Source: https://www.scribd.com/doc/88897557/DOJ-lawsuit-vs-Apple-publishers-over-e-books
Timestamp: 2017-01-20 12:07:47
Document Index: 594951244

Matched Legal Cases: ['§ 1', '§ 1', '§1', 'art 70184', '§ 4', '§ 1', '§ 4', '§ 1331', '§ 22', '§ 1391', '§ 1', '§ 1', '§ 1', '§ 1', '§ 1', '§ 1', '§517', 'art 70184', '§ 1']

DOJ lawsuit vs. Apple, publishers over e-books
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CIVIL COVER SHEET!
initiating the civil docket sheet.
The JS-44 civil cover sheet and (ho Information contained heroin nelthor replace nor supplement the riling and service of pleadings or other papers as required by law. except as provided by local rules of court This form approved by the Judical Conference ,f the United States in September 1974. is required for use ofthe Clerk ofCourt for the purpose of
Apple, Inc., etal. See Attachment A, "Defendants"
ATTORNEYS (FIRM NAME. ADDRESS. AND TELEPHONE NUMBER
Oaniel McCuaig (Attorney of Record) See Attachment B, "Plaintiffs Attorneys"
See Attachment C, "Defendants* Attorneys"
CAUSE OF ACTION (CITE the us.civil statute unoer which you are filing ano write abrief statement ofCAUSE)
(OO NOT CITE JURISDICTIONAL STATUTES UNLESS DIVERSITY)
15 U.S.C. § 1, Anticompetitive agreement in restraint of trade
Has this or asimilar case been previously filed in SONY at any time? No?Q Yes? [7] Judge Previously Assigned Cote
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(1365 PERSONAL INJURY
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CONSUMER CREDIT CABLE/SATELLITE TV SELECTIVE SERVICE SECURITIES/ COMMODITIES/ EXCHANGE CUSTOMER CHALLENGE 12 USC 3410 OTHER STATUTORY ACTIONS AGRICULTURAL ACTS ECONOMIC
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{ j371 TRUTH IN LENDING
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1196 FRANCHISE ACTIONS UNDER STATUTES
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( 1441 VOTING t)442 EMPLOYMENT ( 1443 HOUSING/ ACCOMMODATIONS ( 1444 WELFARE [|445 AMERICANS WITH
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Checkif demanded in complaint:
okDO YOU CLAIM THIS CASE IS RELATED TO ACIVIL CASE NOW PENDING INSONY?
IPSO, STATE:
Q CHECK IF THIS IS ACLASS ACTION
>EMAND $_
JUOGE Cote
.DOCKET NUMBER1:11 """1-02293
Xieck YES only ifdemanded incomplaint
*See Attachment E, "Statement of Related Case"
NOTE: Please submit at theBme offiling an explanation ofwhy casesaredeemed related.
URY DEMAND: O YES 0 NO
United States v. Apple, Inc. et al. .
Attachment A to Civil Cover Sheet Defendants
Apple, Inc. Hachette Book Group, Inc. HarperCollins Publishers L.L.C. Verlagsgruppe Georg von Holtzbrinck GmbH
Holtzbrinck Publishers, LLC d/b/a Macmillan
The Penguin Group, A Division of Pearson PLC Penguin Group (USA), Inc.
United States v. Apple, Inc. et al.
Attachment E to Civil Cover Sheet Statement of Related Case
Pursuant to Rule for the Division of Business Among District Judges (Southern District) 13, the United States respectfully requests that this case, United States v. Apple, Inc. et al., be designated as related to In re Electronic Books AntitrustLitigation, No. 1:1 l-md-02293 (DLC), presently pending before the Honorable Judge Denise Cote. Both cases involve allegations of violations of Section 1 of the Sherman Act, 15 U.S.C. § 1, in
connection with the sale of electronic books in the United States. There is substantial
overlap as to the identity of the defendants as well as the factual allegations giving rise to the antitrust claims in the different cases. The United States believes that assigning this case to Judge Cote will therefore promote judicial efficiency and facilitate reasonable coordination among the parties to the proceedings. At this time, the United States has no plans to move to join these cases for trial pursuant to Rule 13(e).
APPLE, INC., HACHETTE BOOK GROUP, INC., HARPERCOLLINS PUBLISHERS L.L.C.,
VERLAGSGRUPPE GEORG VON
HOLTZBRINCK GMBH, HOLTZBRINCK PUBLISHERS, LLC d/b/a MACMILLAN, THE PENGUIN GROUP, A DIVISION OF PEARSON PLC,
O'.'
. ;.....
PENGUIN GROUP (USA), INC., and SIMON & SCHUSTER, INC.,
o T'l
> •1
—i O
The United States of America, acting under the direction of the Attorney General of the United States, brings this civil antitrust action against Defendants Apple, Inc. ("Apple"); Hachette Book Group, Inc. ("Hachette"); HarperCollins Publishers L.L.C. ("HarperCollins"); Verlagsgruppe Georg von Holtzbrinck GmbH and Holtzbrinck Publishers, LLC d/b/a Macmillan
(collectively, "Macmillan"); The Penguin Group, a division of Pearson pic and Penguin Group
(USA), Inc. (collectively, "Penguin"); and Simon & Schuster, Inc. ("Simon & Schuster";
collectively with Hachette, HarperCollins, Macmillan, and Penguin, "Publisher Defendants") to obtain equitable relief to prevent and remedy violations of Section 1 of the Sherman Act, 15
U.S.C. §1.
Technology has brought revolutionary change to the business of publishing and
selling books, including the dramatic explosion in sales of "e-books"—that is, books sold to
consumers in electronic form and read on a variety of electronic devices, including dedicated e-
readers (such as the Kindle or the Nook), multipurpose tablets, smartphones and personal computers. Consumers reap a variety of benefits from e-books, including 24-hour access to
product with near-instant delivery, easier portability and storage, and adjustable font size. Ebooks also are considerably cheaper to produce and distribute than physical (or "print") books.
2. E-book sales have been increasing rapidly ever since Amazon released its first
Kindle device in November of 2007. In developing and then mass marketing its Kindle e-reader and associated e-book content, Amazon substantially increased the retail market for e-books.
One of Amazon's most successful marketing strategies was to lower substantially the price of newly released and bestselling e-books to $9.99.
3. Publishers saw the rise in e-books, and particularly Amazon's price discounting,
as a substantial challenge to their traditional business model. The Publisher Defendants feared that lower retail prices for e-books might lead eventually to lower wholesale prices for e-books, lower prices for print books, or other consequences the publishers hoped to avoid. Each
Publisher Defendant desired higher retail e-book prices across the industry before "$9.99"
became an entrenched consumer expectation. By the end of 2009, however, the Publisher Defendants had concluded that unilateral efforts to move Amazon away from its practice of
offering low retail prices would not work, and they thereafter conspired to raise retail e-book
prices and to otherwise limit competition in the sale of e-books. To effectuate their conspiracy,
the Publisher Defendants teamed up with Defendant Apple, which shared the same goal of
restraining retail price competition in the sale of e-books.
The Defendants' conspiracy to limit e-bookprice competition came togetheras
the Publisher Defendants werejointly devising schemesto limit Amazon's ability to discount ebooks and Defendant Apple was preparing to launch its electronic tablet, the iPad, and
considering whether it should selle-books that could be read on the new device. Apple had long
believed it would be able to "trounce Amazon by opening up [its] own ebook store," but the intense price competition that prevailed among e-book retailers in late 2009 had driven the retail price of popular e-books to $9.99 and had reduced retailer margins on e-books to levels that
Apple found unattractive. As a result of discussions with the Publisher Defendants, Apple
learnedthat the Publisher Defendants shared a common objective with Apple to limit e-book
retail price competition, and that the PublisherDefendants also desired to have popular e-book retail prices stabilizeat levels significantly higher than $9.99. Together, Apple and the Publisher
Defendants reached an agreement whereby retail price competition would cease (which all the
conspirators desired), retail e-book prices would increase significantly (which the Publisher
Defendants desired), and Apple would be guaranteed a 30 percent "commission" on each e-book
it sold (which Apple desired).
To accomplish the goal of raising e-book prices and otherwise limiting retail
competitionfor e-books, Apple and the Publisher Defendantsjointly agreed to alter the business
model governing the relationship between publishers and retailers. Prior to the conspiracy, both
print books and e-books were sold under the longstanding "wholesale model." Under this model,
publishers sold books to retailers, and retailers, as the owners of the books, had the freedom to
establish retail prices. Defendants were determined to end the robust retail price competition in
e-books thatprevailed, to the benefit of consumers, under the wholesale model. They therefore
agreed jointlyto replace the wholesale model for selling e-books withan "agency model."
