Will This Settle Apple’s E-Book Lawsuit?
Eligible Kindle e-book customers will receive credits ranging from 30 cents to $1.32 per book, according to Amazon’s estimates. Apple did not specify a range, but will likewise set up a fund for reimbursing e-book purchasers.
Customers who bought qualifying e-books between April 1, 2010 and May 21, 2012 are eligible for the refunds, which can be used for future e-book purchases. Amazon customers can also use the credit for buying print books on the site. E-book customers affected by the price-fixing scheme may also opt to receive a check instead of credit by visiting www.EBookAGSettlements.com.
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Amazon and Apple sent emails to their customers over the weekend explaining the settlement and credits. However, the settlement is still pending court approval at a hearing in February, and if approved, Apple said last month it will likely appeal that decision.
In April of this year, the Department of Justice sued Apple and five major publishers for allegedly colluding to raise the price of e-books. Publishers Hachette Book Group, CBS’s (NYSE:CBS) Simon & Schuster, and News Corp.’s (NASDAQ:NWSA) HarperCollins were named in the suit, but agreed to a separate settlement earlier this year. Publishers Macmillan and Pearson’s (NYSE:PSO) Penguin, like Apple, opted not to settle. Their case will head to trial next June.
The three publishers that did settle agreed to set up a $69 million fund that would pay out credits to affected consumers, just as Amazon and Apple now propose to do. However, while Amazon is happy with the agreement, which comes as a huge win for the online retailer, Apple is not.
The decision will effectively put an end to a pricing model designed and promoted by Apple. Publishers will be forced to tear up their current agency pricing agreements with the iPad maker, which offered them a solution to Amazon’s discounted e-book pricing structure, the industry standard before Apple came into play.
Before the release of the iPad in 2010, Amazon’s Kindle was the top e-book reader on the market. Using its position at the top, Amazon forced publishers to sell most e-books at $9.99. The alleged conspiracy between Apple and publishers placed many books at so-called “agency pricing,” which put them at about $12.99, with Apple taking a 30 percent cut. As a result, Amazon was forced to allow publishers to set their own prices, or risk losing access to their books altogether.
The result of this pricing model was higher prices for e-books all around. The DOJ alleged that, as a result of this arrangement, e-book customers paid between $2 and $3 more for each book, amounting to upwards of $100 million more than they would otherwise have spent.
On top of setting aside funds to reimburse e-book buyers, the settlement that the three publishers earlier agreed to will grant retailers like Amazon and Barnes & Noble (NYSE:BKS) the freedom to reduce prices. On top of that, they won’t be able to sign contracts with retailers that restrict such pricing decisions for the next two years. And for the next five years, the publishes will be blocked from entering contracts with retailers that would prevent the publishers from selling to other retailers at lower prices.
The decision is a huge win for Amazon, which will be able to competitively price its e-books once again, but it’s also a big win for customers, many of whom will not only receive credits for past purchases, but will also pay lower prices going forward.