Apple and major publishers face lawsuit over ebook 'price fixing'

 Bitter fruit ... an Apple store in California. A law firm is alleging the company worked with publishers to push ebook prices up. Photograph: Russel A Daniels/AP

A class-action lawsuit has been filed in the US alleging that Apple and five major publishers "colluded ... to illegally fix prices" of ebooks.

The lawsuit, filed by law firm Hagens Berman in California northern district court, claims that HarperCollins, Hachette Book Group, Macmillan, Penguin and Simon & Schuster conspired with Apple to increase ebook prices in order "to boost profits and force ebook rival Amazon to abandon its pro-consumer discount pricing", and that they are "in violation of a variety of federal and state antitrust laws".

The complaint centres on the agency model – used by Apple for iTunes and by most major publishers for ebook sales – in which the publisher, rather than the retailer, sets the retail price of ebooks. The model has already sparked investigations in Europe and the UK, with the Office of Fair Trading investigating whether certain publisher-retailer arrangements "may breach competition law", and the European commission looking into whether companies have colluded to keep ebook prices high.

Naming two plaintiffs, California resident Anthony Petru and Mississippi resident Marcus Mathis – both of whom purchased at least one ebook for over $9.99 after the adoption of the agency pricing model – the lawsuit, once approved, will represent any purchaser of an ebook by a major publisher after the adoption of the agency model and could, according to Hagens Berman, be worth "tens of millions of dollars".

It alleges that the five publishers "feared" Amazon's move to price ebooks at $9.99 – a figure considerably below physical book prices. The pricing "threatened to disrupt the publishers' long-established brick-and-mortar model faster than [they] were willing to accept", and to set low consumer expectations for ebook prices.

Pointing to Macmillan's battle with Amazon over the agency model last year, which ultimately saw the online retailer capitulate to Macmillan's introduction of the model "because Macmillan has a monopoly over their own titles", the lawsuit says the five publishers "forced Amazon to abandon its discount pricing and adhere to a new agency model ... If Amazon attempted to sell ebooks below the publisher-set levels, the publishers would simply deny Amazon access to the title." This has, the suit says, seen the prices of new ebooks increase to an average of $12-15 – a rise of 33 to 50% – and reach a point where they are often more expensive than physical editions.

"As a result of the pricing conspiracy, prices of ebooks have exploded, jumping as much as 50%. When an ebook version of a bestseller costs close to or even more than its hard-copy counterpart, it doesn't take a forensic economist to see that this is evidence of market manipulation," said Steve Berman, founding partner of Hagens Berman, in a press release about the suit. "Fortunately for the publishers, they had a co-conspirator as terrified as they were over Amazon's popularity and pricing structure, and that was Apple. We intend to prove that Apple needed a way to neutralise Amazon's Kindle before its popularity could challenge the upcoming introduction of the iPad – a device Apple intended to compete as an e-reader."

But while publishers were likely to be "concerned" at the law suit – "it's another force ranging against them, and another example where they look like they are against rather than for the consumer" – The Bookseller's deputy editor Philip Jones said there was "no smoking gun" in the evidence.

"There are lots of accusations of collusion and conspiracy, rather like a John Grisham novel, but I couldn't find a single instance where they had proof, or even hinted that they had proof," he said. "There is a question over how the agency model has been implemented and whether that is illegal in the US and Europe, and that is what the regulatory bodies on both sides of the pond are looking into, but they are insinuating that there was collusion between Apple and these major publishers and I don't believe they can make the case. The lawyers can write that collusion was necessary for agency to occur, and give logic to that argument, but that doesn't prove that collusion actually took place."

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Rejected by publishers, ebook author turns her DIY success into major book deal

AUSTIN, Minn. - For more than five years, Amanda Hocking spent her days tending to disabled adults, making their meals and cleaning up after them. When she got home, she would crack open a can of Red Bull and start typing away at her novels.

Her effort to make it as a writer was at least as grinding as her day job, with countless rejections from book agents before Hocking stumbled across a promising new business model for aspiring authors: self-publishing and marketing through e-booksellers.