Under theagency model, publishers would take control of retail pricing by appointing retailers as
"agents" who would have no power to alter the retail prices set by the publishers. As a result, the
publishers could end price competition among retailers andraise the prices consumers payfor ebooks through the adoption of identical pricingtiers. This change in business model would not
have occurred without the conspiracy among the Defendants.
Apple facilitated the Publisher Defendants' collective effort to end retail price
competition bycoordinating their transition to an agency model across all retailers. Apple clearly understood that its participation in this scheme would result in higher prices to
consumers. As Apple CEO SteveJobs described his company's strategy for negotiating with the
Publisher Defendants, "We'll goto [an] agency model, where you setthe price, and we get our
30%, and yes, the customer pays a little more, but that's what you want anyway." Apple was perfectly willing to help the Publisher Defendants obtain their objective of higher prices for
consumers by ending Amazon's "$9.99" price program as long as Apple was guaranteed its 30
percent margin and could avoid retail price competition from Amazon.
7. The plan - what Apple proudly described as an "aikido move" - worked. Over
three days in January 2010, each Publisher Defendant entered into a functionally identical
agency contract with Apple that would go into effect simultaneously in April 2010 and "chang[e]
the industry permanently." These "Apple Agency Agreements" conferred on the Publisher
Defendants the power to setApple's retail prices for e-books, while granting Apple theassurance
thatthe Publisher Defendants would raise retail e-book prices at all othere-book outlets, too.
Instead of $9.99, electronic versions of bestsellers and newly released titles would be priced
according to a set of price tiers contained in each of the Apple Agency Agreements that
determined de facto retail e-book prices as a function of the title's hardcover list price. All
bestselling and newly released titles bearing a hardcover list price between $25.01 and $35.00,
for example, would be priced at $12.99, $14.99, or $16.99, with the retail e-book price increasing
in relation to the hardcover list price. 8. After executing the Apple Agency Agreements, the Publisher Defendants all then
quickly acted to complete the scheme by imposing agency agreements on all their other retailers.
As a direct result, those retailers lost their ability to compete on price, including their ability to
sell the most popular e-books for $9.99 or for other low prices. Once in control of retail prices,
the Publisher Defendants limited retail price competition among themselves. Millions of e-
books that would have sold at retail for $9.99 or for other low prices instead sold for the prices indicated by the price schedules included in the Apple Agency Agreements—generally, $12.99
or $14.99. Other price and non-price competition amonge-book publishers and among e-book
retailers also was unlawfully eliminated to the detriment of U.S. consumers.
The purpose of this lawsuit is to enjoin the Publisher Defendants and Apple from
further violations of the nation's antitrust laws and to restore the competition that has been lost
due to the Publisher Defendants' and Apple's illegal acts.
Defendants' ongoing conspiracy and agreement have caused e-book consumers to
pay tens of millionsof dollars more for e-booksthan they otherwisewould have paid.
11. The United States, through this suit, asks this Court to declare Defendants'
conduct illegal and to enter injunctive relief to prevent further injury to consumers in the United
Apple, Inc. has its principal place of business at 1 Infinite Loop, Cupertino, CA
95014. Among many other businesses, Apple, Inc. distributes e-books through its iBookstore.
13. Hachette Book Group, Inc. has its principal place of business at 237 Park Avenue,
New York, NY 10017. It publishes e-books and print books through publishers such as Little,
Brown, and Company and Grand Central Publishing.
HarperCollins Publishers L.L.C. has its principal place of business at 10 E. 53rd
Street, New York, NY 10022. It publishes e-books and print books through publishers such as
Harper and William Morrow.
Holtzbrinck Publishers, LLC d/b/a Macmillan has its principal place of business
at 175 Fifth Avenue, New York, NY 10010. It publishes e-books and print books through
publishers such as Farrar, Straus and Giroux and St. Martin's Press. Verlagsgruppe Georg von
Holtzbrinck GmbH owns Holtzbrinck Publishers, LLC d/b/a Macmillan and has its principal
place of business at Gansheidestrafie 26, Stuttgart 70184, Germany.
16. Penguin Group (USA), Inc. has its principal place of business at 375 Hudson
Street, New York, NY 10014. It publishes e-books and print books through publishers such as The Viking Press and Gotham Books. Penguin Group (USA), Inc. is the United States affiliate of The Penguin Group, a division of Pearson pic, which has its principal place of business at 80
Strand, London WC2R 0RL, United Kingdom.
Simon & Schuster, Inc. has its principal place of business at 1230 Avenue of the
Americas, New York, NY 10020. It publishes e-books and print books through publishers such
as Free Press and Touchstone.
III. JURISDICTION, VENUE, AND INTERSTATE COMMERCE
Plaintiff United States of America brings this action pursuant to Section 4 of the
Sherman Act, 15 U.S.C. § 4, to obtain equitable relief and other relief to prevent and restrain
Defendants' violations of Section 1 of the Sherman Act, 15 U.S.C § 1.
This Court has subject matter jurisdiction over this action under Section 4 of the
Sherman Act, 15 U.S.C. § 4, and 28 U.S.C. §§ 1331,1337(a), and 1345. 20. This Court has personal jurisdiction over each Defendant and venue is proper in
the Southern District of New York under Section 12 of the Clayton Act, 15 U.S.C. § 22, and 28
U.S.C. § 1391, because each Defendant transacts business and is found within the Southern
District ofNew York. The U.S. component of each Publisher Defendant is headquartered in the Southern District of New York, and acts in furtherance of the conspiracy occurred in this District. Many thousands of the Publisher Defendants' e-books are and have been sold in this District, including through Defendant Apple's iBookstore.
21. Defendants are engaged in, and their activities substantially affect, interstate trade
and commerce. The Publisher Defendants sell e-books throughout the United States. Their ebooks represent a substantial amount of interstate commerce. In 2010, United States consumers
paid more than $300 million for the Publisher Defendants' e-books, including more than $40
million for e-books licensed through Defendant Apple's iBookstore.
IV. CO-CONSPIRATORS
Various persons, who are known and unknown to Plaintiff, and not named as
defendants in this action, including senior executives of the Publisher Defendants and Apple,
have participated as co-conspirators with Defendants in the offense alleged and have performed acts and made statements in furtherance of the conspiracy.
V. THE PUBLISHING INDUSTRY AND BACKGROUND OF THE CONSPIRACY
A. Print Books
Authors submit books to publishers in manuscript form. Publishers edit
manuscripts, print and bind books, provide advertising and related marketing services, decide
when a book should be released for sale, and distribute books to wholesalers and retailers.
Publishers also determine the cover price or "list price" of a book, and typically that price
appears on the book's cover.
Retailers purchase print books directly from publishers, or through wholesale
distributors, and resell them to consumers. Retailers typically purchase print books under the "wholesale model." Under that model, retailers pay publishers approximately one-half of the list
price of books, take ownership of the books, then resell them to consumers at prices of the
retailer's choice. Publishers have sold print books to retailers through the wholesale model for
over 100 years and continue to do so today.
B. E-books
E-books are books published in electronic formats. E-book publishers avoid some
of the expenses incurred in producing and distributing print books, including most manufacturing
expenses, warehousing expenses, distribution expenses, and costs of dealing with unsold stock.
Consumers purchase e-books through websites of e-book retailers or through
applications loaded onto their reading devices. Such electronic distribution allows e-book
retailers to avoid certain expenses they incur when they sell print books, including most
warehousing expenses and distribution expenses.
27. From its very small base in 2007 at the time of Amazon's Kindle launch, the e-
book market has exploded, registering triple-digit sales growth each year. E-books now
constitute at least ten percent of general interest fiction and non-fiction books (commonly known
as "trade" books1) sold in the United States and are widely predicted to reach at least 25 percent
of U.S. trade books sales within two to three years.
PublisherDefendants and "The $9.99 Problem "
The Publisher Defendants compete against each other for sales of trade e-books to
consumers. Publishers bid against one another for print- and electronic-publishing rights to
content that they expect will be most successful in the market. They also compete against each
other in bringing those books to market. For example, in addition to price-setting, they create
cover art and other on-book sales inducements, and also engage in advertising campaigns for
some titles.
The Publisher Defendants are five of the six largest publishers of trade books in
the United States. They publish the vast majority of their newly released titles as both print
books and e-books. Publisher Defendants compete against each other in the sales of both trade print books and trade e-books.
30. When Amazon launched its Kindle device, it offered newly released and
bestselling e-books to consumers for $9.99. At that time, Publisher Defendants routinely
wholesaled those e-books for about that same price, which typically was less than the wholesale
price of the hardcover versionsof the same titles, reflecting publishercost savings associated
with the electronic format. From the time of its launch, Amazon's e-book distribution business
has been consistently profitable, even when substantially discounting some newly released and
bestselling titles.
1Non-trade e-books includeelectronic versions of children's picture books and academic
textbooks, reference materials, and other specialized texts that typically are published by separate
imprints from trade books, often are sold through separate channels, and are not reasonably
substitutable for trade e-books.
