Simon & Schuster Settles States Antitrust Suits [Update]

Simon & Schuster has settled antitrust suits launched against by several states attorneys general. CNet reported that Judge Denise Cote, who is overseeing the case from 29 states dismissed the publisher from those suits, leaving Apple and two other major publishers accused of colluding to raise ebook prices.

States vs. Books

The suits brought against the publishers by the attorneys general is similar to, but separate from, the suit launched by the U.S. Department of Justice against Apple and the same publishers. Behind the suit is the idea that Apple and these publishers colluded to raise prices by jointly acting to shift ebooks to the agency model.

The agency model is the same model Apple uses with record labels, app developers, and movie studios. With this model, the content owners set the price while Apple collects 30 percent off the top for conducting the transaction. This differs from traditional publisher/retail agreements where publishers sell books at a wholesale price and retailers were then free to set whatever retail price they wanted.

As we have noted in prior coverage of this topic, Amazon had used price dumping techniques to boost adoption of its Kindle platform, selling best sellers and other books at a loss to attract new customers. While Apple was working to bring out the iPad, the company didn’t want to compete with Amazon on price for ebooks and thus talked the publishers into the agency model coupled with contacts that prevented publishers from allowing their books to be cheaper anywhere else.

This gave the publishers the leverage they needed to move Amazon to the agency model, and the result was that Amazon went from having 90 percent share in ebooks to about 60 percent today (Apple and Barnes and Noble own most of the rest).

The DOJ and the 29 states attorneys general all believe that the way Apple engineered the agreements amounted to illegal collusion to raise and control prices, something considered a no-no in the world of antitrust, even though ending the agreements will likely hand monopoly power back to Amazon.

Three publishers have settled with the DOJ—HarperCollins, Hachette, and Simon & Schuster—while two others—Penguin Group and Macmillan Publishers—Apple have vowed to fight on. Those same three publishers have now settled with the states, while Apple, Macmillan, and Penguin are still fighting those suits, as well.

[Update: The article has been updated to clarify that Simon & Schuster was the third company to settle with the states. - Editor]

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