers "would simply deny Amazon access to the title". It also claims the defendant publishers control 85% of the most popular fiction and non-fiction titles.

Publishers Marketplace notes Hagens Berman is based in a town called Seattle, and the complaint lauds Amazon but demonstrates contempt for publishers' "inefficient and antiquated business model . . . being hidebound and lacking innovation for decades."

A day earlier the law firm had announced  it was investigating e-book royalty payments, claiming  the so-called “big six” e-book publishers may be using outdated accounting systems to track the sales of e-books. It said: "As a result, some authors have reported various accounting errors on their statements, including the under-reporting of sales of the e-books." It invites potential plaintiffs to contact the firm or "join this investigation".

Publishers and Apple declined to comment when commented by various strands of the media. The agency model is already the subject of numerous regulatory inquiries in the US, Europe, and the UK.

 

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This is ridiculous. I hope the case gets thrown out of court. The Bookseller, you should stand up for publishers and booksellers and state in your article why publishers have felt it necessary to adopt the agency model rather than just spouting the press release from the law firm! Show some balance in your reporting and explain both sides of the argument. It is this sort of lazy journalism that perpetuates Amazon's PR victory over everyone who needs to make a living out of selling books. Publishers went to the agency model to defend themselves against Amazon's policy of selling their books at a massive loss to the publishers, and trying to claim the right to do this - if supermarkets insisted on doing this to farmers, there would be no food grown anywhere in the world because businesses can't operate at a huge loss year on year. It is a deliberate tactic to encourage sales of Kindles.

It is laughable that this lawsuit claims to stand up for authors, in what way will authors benefit by allowing Amazon to sell their books for 79p? They will need to sell around 60,000 copies of their books at 79p to make under £11,000 - barely minimum wage after becoming what most people would class as a bestselling author. With the publishers setting a fair price (wait for the moans of '£9.99 isn't a fair price for an ebook' - well, most publishers don't charge £9.99 for ebooks, they charge £5.49 or £3.99 or similar), the same author would earn upwards of £60,000 for the same number of copies sold (that's based on selling e-books at £3.99 with the usual royalty of 25%). It is not price-fixing any more than Topshop selling a jersey for £40 is price-fixing - if you don't like the price of the jersey, you can get one in Primark for £5, and you can get a self-published ebook for 79p, or free. Publishers are simply insisting on their right to sell their books at a price they deem to be the right one for their investment and their market - they are not insisting every publisher in the world sell books at a set price. That would be price-fixing. This is capitalism.

Actually supermarkets do exactly that to many farmers both nationally (in the uk) and internationally (sugar, coffee,tea, soy, rice) and most people DO shop at their discount supermarkets because they want savings and don't care about farmers losses. You're proving the other side's point here, unfortunately.

Well done the US / Lawyers and maybe Amazon. The agency model is price fixing, if Shell and BP wanted to set the price for petrol there would be a outcry but apparently it's OK for Publishers to get together to set their prices. It's a shame that it's taken a US law firm to stand up for the rights of consumers and not one of our (many) consumer quango's.

If hope they win and that every US customer is allowed to claim against the Publishers.

No, it's price fixing. Publishers are telling retailers what price to sell at. That is price fixing. No question about it.

How about the fact that Amazon dictate the terms of discounting on nearly all major paper based books in todays markets.
It needs this agency model expanding to stop Amazon taking over the whol book market and then dictating everything and flooding the market with self published rubbish.

Its not proce fixing its ensuring that amzon dont destroy the publishing world and the employment of all writers.

Sorry Editor it wasn't up to scratch. I tried to present it evenly, and await publishers' robust responses. I wrote a separate piece for FutureBook. I concluded that as follows: "The suit talks about Amazon’s 'pro-consumer pricing', but doesn't address the issue of how it is to the consumer's advantage to sell e-books at levels that are unprofitable for the retailer and destabilising for the industry that originates those goods." http://futurebook.net/content/lawsuit-us-publishers-and-apple-are-facing...
On the issue of price fixing: it isn't. Agency simply places the publisher in the role of the retailer with the retailer the agent. The publisher therefore sets the prices, as a retailer does under the wholesale model.

Publishers trying to make some margin? Throw the book at them, I say.

"Oh yes it is!"... "Oh no it isn't!"... aaaannnd repeat.

I agree with Editor and Sick of Amazon. I am a consumer and I claim no "right" to receive a book at 79p. If I thought it was only worth 79p I would also think it wasn't worth reading. I want good writers to benefit from writing good books and perhaps we should have Fairtrade books where the punter knows the author is getting a reasonable return. Why should I expect to receive entertainment and/or knowledge for so little?

I should be clearer BBB. It isn't so long as it is a proper agency agreement. See media lawyer Caroline Turner on this: http://www.futurebook.net/content/agency-question

Law is merely opinion, interpretation and precedent. Until this goes through we won't know what the true legal interpretation is. A blog don't count, sadly.