To compete with Amazon, other e-book retailers often matched or approached
Amazon's $9.99-or-less prices for e-book versions of new releases and New York Times
bestsellers. As a result of that competition, consumers benefited from Amazon's $9.99-or-less ebook prices even if they purchased e-books from competing e-book retailers.
32. The Publisher Defendants feared that $9.99 would become the standard price for
newly released and bestselling e-books. For example, one Publisher Defendant's CEO
bemoaned the "wretched $9.99 price point" and Penguin USA CEO David Shanks worried that e-book pricing "can't be $9.99 for hardcovers."
33. The Publisher Defendants believed the low prices for newly released and
bestselling e-books were disrupting the industry. The Amazon-led $9.99 retail price point for the most popular e-books troubled the Publisher Defendants because, at $9.99, most of these e-book
titles were priced substantially lower than hardcover versions of the same title. The Publisher
Defendants were concerned these lower e-book prices would lead to the "deflation" of hardcover
book prices, with accompanying declining revenues for publishers. The Publisher Defendants
also worried that if $9.99 solidified as the consumers' expected retail price for e-books, Amazon
and other retailers would demand that publishers lower their wholesale prices, further compressing publisher profit margins. 34. The Publisher Defendants also feared that the $9.99 price point would make e-
books so popular that digital publishers could achieve sufficient scale to challenge the major incumbent publishers' basic business model. The Publisher Defendants were especially
concerned that Amazon was well positioned to enter the digital publishing business and thereby
supplant publishers as intermediaries between authors and consumers. Amazon had, in fact,
taken steps to do so, contracting directly with authors to publish their works as e-books—at a
higher royalty rate than the Publisher Defendants offered. Amazon's move threatened the
Publisher Defendants' traditional positions as the gate-keepers of the publishing world. The Publisher Defendants also feared that other competitive advantages they held as a result of years
of investments in their print book businesses would erode and, eventually, become irrelevant, as
e-book sales continued to grow.
E. 35.
Publisher Defendants Recognize They Cannot Solve "The $9.99 Problem"Alone Each Publisher Defendant knew that, acting alone, it could not compel Amazon to
raise e-book prices and that it was not in its economic self-interest to attempt unilaterally to raise
retail e-book prices. Each Publisher Defendant relied on Amazon to market and distribute its e-
books, and each Publisher Defendant believed Amazon would leverage its position as a large retailer to preserve its ability to compete and would resist any individual publisher's attempt to
raise the prices at which Amazon sold that publisher's e-books. As one Publisher Defendant executive acknowledged Amazon's bargaining strength, "we've always known that unless other
publishers follow us, there's no chance of success in getting Amazon to change its pricing
practices." In the same email, the executive wrote, "without a critical mass behind us Amazon
won't 'negotiate,' so we need to be more confident of how our fellow publishers will react...." 36. Each Publisher Defendant also recognized that it would lose sales if retail prices
increased for only its e-books while the other Publisher Defendants' e-books remained
competitively priced. In addition, higher prices for just one publisher's e-books would not
change consumer perceptions enough to slow the erosion of consumer-perceived value of books
that all the Publisher Defendants feared would result from Amazon's $9.99 pricing policy.
VI. DEFENDANTS' UNLAWFUL ACTIVITIES
Beginning no later than September 2008, the Publisher Defendants' senior
executives engaged in a series of meetings, telephone conversations and other communications
in which they jointly acknowledged to each other the threat posed by Amazon's pricing strategy
and the need to work collectively to end that strategy. By the end of the summer of 2009, the
Publisher Defendants had agreed to act collectively to force up Amazon's retail prices and
thereafter considered and implemented various means to accomplish that goal, including moving
under the guise of a joint venture. Ultimately, in late 2009, Apple and the Publisher Defendants settled on the strategy that worked—replacing the wholesale model with an agency model that gave the Publisher Defendants the power to raise retail e-book prices themselves.
The evidence showing conspiracy is substantial and includes:
Practices facilitating a horizontal conspiracy. The Publisher Defendants regularly communicated with each other in private conversations, both in person and on the telephone, and in e-mails to each other to exchange sensitive information and assurances of solidarity to advance the ends of the conspiracy.
Direct evidence of a conspiracy. The Publisher Defendants directly discussed, agreed to, and encouraged each other to collective action to force Amazon to raise its retail e-book prices.
Recognition of illicit nature of communications. Publisher Defendants took steps to conceal their communications with one another, including instructions to "double delete" e-mail and taking other measures to avoid leaving a paper trail. Acts contrary to economic interests. It would have been contrary to the economic
interests of any Publisher Defendant acting alone to attempt to impose agency on all of its retailers and then raise its retail e-book prices. For example, Penguin Group CEO John Makinson reported to his parent company board of directors that "the industry needs to develop a common strategy" to address the threat "from digital companies whose objective may be to disintermediate traditional publishers altogether" because it "will not be possible for any individual publisher to mount an effective response," and Penguin later admitted that it would have been economically disadvantaged if it "was the only publisher dealing with Apple
under the new business model."
Motive to enter the conspiracy, including knowledge or assurances that competitors also will enter. The Publisher Defendants were motivated by a desire to maintain both the perceived value of their books and their own position in the industry. They received assurances from both each other and Apple that they all would move together to raise retail e-book prices. Apple was motivated to ensure that it would not face competition from Amazon's low-price retail strategy. Abrupt, contemporaneous shift from past behavior. Prior to January 23, 2010, all Publisher Defendants sold their e-books under the traditional wholesale model; by January 25, 2010, all Publisher Defendants had irrevocably committed to transition all of their retailers to the agency model (and Apple had committed to sell e-books on a model inconsistent with the way it sells the vast bulk of the digital media it offers in its iTunes store). On April 3, 2010, as soon as the Apple Agency Agreements simultaneously became effective, all Publisher Defendants immediately used their new retail pricing authority to raise the retail prices of their newly released and bestselling e-books to the common ostensible maximum prices contained in their Apple Agency Agreements. ThePublisher Defendants Recognize a Common Threat
Starting no later than September of 2008 and continuing for at least one year, the
Publisher Defendants' CEOs (at times joined by one non-defendant publisher's CEO) met
privately as a group approximately once per quarter. These meetings took place in private dining
rooms of upscale Manhattan restaurants and were used to discuss confidential business and
competitive matters, including Amazon's e-book retailing practices. No legal counsel was
present at any of these meetings.
In September 2008, Penguin Group CEO John Makinson was joined by
Macmillan CEO John Sargent and the CEOs of the other four large publishers at a dinner meeting in "The Chefs Wine Cellar," a private room at Picholene. One of the CEOs reported
that business matters were discussed.
In January 2009, the CEO of one Publisher Defendant, a United States subsidiary
of a European corporation, promised his corporate superior, the CEO of the parent company, that he would raise the future of e-books and Amazon's potential role in that future at an upcoming
meeting of publisher CEOs. Later that month, at a dinner meeting hosted by Penguin Group
CEO John Makinson, again in "The Chefs Wine Cellar" at Picholene, the same group of
publisher CEOs met once more.
42. On or about June 16, 2009, Mr. Makinson again met privately with other
Publisher Defendant CEOs and discussed, inter alia, the growth of e-books and Amazon's role in that growth.
On or about September 10, 2009, Mr. Makinson once again met privately with
other Publisher Defendant CEOs and the CEO of one non-defendant publisher in a private room
of a different Manhattan restaurant, Alto. They discussed the growth of e-books and complained about Amazon's role in that growth.
In addition to the CEO dinner meetings, Publisher Defendants' CEOs and other
executives met in-person, one-on-one to communicate about e-books multiple times over the
course of 2009 and into 2010. Similar meetings took place in Europe, including meetings in the fall of 2009 between executives of Macmillan parent company Verlagsgruppe Georg von Holtzbrinck GmbH and executives of another Publisher Defendant's parent company.
Macmillan CEO John Sargent joined at least one of these parent company meetings.
These private meetings provided the Publisher Defendants' CEOs the opportunity
to discuss how they collectively could solve "the $9.99 problem." B. Publisher Defendants Conspire To Raise Retail E-book Prices Under the Guise of
Joint Venture Discussions
While each Publisher Defendant recognized that it could not solve "the $9.99
problem" by itself, collectively the Publisher Defendants accounted for nearly half of Amazon's
e-book revenues, and by refusing to compete with one another for Amazon's business, the
Publisher Defendants could force Amazon to accept the Publisher Defendants' new contract
terms and to change its pricing practices. 47. The Publisher Defendants thus conspired to act collectively, initially in the guise
ofjoint ventures. These ostensible joint ventures were not meant to enhance competition by bringing to market products or services that the publishers could not offer unilaterally, but rather
were designed as anticompetitive measures to raise prices.