A little more than a year later, Hocking's novel "Switched" sits at No. 41 on USA Today's list of top 150 bestselling books — just a few notches below such major juggernauts as James Patterson and Maeve Binchy. Hocking's books also occupy slots 54, 57, 114 and 149 on the list, and on Thursday, the publishing world finally caught up when the 26-year-old college dropout signed a four-book deal with St. Martin's Press.

Hocking said the first book in a new "Watersong" series was slated for release in fall 2012. She declined to release details of the deal. St. Martin's Press confirmed the deal but would not comment further.

During an interview, the author was coy about discussing publishing deals before finally coming clean about her relationship with St. Martin's. She's only written one of the four books in the 'Watersong' series, and won't say what it's about yet, although it's in the same paranormal romance vein as her other books.

Aimed at young adults, Hocking's books occupy the same territory as the enormously popular "Twilight" books by Stephenie Meyer. Hocking has written about vampires, zombies and trolls — a strategic decision that she says she made after scanning the shelves at Wal-Mart.

"I like vampires and they're popular," Hocking said. "So I thought, 'Why not write about them?'"

She has sold her books on such sites as Amazon's Kindle Store and Barnes & Noble's NOOKbooks at prices ranging from 99 cents to $2.99. Hocking keeps up to 70 per cent of the sales.

She sold a few hundred books last May, and the numbers slowly grew to a few thousand before spiking to more than 100,000 in December. Monthly sales reports Hocking provided to The Associated Press showed more than 333,000 sold in January and another 300,000 in February, enough to back her claim to have sold between $1.4 million to $2 million in e-books.

E-book sales have taken off along with sales of electronic reading devices. The Yankee Group, a Boston research firm, estimates e-book sales will generate $2.3 billion in revenue in the U.S. by 2013, nearly nine times that of 2009.

The vast majority of self-published authors never catch on beyond family and friends, but Hocking isn't the only writer to thrive outside the mainstream. Crime novelist John Locke has four of the top 10 sellers, all of them priced at 99 cents, on the Kindle e-book list. The books were released through Telemachus Press, "a for hire author services company" that charges writers to package and publish their work. Steven H. Jackson, a partner at Telemachus, said Locke's work has sold more 500,000 copies this year, helped by the low cost and word of mouth.

"The important thing is to get your work out," Jackson said. "If you price your books at 99 cents, you get websites that say, 'Hey, good reads for under a dollar.' And then word starts to get out."

Alok Gupta, a University of Minnesota marketing professor, said low pricing is critical to e-book success. Authors who do well tend to price their books around 99 cents and do high volume, he said. They also piggyback on popular topics.

Hocking was making $12,000 a year working at the group home, but she quit last August to focus on writing. She said she spends eight to 12 hours each day writing, most of it after dark.

"Switched," the first book in her Trylle Trilogy, is about a rebellious 17-year-old girl who meets Finn, a mysterious new boy at school. She later learns that she's a Trylle, a human-looking troll who was switched at birth, and Finn was to return her to the other trolls. There, she learns she's a princess.

Stacy Schmitz-Miller, 37, of Wadena, Minn., a fan of romance novels who had read the "Twilight" series, said "Switched" was one of the first books that came up when she searched Amazon's romance category. Since it was only 99 cents, she said, "What the heck," and gave it a try. She went on to read all of Hocking's books in two weeks, swept up in their romance and mystery.

"I think every woman can relate to sort of wanting to feel protected," she said.

Grace Onorato, a young blogger from Delmar, N.Y., called "Switched" predictable but a fun "cheese read."

"It's an addicting, easy to digest book that can be devoured in an afternoon," Onorato wrote in her blog. "It probably won't win any literary awards, but it is definitely still worth reading."

Earlier this year, Terri Tatchell, co-screenwriter of the 2009 science fiction film "District 9," agreed to adapt the books from Hocking's Trylle Trilogy as a screenplay.

Hocking said she hasn't adjusted to having money.

Her big-ticket spending has been limited to a car, a television and clearing some debts for herself and loved ones. She still shares the same house she rents with her best friend, Eric Goldman, for $250 a month although she has her eye on buying another place across town. Goldman now serves as her paid assistant, handling email, tracking her schedule and taking the occasional media inquiry.

"I make him turn stuff down," Hocking said. "I don't like to tell people no."

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AP National Writer Hillel Italie contributed to this report.

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