When Amazon was selling the ebook version of bestsellers at 10.00, it was taking a loss. The publishers and writers weren't, they were still getting paid based on the regular price (I think $12. not sure. but high enough for Amazon to take a loss.) It was a way for Amazon to sell kindles and gain the bulk of the ebook market.

The publishers were afraid they would gain so much of the ebook that Amazon could dictate prices; if you don't sell to me at this rate, I won't put it in my store at all. (Pretty sure Walmart did that, too, forcing manufacturers to move out of the country or close up shop.)They were also afraid of how fast ebooks were growing; if it had continued at that rate, ebook sales could have made up the vast majority of their sales within a decade (it still might!)

Agency pricing was a way for the publishers to gain control, but it is still basically price fixing.

Hi Philip,

Thanks for your response, and for your article on FutureBook, which has more information on the suit.

To everyone who says it is price-fixing, maybe if I explain it slowly it will help. Publishers have always dictated the price of their books, that's what the RRP is on the back cover of a hardback or a paperback. That was never seen as price-fixing, that was setting a price. They would then agree terms with a retailer such as Amazon to sell the book to them at a discount, which in Amazon's case was usually 60% off the RRP, and Amazon would then sell it to the customer at 50% off, keeping their 10% cut between the discount they'd screwed out of the publisher and what they passed on to the customer. This was not because it was cheaper for the customer, it was because they increased their market share and encouraged more people to buy from them. To Sonia Lal, who says that Amazon bought the books at the publisher's price and then knocked money off that for the customer - do you have any evidence of that? Do you work for a publisher at which that was done? If not, then I don't believe it. It would be completely contrary to their established practice with physical books, which is to demand a huge discount from the publisher and then pass some, but not all, of that discount on to customers. And despite this case's bold words about publishers refusing to sell books to retailers, it was Amazon who took up that bullying tactic, removing publishers' books from the site while they argued over pricing.

What publishers are trying to do here is to keep that right to set the price for a book, and then agree on discounting terms with retailers as they have always done in the past, in order to protect their businesses, yes, but also to protect authors, designers, typesetters, marketing people, agents and everyone else who makes a living from books.

Bookish, what supermarkets do is what Amazon did to publishers over print books, they squeeze the margins to the point where small businesses can't cope, and most are struggling. They leave only a tiny edge of profit in the business, but they do leave a bit of profit so that some companies still survive. What Amazon are trying to do here with ebooks is to make each book sell at a loss, which would quickly result in all the businesses going bust or depending solely on print sales. Do you understand the difference?

"When Amazon was selling the ebook version of bestsellers at 10.00, it was taking a loss. The publishers and writers weren't, they were still getting paid based on the regular price"

Thank you, Sonia, for being the only one here to get the facts right. Editor, you are completely wrong. Publishers were not taking *any* kind of loss before agency, let alone the "massive" one you claim. Amazon paid publishers whatever wholesale price the publishers wanted. It was Amazon that then took the massive loss when they sold the ebooks, as is their choice as a retailer. If you want people to consider your side, you should at least tell the truth when you argue.

This is ridiculous. I hope the case gets thrown out of court. The Bookseller, you should stand up for publishers and booksellers and state in your article why publishers have felt it necessary to adopt the agency model rather than just spouting the press release from the law firm! Show some balance in your reporting and explain both sides of the argument. It is this sort of lazy journalism that perpetuates Amazon's PR victory over everyone who needs to make a living out of selling books. Publishers went to the agency model to defend themselves against Amazon's policy of selling their books at a massive loss to the publishers, and trying to claim the right to do this - if supermarkets insisted on doing this to farmers, there would be no food grown anywhere in the world because businesses can't operate at a huge loss year on year. It is a deliberate tactic to encourage sales of Kindles.

It is laughable that this lawsuit claims to stand up for authors, in what way will authors benefit by allowing Amazon to sell their books for 79p? They will need to sell around 60,000 copies of their books at 79p to make under £11,000 - barely minimum wage after becoming what most people would class as a bestselling author. With the publishers setting a fair price (wait for the moans of '£9.99 isn't a fair price for an ebook' - well, most publishers don't charge £9.99 for ebooks, they charge £5.49 or £3.99 or similar), the same author would earn upwards of £60,000 for the same number of copies sold (that's based on selling e-books at £3.99 with the usual royalty of 25%). It is not price-fixing any more than Topshop selling a jersey for £40 is price-fixing - if you don't like the price of the jersey, you can get one in Primark for £5, and you can get a self-published ebook for 79p, or free. Publishers are simply insisting on their right to sell their books at a price they deem to be the right one for their investment and their market - they are not insisting every publisher in the world sell books at a set price. That would be price-fixing. This is capitalism.

No, it's price fixing. Publishers are telling retailers what price to sell at. That is price fixing. No question about it.

How about the fact that Amazon dictate the terms of discounting on nearly all major paper based books in todays markets.
It needs this agency model expanding to stop Amazon taking over the whol book market and then dictating everything and flooding the market with self published rubbish.

Its not proce fixing its ensuring that amzon dont destroy the publishing world and the employment of all writers.