All five Publisher Defendants agreed in 2009 at the latest to act collectively to
raise retail prices for the most popular e-books above $9.99. One CEO of a Publisher
Defendant's parent company explained to his corporate superior in a July 29, 2009 e-mail message that "[i]n the USA and the UK, but also in Spain and France to a lesser degree, the 'top
publishers' are in discussions to create an alternative platform to Amazon for e-books. The goal
is less to compete with Amazon as to force it to accept a price level higher than 9.99 .... I am in NY this week to promote these ideas and the movement is positive with [the other four Publisher
Defendants]." (Translated from French).
Less than a week later, in an August 4, 2009 strategy memo for the board of
directors of Penguin's ultimate parent company, Penguin Group CEO John Makinson conveyed
the same message:
Competition for the attention of readers will be most intense from digital companies whose objective may be to disintermediate traditional publishers altogether. This is not a new threat but we do appear to be on a collision course with Amazon, and possibly Google as well. It will not be possible for any individual publisher
to mount an effective response, because of both the resources necessary and the risk of retribution, so the industry needs to develop a common strategy. This is the context for the
development of the Project Z initiatives [joint ventures] in London
Defendants Agree ToIncrease andStabilize RetailE-bookPrices by Collectively Adoptingan Agency Model
To raise e-book prices, the Publisher Defendants also began to consider in late
2009 selling e-books under an "agency model" that would take away Amazon's ability to set low
retail prices. As one CEO of a Publisher Defendant's parent company explained in a December
6,2009 e-mail message, "[o]ur goal is to force Amazon to return to acceptable sales prices
through the establishment of agency contracts in the USA .... To succeed our colleagues must
know that we entered the fray and follow us." (Translated from French). 51. Apple's entry into the e-book business provided a perfect opportunity for
collective action to implement the agency model and use it to raise retail e-book prices. Apple was in the process of developing a strategy to sell e-books on its new iPad device. Apple initially contemplated selling e-books through the existing wholesale model, which was similar to the manner in which Apple sold the vast majority of the digital media it offered in its iTunes
store. On February 19, 2009, Apple Vice President of Internet Services Eddy Cue explained to
Apple CEO Steve Jobs in an e-mail, "[a]t this point, it would be very easy for us to compete and I think trounce Amazon by opening up our own ebook store." In addition to considering competitive entry at that time, though, Apple also contemplated illegally dividing the digital
content world with Amazon, allowing each to "own the category" of its choice—audio/video to
Apple and e-books to Amazon.
52. Apple soon concluded, though, that competition from other retailers - especially
Amazon - would prevent Apple from earning its desired 30 percent margins on e-book sales.
Ultimately, Apple, together with the Publisher Defendants, set in motion a plan that would compel all non-Apple e-book retailers also to sign onto agency or else, as Apple's CEO put it,
the Publisher Defendants all would say, "we're not going to give you the books."
The executive in charge of Apple's inchoate e-books business, Eddy Cue,
telephoned each Publisher Defendant and Random House on or around December 8,2009 to schedule exploratory meetings in New York City on December 15 and December 16. Hachette
and HarperCollins took the lead in working with Apple to capitalize on this golden opportunity
for the Publisher Defendants to achieve their goal of raising and stabilizing retail e-book prices
above $9.99 by collectively imposing the agency model on the industry.
It appears that Hachette and HarperCollins communicated with each other about
moving to an agency model during the brief window between Mr. Cue's first telephone calls to
the Publisher Defendants and his visit to meet with their CEOs. On the morning of December
10, 2009, a HarperCollins executive added to his calendar an appointment to call a Hachette
executive at 10:50 AM. At 11:01 AM, the Hachette executive returned the phone call, and the
two spoke for six minutes. Then, less than a week later in New York, both Hachette and HarperCollins executives told Mr. Cue in their initial meetings with him that they wanted to sell
e-books under an agency model, a dramatic departure from the way books had been sold for over
The other Publisher Defendants also made clear to Apple that they "certainly" did
not want to continue "the existing way that they were doing business," i.e., with Amazon
promoting their most popular e-books for $9.99 under a wholesale model. 56. Apple saw a way to turn the agency scheme into a highly profitable model for
itself. Apple determined to give the Publisher Defendants what they wanted while shielding
itself from retail price competition and realizing margins far in excess of what e-book retailers then averaged on each newly released or bestselling e-book sold. Apple realized that, as a result
of the scheme, "the customer" would "pay[] a little more."
On December 16, 2009, the day after both companies' initial meetings with
Apple, Penguin Group CEO John Makinson had a breakfast meeting at a London hotel with the
CEO of another Publisher Defendant's parent company. Consistent with the Publisher Defendants' other efforts to conceal their activities, Mr. Makinson's breakfast companion wrote to his U.S. subordinate that he would recount portions of his discussion with Mr. Makinson only by telephone.
By the time Apple arrived for a second round of meetings during the week of
December 21, 2009, the agency model had become the focus of its discussions with all of the Publisher Defendants. In these discussions, Apple proposed that the Publisher Defendants require all retailers of their e-books to accept the agency model. Apple thereby sought to ensure
that it would not have to compete on retail prices. The proposal appealed to the Publisher
Defendants because wresting pricing control from Amazon and other e-book retailers would advance their collusive plan to raise retail e-book prices. 59. The Publisher Defendants acknowledged to Apple their common objective to end
Amazon's $9.99 pricing. As Mr. Cue reported in an e-mail message to Apple's CEO Steve Jobs,
the three publishers with whom he had met saw the "plus" of Apple's position as "solv[ing the]
Amazon problem." The "negative" was that Apple's proposed retail prices - topping out at
$12.99 for newly released and bestselling e-books - were a "little less than [the publishers]
would like." Likewise, Mr. Jobs later informed an executive of one of the Publisher Defendant's
corporate parents that "[a]ll major publishers" had told Apple that "Amazon's $9.99 price for
new releases is eroding the value perception of their products in customer's minds, and they do not want this practice to continue for new releases."
As perhaps the only company that could facilitate their goal of raising retail e-
book prices across the industry, Apple knew that it had significant leverage in negotiations with
Publisher Defendants. Apple exercised this leverage to demanda thirty percentcommission—a
margin significantly above the prevailing competitive margins for e-book retailers. The
Publisher Defendants worried that the combination of paying Apple a higher commission than
they wouldhave liked and pricing their e-books lower than they wanted might be too much to
bear in exchange for Apple's facilitation of their agreement to raise retail e-book prices.
Ultimately, though, they convinced Apple to allow them to raise prices high enough to make the
deal palatable to them.
As it negotiated with the Publisher Defendants in December 2009 and January
2010, Apple kept each PublisherDefendant informed of the status of its negotiations with the
other Publisher Defendants. Apple also assured the Publisher Defendants that its proposals were
the same to each and that no deal Apple agreed to with one publisher would be materially
different from any deal it agreed to with another publisher. Apple thus knowingly served as a critical conspiracyparticipant by allowing the Publisher Defendants to signal to one another both
(a) which agency terms would comprise an acceptable means of achieving their ultimategoal of raisingand stabilizing retail e-book prices, and (b) that they could lock themselves into this
particular means of collectively achieving that goal by all signing their Apple Agency
Apple's Mr. Cue e-mailed each Publisher Defendant between January 4,2010,
and January 6, 2010 an outline of what he tabbed "the best approach for e-books." He reassured
Penguin USA CEO David Shanks and other Publisher Defendant CEOs that Apple adopted the
approach "[a]fter talking to all the other publishers." Mr. Cue sent substantively identical e-mail
messages and proposals to each Publisher Defendant.
The outlined proposal that Apple circulated after consulting with each Publisher
Defendant contained several key features. First, as Hachette and HarperCollins had initially suggested to Apple, the publisher would be the principal and Apple would be the agent for ebook sales. Consumer pricing authority would be transferred from retailers to publishers.
Second, Apple's proposal mandated that every other retailer of each publisher's e-books -
Apple's direct competitors - be forced to accept the agency model as well. As Mr. Cue wrote,
"all resellers of new titles need to be in agency model." Third, Apple would receive a 30 percent
commission for each e-book sale. And fourth, each Publisher Defendant would have identical
pricing tiers for e-books sold through Apple's iBookstore.
On January 11, 2010, Apple e-mailed its proposed e-book distribution agreement
to all the Publisher Defendants. As with the outlined proposals Apple sent earlier in January, the
proposed e-book distribution agreements were substantially the same. Also on January 11, 2010, Apple separately e-mailed to Penguin and two other Publisher Defendants charts showing how
the Publisher Defendant's bestselling e-books would be priced at $12.99 - the ostensibly maximum price under Apple's then-current price tier proposal - in the iBookstore.
