As expected, the Department of Justice on Wednesday announced that it had filed suit against Apple, as well as five other publishers, over an alleged "illegal conspiracy" involving e-book price fixing.
Apple, as well as publishers Macmillan and Penguin, plan to fight the charges, while Hachette, HarperCollins, and Simon & Schuster have agreed to a proposed settlement, Attorney General Eric Holder said during a press conference today.
Connecticut Attorney General George Jepsen, meanwhile, was on hand to announce that 16 states - led by Texas and Connecticut - also filed their own lawsuit against Apple, Macmillan, Penguin, and Simon & Schuster on similar grounds.
According to Sharis A. Pozen, acting assistant attorney general within the DOJ's antitrust division, the scheme resulted in consumers paying about $2-3 more for e-books than they might have without the arrangement, or about $100 million in total.
"Our goal was to restore competition to the marketplace," Pozen said today.
Beginning in 2009, publishing executives met with Apple during near-quarterly meetings to discuss competition issues, including Amazon's e-book pricing, "as part of a conspiracy to raise, fix, and stabilize retail prices," Holder said today.
That resulted in an agreement whereby publishers could seize pricing authority from bookstores, pay Apple a 30 percent commission on e-books sold via iBooks, and prevent any other e-book retailer from offering a price lower than Apple.
Pozen said today that publishers reportedly referred to the "wretched" $9.99 pricing scheme for e-books via Amazon, and wanted to force Amazon to up its prices. Pozen quoted former Apple CEO Steve Jobs, who reportedly said of the deal: "The customer pays a little more, but that's what [publishers] want anyway."
The issue first came to light at the DOJ when officials noticed a three-day period in 2009 during which the e-book business model "shifted dramatically," Pozen said.
A spokesman for Apple declined comment.
In a statement, HarperCollins denied violating "any antitrust laws," but agreed to comply with the agreement. "HarperCollins' business terms and policies have been, and continue to be, designed to give readers the greatest choice of formats, features, value, platforms and partners - for both print and digital," the company said.
Hachette said it "reluctantly" agreed to join the settlement, and denied that it was involved in a conspiracy. It's e-book decision regarding Apple's iBooks "was designed to facilitate entry by a new retail competitor and to increase the diversity and health of retail booksellers, and we took these actions knowing that Hachette itself would make less money than before the adoption of agency."
Hachette said Amazon had an effective monopoly on e-book and e-reader sales two years, but the market now includes multiple options.
Penguin, which is fighting the charges, said "countless hours" of discussion "have not led any of us to the view that we should settle this matter."
John Makinson, chairman and CEO of Penguin Group, said his company will fight the charges for two main reasons. First, "we have done nothing wrong," he said. Second, the agency model - whereby the publishers rather than the retailers set e-book pricing - "is the one that offers consumers the prospect of an open and competitive market for e-books."
Macmillan and Simon & Schuster did not immediately respond to a request for comment.
Under the DOJ deal, participating publishers must allow retailers like Barnes & Noble and Amazon to price e-books as they please. The publishers will be banned for two years from implementing e-book price restrictions, and prohibited for five years from sharing "competitively sensitive" information with rivals. They are also required to put in place a "strong antitrust compliance program."
States Weigh In
The state-level lawsuits were filed in Texas district court. Jepsen said today that that he and Texas AG General Greg Abbott reached deals with Hachette and HarperCollins on the issue, which involves restitution for consumers.
Details still have to be hashed out, but when finalized, consumers will be able to receive e-book credit or cash for their troubles in a deal worth about $51 million, Jepsen said.
"Publishers deserve to make money, but consumers deserve the price benefits of competition in an open and unrestricted marketplace," Jepsen said. "Those interests clearly collided in this case and we are going to work to ensure the e-book market is open once again to fair competition."
Other states that joined the suit included Alaska, Arizona, Colorado, Illinois, Iowa, Maryland, Missouri, Ohio, Oregon, Pennsylvania, South Dakota, Tennessee, Vermont and West Virginia, and the Commonwealth of Puerto Rico.
Editor's Note: This story was updated at 5 p.m. Eastern with comment from Penguin and Hachette.