Actually supermarkets do exactly that to many farmers both nationally (in the uk) and internationally (sugar, coffee,tea, soy, rice) and most people DO shop at their discount supermarkets because they want savings and don't care about farmers losses. You're proving the other side's point here, unfortunately.

Well done the US / Lawyers and maybe Amazon. The agency model is price fixing, if Shell and BP wanted to set the price for petrol there would be a outcry but apparently it's OK for Publishers to get together to set their prices. It's a shame that it's taken a US law firm to stand up for the rights of consumers and not one of our (many) consumer quango's.

If hope they win and that every US customer is allowed to claim against the Publishers.

Sorry Editor it wasn't up to scratch. I tried to present it evenly, and await publishers' robust responses. I wrote a separate piece for FutureBook. I concluded that as follows: "The suit talks about Amazon’s 'pro-consumer pricing', but doesn't address the issue of how it is to the consumer's advantage to sell e-books at levels that are unprofitable for the retailer and destabilising for the industry that originates those goods." http://futurebook.net/content/lawsuit-us-publishers-and-apple-are-facing...
On the issue of price fixing: it isn't. Agency simply places the publisher in the role of the retailer with the retailer the agent. The publisher therefore sets the prices, as a retailer does under the wholesale model.

"Oh yes it is!"... "Oh no it isn't!"... aaaannnd repeat.

I should be clearer BBB. It isn't so long as it is a proper agency agreement. See media lawyer Caroline Turner on this: http://www.futurebook.net/content/agency-question

Law is merely opinion, interpretation and precedent. Until this goes through we won't know what the true legal interpretation is. A blog don't count, sadly.

Publishers trying to make some margin? Throw the book at them, I say.

I agree with Editor and Sick of Amazon. I am a consumer and I claim no "right" to receive a book at 79p. If I thought it was only worth 79p I would also think it wasn't worth reading. I want good writers to benefit from writing good books and perhaps we should have Fairtrade books where the punter knows the author is getting a reasonable return. Why should I expect to receive entertainment and/or knowledge for so little?

When Amazon was selling the ebook version of bestsellers at 10.00, it was taking a loss. The publishers and writers weren't, they were still getting paid based on the regular price (I think $12. not sure. but high enough for Amazon to take a loss.) It was a way for Amazon to sell kindles and gain the bulk of the ebook market.

The publishers were afraid they would gain so much of the ebook that Amazon could dictate prices; if you don't sell to me at this rate, I won't put it in my store at all. (Pretty sure Walmart did that, too, forcing manufacturers to move out of the country or close up shop.)They were also afraid of how fast ebooks were growing; if it had continued at that rate, ebook sales could have made up the vast majority of their sales within a decade (it still might!)

Agency pricing was a way for the publishers to gain control, but it is still basically price fixing.

"When Amazon was selling the ebook version of bestsellers at 10.00, it was taking a loss. The publishers and writers weren't, they were still getting paid based on the regular price"

Thank you, Sonia, for being the only one here to get the facts right. Editor, you are completely wrong. Publishers were not taking *any* kind of loss before agency, let alone the "massive" one you claim. Amazon paid publishers whatever wholesale price the publishers wanted. It was Amazon that then took the massive loss when they sold the ebooks, as is their choice as a retailer. If you want people to consider your side, you should at least tell the truth when you argue.

Hi Philip,

Thanks for your response, and for your article on FutureBook, which has more information on the suit.

To everyone who says it is price-fixing, maybe if I explain it slowly it will help. Publishers have always dictated the price of their books, that's what the RRP is on the back cover of a hardback or a paperback. That was never seen as price-fixing, that was setting a price. They would then agree terms with a retailer such as Amazon to sell the book to them at a discount, which in Amazon's case was usually 60% off the RRP, and Amazon would then sell it to the customer at 50% off, keeping their 10% cut between the discount they'd screwed out of the publisher and what they passed on to the customer. This was not because it was cheaper for the customer, it was because they increased their market share and encouraged more people to buy from them. To Sonia Lal, who says that Amazon bought the books at the publisher's price and then knocked money off that for the customer - do you have any evidence of that? Do you work for a publisher at which that was done? If not, then I don't believe it. It would be completely contrary to their established practice with physical books, which is to demand a huge discount from the publisher and then pass some, but not all, of that discount on to customers. And despite this case's bold words about publishers refusing to sell books to retailers, it was Amazon who took up that bullying tactic, removing publishers' books from the site while they argued over pricing.

What publishers are trying to do here is to keep that right to set the price for a book, and then agree on discounting terms with retailers as they have always done in the past, in order to protect their businesses, yes, but also to protect authors, designers, typesetters, marketing people, agents and everyone else who makes a living from books.

Bookish, what supermarkets do is what Amazon did to publishers over print books, they squeeze the margins to the point where small businesses can't cope, and most are struggling. They leave only a tiny edge of profit in the business, but they do leave a bit of profit so that some companies still survive. What Amazon are trying to do here with ebooks is to make each book sell at a loss, which would quickly result in all the businesses going bust or depending solely on print sales. Do you understand the difference?