The proposed e-book distribution agreement mainly incorporated the principles
Apple set out in its e-mail messages of January 4 through January 6, with two notable changes. First, Apple demanded that the Publisher Defendants provide Apple their complete e-book
catalogs and that they not delay the electronic release of any title behind its print release. Second, and more important, Apple replaced the express requirement that each publisher adopt the agency model with each of its retailers with an unusual most favored nation ("MFN") pricing
provision. That provision was not structured like a standard MFN in favor of a retailer, ensuring
Apple that it would receive the best available wholesale price. Nor did the MFN ensure Apple
that the Publisher Defendants would not set a higher retail price on the iBookstore than they set on other websites where they controlled retail prices. Instead, the MFN here required each
publisher to guarantee that it would lower the retail price of each e-book in Apple's iBookstore
to match the lowest price offered by any other retailer, even if the Publisher Defendant did not control that other retailer's ultimate consumer price. That is, instead of an MFN designed to protect Apple's ability to compete, this MFN was designed to protect Apple from having to
compete on price at all, while still maintaining Apple's 30 percent margin.
66. The purpose of these provisions was to work in concert to enforce the
Defendants' agreement to raise and stabilize retail e-book prices. Apple and the Publisher Defendants recognized that coupling Apple's right to all of their e-books with its right to demand that those e-books not be priced higher on the iBookstore than on any other website effectively required that each Publisher Defendant take away retail pricing control from all other e-book retailers, including stripping them of any ability to discount or otherwise price promote e-books out of the retailer's own margins. Otherwise, the retail price MFN would cause Apple's iBookstore prices to drop to match the best available retail price of each e-book, and the Publisher Defendants would receive only 70 percent of those reduced retail prices. Price
competition by other retailers, if allowed to continue, thus likely would reduce e-book revenues
to levels the Publisher Defendants could not control or predict.
67. In negotiating the retail price MFN with Apple, "some of [the Publisher
Defendants]" asserted that Apple did not need the provision "because they would be moving to
an agency model with [the other e-book retailers,]" regardless. Ultimately, though, all Defendants agreed to include the MFN commitment mechanism.
On January 16, 2010, Apple, via Mr. Cue, offered revised terms to the Publisher
Defendants that again were identical in substance. Apple modified its earlier proposal in two significant ways. First, in response to publisher requests, it added new maximum pricing tiers
that increased permissible e-book prices to $16.99 or $19.99, depending on the book's hardcover
list price. Second, Apple's new proposal mitigated these price increases somewhat by adding
special pricing tiers for e-book versions of books on the New York Times fiction and non-fiction
bestseller lists. For e-book versions of bestsellers bearing list prices of $30 or less, Publisher
Defendants could set a price up to $12.99; for bestsellers bearing list prices between $30 and
$35, the e-book price cap would be $14.99. In conjunction with the revised proposal, Mr. Cue set up meetings for the next week to finalize agreements with the Publisher Defendants.
69. Each Publisher Defendant required assurances that it would not be the only
publisher to sign an agreement with Apple that would compel it either to take pricing authority from Amazon or to pull its e-books from Amazon. The Publisher Defendants continued to fear
that Amazon would act to protect its ability to price e-books at $9.99 or less if any one of them
acted alone. Individual Publisher Defendants also feared punishment in the marketplace if only
its e-books suddenly became more expensive at retail while other publishers continued to allow retailers to compete on price. As Mr. Cue noted, "all of them were very concerned about being
the only ones to sign a deal with us." Penguin explicitly communicated to Apple that it would sign an e-book distribution agreement with Apple only if at least three of the other "majorf]" publishers did as well. Apple supplied the needed assurances.
While the Publisher Defendants were discussing e-book distribution terms with
Apple during the week of January 18, 2010, Amazon met in New York City with a number of prominent authors and agents to unveil a new program under which copyright holders could take their e-books directly to Amazon - cutting out the publisher - and Amazon would pay royalties of up to 70 percent, far in excess of what publishers offered. This announcement further highlighted the direct competitive threat Amazon posed to the Publisher Defendants' business
model. The Publisher Defendants reacted immediately. For example, Penguin USA CEO David
Shanks reported being "really angry" after "hav[ing] read [Amazon's] announcement." After thinking about it for a day, Mr. Shanks concluded, "[o]n Apple I am now more convinced that
we need a viable alternative to Amazon or this nonsense will continue and get much worse."
Another decisionmaker stated he was "p****d" at Amazon for starting to compete directly
against the publishers and expressed his desire "to screw Amazon."
To persuade one of the Publisher Defendants to stay with the others and sign an
agreement, Apple CEO Steve Jobs wrote to an executive of the Publisher Defendant's corporate parent that the publisher had only two choices apart from signing the Apple Agency Agreement:
(i) accept the status quo ("Keep going with Amazon at $9.99"); or (ii) continue with a losing
policy of delaying the release of electronic versions of new titles ("Hold back your books from
Amazon"). According to Jobs, the Apple deal offered the Publisher Defendants a superior alternative path to the higher retail e-book prices they sought: "Throw in with Apple and see if
we can all make a go of this to create a real mainstream e-books market at $12.99 and $14.99."
In addition to passing information through Apple and during their private dinners
and other in-person meetings, the Publisher Defendants frequently communicated by telephone
to exchange assurances of common action in attempting to raise the retail price of e-books.
These telephone communications increased significantly during the two-month period in which the Publisher Defendants considered and entered the Apple Agency Agreements. During
December 2009 and January 2010, the Publisher Defendants' U.S. CEOs placed at least 56 phone calls to one another. Each CEO, including Penguin's Shanks and Macmillan's Sargent,
placed at least seven such phone calls.
The timing, frequency, duration, and content ofthe Publisher Defendant CEOs'
phone calls demonstrate that the Publisher Defendants used them to seek and exchange
assurances of common strategies and business plans regarding the Apple Agency Agreements.
For example, in addition to the telephone calls already described in this complaint:
• Near the time Apple first presented the agency model, one Publisher Defendant's CEO used a telephone call - ostensibly made to discuss a marketing joint venture - to tell Penguin USA CEO David Shanks that "everyone is in the same place with Apple." After receiving Apple's January 16, 2010 revised proposal, executives of several Publisher Defendants responded to the revised proposal and meetings by, again, seeking and exchanging confidential information. For example, on Sunday, January 17, one Publisher Defendant's CEO used his mobile phone to call another Publisher Defendant's CEO and talk for approximately ten minutes. And on the morning of January 19, Penguin USA CEO David Shanks had an extended telephone conversation with the CEO of another Publisher Defendant. On January 21,2010, the CEO of one Publisher Defendant's parent company instructed his U.S. subordinate via e-mail to find out Apple's progress in agency negotiations with other publishers. Four minutes after that e-mail was sent, the U.S. executive called another Publisher Defendant's CEO, and the two spoke for
over eleven minutes.
On January 22, 2010, at 9:30 a.m., Apple's Cue met with one Publisher Defendant's CEO to make what Cue hoped would be a "final go/no-go decision" about whether the Publisher Defendant would sign an agreement with Apple. Less than an hour later, the Publisher Defendant's CEO made phone calls, two minutes apart, to two other Publisher Defendants' CEOs, including Macmillan's Sargent. The CEO who placed the calls admitted under oath to placing them specifically to learn if the other two Publisher Defendants would sign with Apple prior to Apple's iPad launch.
On the evening of Saturday, January 23, 2010, Apple's Cue e-mailed his boss, Steve Jobs, and noted that Penguin USA CEO David Shanks "want[ed] an assurance that he is 1 of 4 before signing." The following Monday morning, at 9:46 a.m., Mr. Shanks called another Publisher Defendant's CEO and the two talked for approximately four minutes. Both Penguin and the other Publisher Defendant signed their Apple Agency Agreements later that day. On January 24,2010, Hachette signed an e-book distribution agreement with
Apple. Over the next two days, Simon & Schuster, Macmillan, Penguin, and HarperCollins all
followed suit and signed e-book distribution agreements with Apple. Within these three days,
the Publisher Defendants agreed with Apple to abandon the longstanding wholesale model for
selling e-books. The Apple Agency Agreements took effect simultaneously on April 3, 2010
with the release of Apple's new iPad. 75. The final version of the pricing tiers in the Apple Agency Agreements contained
the $12.99 and $14.99 price points for bestsellers, discussed earlier, and also established prices for all other newly released titles based on the hardcover list price of the same title. Although
couched as maximum retail prices, the price tiers in fact established the retail e-book prices to be
charged by Publisher Defendants.
By entering the Apple Agency Agreements, each Publisher Defendant effectively
agreed to require all of their e-book retailers to accept the agency model. Both Apple and the
Publisher Defendants understood the Agreements would compel the Publisher Defendants to
take pricingauthority from all non-Apple e-book retailers. A February 10, 2010 presentation by
one Publisher Defendant applauded this result (emphasis in original): "The Apple agency model
deal means that we will have to shift to an agency model with Amazon which [will]
strengthen our control over pricing."
Apple understood that the final Apple Agency Agreements ensured that the
Publisher Defendants would raise their retail e-book prices to the ostensible limits set by the
Apple pricetiers not only in Apple's forthcoming iBookstore, but on Amazon.com and all other
consumer sites as well. When asked by a Wall StreetJournal reporter at the January 27, 2010
iPad unveiling event, "Why should she buy a book for ... $14.99 from your device when she could buy one for $9.99 from Amazon on the Kindle or from Barnes & Noble on the Nook?" Apple CEO Steve Jobs responded, "that won't be the case .... the prices will be the same."
Apple understood that the retail price MFN was the key commitment mechanism
to keepthe PublisherDefendants advancing their conspiracy in lockstep. Regardingthe effect of the MFN, Apple executive Pete Alcorn remarked in the contextof the Europeanroll-out of the
agency model in the spring of 2010:
I told [Apple executive Keith Moerer] that I think he and Eddy [Cue] made it at least halfway to changing the industry permanently, and we should keep the pads on and keep fighting for it. I might regret that later, but right now I feel like it's a giant win to keep pushing the MFN and forcing people off the [A]mazon model and onto ours. If anything, the place to give is the pricing long run, the mfh is more important. The interesting insight in the meeting was Eddy's explanation that it doesn't have to be that broad —any decent MFN forces the model.
79. Within the four months following the signing of the Apple Agency Agreements,
and over Amazon's objections, each Publisher Defendant had transformed its business
relationship with all of the majore-book retailers from a wholesale model to an agency model and imposed flat prohibitions against e-book discounting or other price competitionon all nonApple e-book retailers.
For example, after it signed its Apple Agency Agreement, Macmillan presented
Amazon a choice: adopt the agency model or lose the ability to sell e-book versionsof new
hardcover titles for the first seven months of their release. Amazon rejected Macmillan's
ultimatum and sought to preserve its ability to sell e-book versions of newly released hardcover
titles for $9.99. To resist Macmillan's efforts to force it to accept either the agency model or
delayed electronic availability, Amazon effectively stopped selling Macmillan's print books and
When Amazon stopped selling Macmillan titles, other Publisher Defendants did
not view the situation as an opportunity to gain market share from a weakened competitor.
Instead, they rallied to support Macmillan. For example, the CEO of one Publisher Defendant's
parent company instructed the Publisher Defendant's CEO that "[Macmillan CEO] John Sargent needs our help!" The parent company CEO explained, "M[acm]illan have been brave, but they
are small. We need to move the lines. And I am thrilled to know how A[mazon] will react
against 3 or 4 of the big guys."
The CEO of one Publisher Defendant's parent company assured Macmillan CEO
John Sargent of his company's support in a January 31, 2010 email: "I can ensure you that you
are not going to find your company alone in the battle." The same parent company CEO also
assured the head of Macmillan's corporate parent in a February 1 email that "others will enter the battle field!" Overall, Macmillan received "hugely supportive" correspondence from the
publishing industry during Macmillan's effort to force Amazon to accept the agency model.
83. As its battle with Amazon continued, Macmillan knew that, because the other
Publisher Defendants, via the Apple Agency Agreements, had locked themselves into forcing
agency on Amazon to advance their conspiratorial goals, Amazon soon would face similar edicts
from a united front of Publisher Defendants. And Amazon could not delist the books of all five
Publisher Defendants because they together accounted for nearly half of Amazon's e-book business. Macmillan CEO John Sargent explained the company's reasoning: "we believed whatever was happening, whatever Amazon was doing here, they were going to face - they're
going to have more of the same in the future one way or another." Another Publisher Defendant
similarly recognized that Macmillan was not acting unilaterally but rather was "leading the
charge on moving Amazon to the agency model." 84. Amazon quickly came to fully appreciate that not just Macmillan but all five
Publisher Defendants had irrevocably committed themselves to the agency model across all
retailers, including taking control of retail pricing and thereby stripping away any opportunity for e-book retailers to compete on price. Just two days after it stopped selling Macmillan titles,
Amazon capitulated and publicly announced that it had no choice but to accept the agency model, and it soon resumed selling Macmillan's e-book and print book titles. D. Defendants Further the Conspiracy by Pressuring Another Publisher ToAdopt the Agency Model When a company takes a pro-competitive action by introducing a new product,
lowering its prices, or even adopting a new business model that helps it sell more product at
better prices, it typically does not want its competitors to copy its action, but prefers to maintain
a first-mover or competitive advantage. In contrast, when companies jointly take collusive action, such as instituting a coordinated price increase, they typically want the rest of their
competitors to join them in that action. Because collusive actions are not pro-competitive or consumer friendly, any competitor that does not go along with the conspirators can take more
consumer friendly actions and see its market share rise at the expense of the conspirators. Here, the Defendants acted consistently with a collusive arrangement, and inconsistently with a procompetitive arrangement, as they sought to pressure another publisher (whose market share was growing at the Publisher Defendants' expense after the Apple Agency Contracts became
effective) to join them.
Penguin appears to have taken the lead in these efforts. Its U.S. CEO, David
Shanks, twice directly told the executives of the holdout major publisher about his displeasure
with their decision to continue selling e-books on the wholesale model. Mr. Shanks tried to justify the actions of the conspiracy as an effort to save brick-and-mortar bookstores and criticized the other publisher for "not helping" the group. The executives of the other publisher
responded to Mr. Shanks's complaints by explaining their objections to the agency model. 87. Mr. Shanks also encouraged a large print book and e-book retailer to punish the
other publisher for not joining Defendants' conspiracy. In March 2010, Mr. Shanks sent an email message to an executive of the retailer complaining that the publisher "has chosen to stay on their current model and will allow retailers to sell at whatever price they wish." Mr. Shanks argued that "[s]ince Penguin is looking out for [your] welfare at what appears to be great costs to us, I would hope that [you] would be equally brutal to Publishers who have thrown in with your competition with obvious disdain for your welfare.... I hope you make [the publisher] hurt like
Amazon is doing to [the Publisher Defendants]."
When the third-party retailer continued to promote the non-defendant publisher's
books, Mr. Shanks applied more pressure. In a June 22, 2010 email to the retailer's CEO, Mr. Shanks claimed to be "baffled" as to why the retailer would promote that publisher's books instead ofjust those published by "people who stood up for you." 89. Throughout the summer of 2010, Apple also cajoled the holdout publisher to
adopt agency terms in line with those of the Publisher Defendants, including on a phone call between Apple CEO Steve Jobs and the holdout publisher's CEO. Apple flatly refused to sell the holdout publisher's e-books unless and until it agreed to an agency relationship substantially similar to the arrangement between Apple and the Publisher Defendants defined by the Apple
Agency Agreements.
E. 90.
Conspiracy Succeeds at Raising and Stabilizing Consumer E-book Prices The ostensible maximum prices included in the Apple Agency Agreements' price
schedule represent, in practice, actual e-book prices. Indeed, at the time the Publisher Defendants snatched retail pricing authority away from Amazon and other e-book retailers, not one of them had built an internal retail pricing apparatus sufficient to do anything other than set retail prices at the Apple Agency Agreements' ostensible caps. Once their agency agreements took effect, the Publisher Defendants raised e-book prices at all retail outlets to the maximum price level within each tier. Even today, two years after the Publisher Defendants began setting e-book retail prices according to the Apple price tiers, they still set the retail prices for the electronic versions of all or nearly all of their bestselling hardcover titles at the ostensible
maximum price allowed by those price tiers. 91. The Publisher Defendants' collective adoption of the Apple Agency Agreements
allowed them (facilitated by Apple) to raise, fix, and stabilize retail e-book prices in three steps: (a) they took away retail pricing authority from retailers; (b) they then set retail e-book prices according to the Apple price tiers; and (c) they then exported the agency model and higher retail
prices to the rest of the industry, in part to comply with the retail price MFN included in each
Apple Agency Agreement.
Defendants' conspiracy and agreement to raise and stabilize retail e-book prices
by collectively adopting the agency model and Apple price tiers led to an increase in the retail prices of newly released and bestselling e-books. Prior to the Defendants' conspiracy, consumers benefited from price competition that led to $9.99 prices for newly released and
bestselling e-books. Almost immediately after Apple launched its iBookstore in April 2010 and
the Publisher Defendants imposed agency model pricing on all retailers, the Publisher
Defendants' e-book prices for most newly released and bestselling e-books rose to either $12.99
or $14.99.
by collectively adopting the agency model and Apple price tiers for their newly released and bestselling e-books also led to an increase in average retail prices of the balance of Publisher Defendants' e-book catalogs, their so-called "backlists." Now that the Publisher Defendants
control the retail prices of e-books - but Amazon maintains control of its print book retail prices - Publisher Defendants' e-book prices sometimes are higher than Amazon's prices for print
versions of the same titles.
VII. VIOLATION ALLEGED
Beginning no later than 2009, and continuing to date, Defendants and their co
conspirators have engaged in a conspiracy and agreement in unreasonable restraint of interstate trade and commerce, constituting a violation of Section 1 of the Sherman Act, 15 U.S.C. § 1. This offense is likely to continue and recur unless the relief requested is granted.
95. The conspiracy and agreement consists of an understanding and concert of action
among Defendants and their co-conspirators to raise, fix, and stabilize retail e-book prices, to end
price competition among e-book retailers, and to limit retail price competition among the
Publisher Defendants, ultimately effectuated by collectively adopting and adhering to
functionally identical methods of selling e-books and price schedules.
96. For the purpose of forming and effectuating this agreement and conspiracy, some
or all Defendants did the following things, among others:
a. Shared their business information, plans, and strategies in order to
formulate ways to raise retail e-book prices;
Assured each other of support in attempting to raise retail e-book prices; Employed ostensible joint venture meetings to disguise their attempts to
raise retail e-book prices;
Fixed the method of and formulas for setting retail e-book prices;
Fixed tiers for retail e-book prices;
Eliminated the ability of e-book retailers to fund retail e-book price
decreases out of their own margins; and
Raised the retail prices of their newly released and bestselling e-books to
the agreed prices - the ostensible price caps - contained in the pricing schedule of their
Apple Agency Agreements.
Defendants' conspiracy and agreement, in which the Publisher Defendants and
Apple agreed to raise, fix, and stabilize retail e-book prices, to end price competition among ebook retailers, and to limit retail price competition among the Publisher Defendants by fixing
retail e-book prices, constitutes aper se violation of Section 1 of the Sherman Act, 15 U.S.C. § 1.
98. Moreover, Defendants' conspiracy and agreement has resulted in obvious and
demonstrable anticompetitive effects on consumers in the trade e-books market by depriving
consumers of the benefits of competition among e-book retailers as to both retail prices and retail
innovations (such as e-book clubs and subscription plans), such that it constitutes an unreasonable restraint on trade in violation of Section 1 of the Sherman Act, 15 U.S.C. § 1. 99. Where, as here, defendants.have engaged in a. per se violation of Section 1 of the
Sherman Act, no allegations with respect to the relevant product market, geographic market, or
market power are required. To the extent such allegations may otherwise be necessary, the relevant product market for the purposes of this action is trade e-books. The anticompetitive acts
at issue in this case directly affect the sale of trade e-books to consumers. No reasonable substitute exists for e-books. There are no technological alternatives to e-books, thousands of which can be stored on a single small device. E-books can be stored and read on electronic
devices, while print books cannot. E-books can be located, purchased, and downloaded anywhere a customer has an internet connection, while print books cannot. Industry firms also view e-books as a separate market segment from print books, and the Publisher Defendants were
able to impose and sustain a significant retail price increase for their trade e-books. 100. The relevant geographic market is the United States. The rights to license e-
books are granted on territorial bases, with the United States typically forming its own territory. E-book retailers typically present a unique storefront to U.S. consumers, often with e-books
bearing different retail prices than the same titles would command on the same retailer's foreign
The Publisher Defendants possess market power in the market for trade e-books.
The Publisher Defendants successfully imposed and sustained a significant retail price increase for their trade e-books. Collectively, they create and distribute a wide variety of popular e-
books, regularly comprising over half of the New York Times fiction and non-fiction bestseller lists. Collectively, they provide a critical input to any firm selling trade e-books to consumers. Any retailer selling trade e-books to consumers would not be able to forgo profitably the sale of
the Publisher Defendants' e-books.
Defendants' agreement and conspiracy has had and will continue to have
anticompetitive effects, including:
Increasing the retail prices of trade e-books;
Eliminating competition on price among e-book retailers;
Restraining competition on retail price among the Publisher Defendants; Restraining competition among the Publisher Defendants for favorable
relationships with e-book retailers;
Constraining innovation among e-book retailers; Entrenching incumbent publishers' favorable position in the sale and
distribution of print books by slowing the migration from print books to e-books;
Making more likely express or tacit collusion among publishers; and
Reducing competitive pressure on print book prices.
Defendants' agreement and conspiracy is not reasonably necessary to accomplish
any procompetitive objective, or, alternatively, its scope is broader than necessary to accomplish
any such objective.
To remedy these illegal acts, the United States requests that the Court:
Adjudge and decree that Defendants entered into an unlawful contract,
combination, or conspiracy in unreasonable restraint of interstate trade and commerce in
violation of Section 1 of the Sherman Act, 15 U.S.C. § 1;
Enjoin the Defendants, their officers, agents, servants, employees and
attorneys and their successors and all other persons acting or claiming to act in active concert or participation with one or more of them, from continuing, maintaining, or
renewing in any manner, directly or indirectly, the conduct alleged herein or from
engaging in any other conduct, combination, conspiracy, agreement, understanding, plan, program, or other arrangement having the same effect as the alleged violation or that
otherwise violates Section 1 of the Sherman Act, 15 U.S.C. § 1, through fixing the
method and manner in which they sell e-books, or otherwise agreeing to set the price or
release date for e-books, or collective negotiation of e-book agreements, or otherwise
collectively restraining retail price competition for e-books;
Prohibit the collusive setting of price tiers that can de facto fix prices;
Declare null and void the Apple Agency Agreements and any agreement
between a Publisher Defendant and an e-book retailer that restricts, limits, or impedes the
e-book retailer's ability to set, alter, or reduce the retail price of any e-book or to offer
price or otherpromotions to encourage consumers to purchase any e-book, or contains a
retail price MFN;
Reform the agreements between Apple and Publisher Defendants to strike
the retail price MFN clauses as void and unenforceable; and
f. Award to Plaintiff its costs of this action and such other and further relief
as may be appropriate and as the Court may deem just and proper.
DATED: APRIL 11,2012
/*<£-
"SrlARIS^^jDZEN
Acting<A§sistant Attorney General for
DANIEL MCCUAIG
NATHAN P. SUTTON
MARY BETH MCGEE OWEN M. KENDLER
WILLIAM H. JONES II
STEPHEN T. FAIRCHILD
Attorneys for the United States Litigation III Section
450 Fifth Street, N.W., Suite 4000 Washington, D.C. 20530
DeputyAssistant Attorney'
IELMAN
ChiefGetmsel for Competition Policy and Intergovernmental Relations
Telephone: (202) 307-0520 Facsimile: (202) 514-7308 daniel.mccuaig@usdoj .gov nathan.sutton@usdoj.gov mary.beth.mcgee@usdoj .gov owen.kendler@usdoj .gov bill.jones2@usdoj.gov stephen.fairchild@usdoj .gov
>ATRICIA A. BRINK Director of Civil Enforcement
mark.w.ryan@usdoj .gov
JOHN R. READ
Litigation III Section david.kully@usdoj .gov
1£\
JS 44C/SDNY REV. 5/2010
The JS-44 civil cover sheet and Ihe Information contained heroin neither replace nor supplement the ftting and service of pleadings or other papers as required by law. except as provided by local rules of court. This form, approved by the
^^!™;zz:^rs,atas ,n sep,ember ™-* —•-*- -—™ •"*-- ->-°- DEFENDANTS
Apple, Inc., et al. See Attachment A, "Defendants"
ATTORNEYS (FIRM NAME; ADORESS. AND TELEPHONE NUMBER
Daniel McCuaig (Attorney of Record) See Attachment B, "Plaintiffs Attorneys"
See Attachment C,"Defendants* Attorneys"
CAUSE OF ACTION (cite the u.s. civil statute under which you are filing ano write abrief statement ofcause)
15U.S.C. § 1,Anticompetitive agreement in restraint oftrade
Has this or asimilar case been previously filed in SONY at any time? No?D Yes? fj] Judge Previously Assigned Cote If yes, was Itts case VolD Invol. D Dismissed. NoB Yes D If yes, give date & Case No.
(PLACE AN jx] IN ONE BOX ONLY)
( I 400 STATE REAPPORTIONMENT
1110 INSURANCE 1120 MARINE I130MILLERACT 1140 NEGOTIABLE
(1310 AIRPLANE II31S AIRPLANE PROOUCT
(1610 ( 1620
( 1362 PERSONAL INJURY (1365
MED MALPRACTICE ( |62S PERSONAL INJURY PROOUCT LIABILITY ASBESTOS PERSONAL INJURY PROOUCT (1630
( |423 WITHDRAWAL
(|320 ASSAULT. LIBEL *
DRUGRELATEO SEIZURE OF
PROPERTY 21 USC 881
( 1430 1)450 (|460 (|470
(|368
(1330 FEDERAL
[ 1150 RECOVERY OF
JUOGMENT
(1340 MARINE (1345 MARINE PRODUCT
(1640 (1650 ( (660 (1690
: MS1MEOICAREACT ; 1152 RECOVERY OF
DEFAULTED STUOENT LOANS
LIQUOR LAWS RR STRUCK AIRLINE REGS OCCUPATIONAL SAFETY/HEALTH
OEPORTATION RACKETEER INFLUENOEO& CORRUPT ORGANIZATION ACT
( 1820 COPYRIGHTS ( 1830 PATENT
( J840 TRADEMARK
1153 RECOVERY OF OVERPAYMENT OF VETERAN'S BENEFITS
(|3S0 MOTOR VEHICLE (1355 MOTOR VEHICLE PROOUCT LIABILITY ( |360 OTHER PERSONAL
(1370 OTHER FRAUO (|371 TRUTH IN LENOING ( | 380 OTHER PERSONAL PROPERTY OAMAGE (1385 PROPERTY DAMAGE
I 1480 (1490 (|810 (|8S0
( | 710
STANOARDSACT LABOR/MGMT RELATIONS
( 1861 HIA(139Sfl) ( | 862 BLACK LUNG (923)
I 1875
( 1863 OtWODIWW (405(g))
( J864 SSIO TITLE XVI
1160 STOCKHOLDERSSUITS
1190 OTHER CONTRACT 1195 CONTRACT PROOUCT
( I 865 RSI (405(g))
I |890 (1891 (1892
( 1730
LABOR/MGMT
REPORTING* FEDERAL TAX SUITS DISCLOSURE ACT RAILWAY LABOR ACT ( 1870 TAXES (U.S Plaintiffor OTHER LABOR Defendant) LITIGATION ( |871 IRS-THIRO PARTY EMPLRETINC 26 USC 7609 SECURITY ACT
[J740 (1790
PRISONER PETITIONS (1510 MOTIONS TO VACATE SENTENCE {|791
(1893 (1894 (1895
IEAL PROPERTY ( |441 VOTING
1210 LAND CONDEMNATION 1220 FORECLOSURE 1230 RENT LEASE*
(1442 EMPLOYMENT ( 1443 HOUSING/
1240 TORTS TO LAND |245 TORT PROOUCT
( 1444 WELFARE (1445 AMERICANS WITH
OtSABUJTieSEMPLOYMENT
|290 ALL OTHER
( 1530 (IS3S (|S40 tlSSO (1555
20 USC 2255 HABEAS CORPUS ( 1462 OEATH PENALTY MANDAMUS* OTHER (1463 CIVIL RIGHTS
CONSUMER CT«DIT CABLE/SATELLITE TV SELECTIVE SERVICE SECURITIES/ COMMODITIES/ EXCHANGE CUSTOMER CHALLENGE 12 USC 3410 OTHER STATUTORY ACTIONS AGRICULTURAL ACTS ECONOMIC STABILIZATION ACT ENVIRONMENTAL MATTERS ENERGY ALLOCATION ACT FREEDOM OF INFORMATION ACT APPEAL OF FEE DETERMINATION
HABEASCORPUSALIEN DETAINEE
UNDER EQUAL ACCESS TO JUSTICE
(1446 AMERICANS WITH DISABILITIES-OTHER (|440 OTHERCMLRIGHTS
{ 1465
(|9S0 CONSTITUTIONALITY OF STATE STATUTES
CftecA- if demanded in complaint:
DO YOU CLAIM THIS CASE IS RELATED TO ACIVIL CASE NOW PENDING IN S DNY?
IF SO, STATE: JUDGE
UNOER F.RC.P. 23
JEMAND $
tec* YES onlyifdemanded in complaint
URY DEMAND: D YES 0 NO
. DOCKET NUMBER1:11 -md-02293 See Attachment E, "Statement of Related Case"
NOTE: Please submit atthetime oftiling anexplanation ofwhy casesare deemed related.
(PLACE AN x IN ONE BOX ONLY)
Annul! a td Pnurt Appellate Court
Ld 1 Original
L] 2a. Removed from • 3 Remanded from • 4 Reinstated or
Stat A Court State Cmlrf DAnnAHA^ Reopened
Q 5 Transferred from Q 6 Multidistrict
/O :*.. r.i..,:..» {Specify Oistrict)
• 7Appeal to Oistrict
Judge from Magistrate Judge Judgment
. ,.,__-.__
LI 2b.Removed from
State Court ANO
01 U.S. PLAINTIFF 0 2 U.S. DEFENDANT • 3 FEDERAL QUESTION
(U.S. NOT A PARTY)
D4 DIVERSITY
IF DIVERSITY, INDICATE CITIZENSHIP BELOW.
(28 USC 1322, 1441)
PTF OEF
CITIZEN OF THIS STATE
£ I 3 t 13
f. ) « (M
INCORPORATED and PRINCIPAL PLACE
[J5
CITIZEN OF ANOTHER STATE
( ]2
{ | 2
INCORPORATED or PRINCIPAL PLACE
United States Department of Justice Antitrust Division, Litigation III
450 5th Street NW, Suite 4000 Washington, D.C. 20530
DEFENDANTS) ADDRESS(ES) AND COUNTY(IES)
See Attachment D, "Defendants) Address(es) and County(ies)"
DEFENDANTS) ADDRESS UNKNOWN
REPRESENTATION IS HEREBY MADE THAT. ATTHIS TIME. I HAVE BEEN UNABLE. WITH REASONABLE DILIGENCE TO ASCERTAIN THE
(DONOTcheck eitherbox if this a PRISONER PETITION.)
Q WHITE PLAINS
\7\ MANHATTAN
TE,/
/<2o(2 SIGWTUREJjjIAJTORNEY Of RECORD * Authorized to represent the UnitetTSrates.
28 U.S.C. §517.
ADMITTED TO PRACTICE IN THIS DISTRICT
M NO*
( J YES (DATE ADMITTED Mo.
Attorney Bar Code #
Magistrate Judge is to be designated by the Clerk of the Court. Magistrate Judge •
Deputy Clerk. DATED is so Designated.
UNITED STATES DISTRICT COURT(NEW YORK SOUTHERN)
Attachment A to Civil Cover Sheet
Apple, Inc. Hachette Book Group, Inc. HarperCollins Publishers L.L.C. Verlagsgruppe Georg von Holtzbrinck GmbH Holtzbrinck Publishers, LLC d/b/a Macmillan The Penguin Group, A Division of Pearson PLC Penguin Group (USA), Inc.
Attachment B to Civil Cover Sheet
Mark W. Ryan mark.w.ryan@usdoj.gov David C. Kully david.kully@usdoj .gov
Daniel McCuaig* daniel.mccuaig@usdoj .gov
nathan.sutton@usdoj .gov
Mary Beth McGee
mary.beth.mcgee@usdoj .gov
owen.kendler@usdoj .gov
bill j ones2@usdoj .gov Stephen T. Fairchild stephen.fairchild@usdoj .gov
450 5th Street, NW, Suite 4000 Washington, D.C. 20530 Telephone: (202) 307-0520 Facsimile: (202) 514-7308
*Attorney of Record
Attachment C to Civil Cover Sheet
Defendants' Attorneys Apple, Inc.
O'Melveny & Myers LLP 1625 Eye Street, NW Washington, DC 20006
rparker@omm.com
Paul Yde
Freshfields Bruckhaus Deringer US LLP 701 Pennsylvania Avenue, NW
Washington, DC 20004-2692
Skadden, Arps, Slate, Meagher & Flom LLP Four Times Square
Verlagsgruppe Georg von Holtzbrinck GmbH & Holtzbrinck Publishers, LLC d/b/a
Macmillan Joel M. Mitnick
The Penguin Group, A Division of Pearson PLC & Penguin Group (USA), Inc.
Daniel F. Mclnnis
Akin Gump Strauss Hauer & Feld LLP 1333 New Hampshire Avenue, NW Washington, DC 20036-1564
UnitedStates v. Apple, Inc. et al.
Attachment D to Civil Cover Sheet
Apple, Inc. 1 Infinite Loop Cupertino, CA 95014
10 E. 53rd Street
GansheidestraBe 26
Stuttgart 70184 Germany
The Penguin Group, A Division of Pearson PLC
Pursuant to Rule for the Division of Business Among District Judges (Southern District) 13, the United States respectfully requests that this case, United States v. Apple, Inc. et al., be designated as related to In re Electronic Books Antitrust Litigation, No. 1:1l-md-02293 (DLC), presently pending before the Honorable Judge Denise Cote. Both cases involve allegations of violations of Section 1 of the Sherman Act, 15 U.S.C. § 1, in
overlap as to the identity of the defendants as well as the factual allegations giving rise to the antitrust claims in the different cases. The United States believes that assigning this case to Judge Cote will therefore promote judicial efficiency and facilitate reasonable
coordination among the parties to the proceedings. At this time, the United States has no plans to move to join these cases for trial pursuant to Rule 13(e).
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