Attorney General weighs in on Apple eBook price-fixing

Attorney General George Jepsen issued a statement today regarding Apple’s role in the eBook price-fixing case that could end up costing Apple $400 million dollars.

Last year a District Court ruled that Apple played a key role in a price-fixing conspiracy to artificially raise prices of eBooks and eliminate competition. Apple has appealed that decision to the U.S. Court of Appeals for the Second Circuit. Under the settlement, if Apple loses its appeal, it has agreed pay $400 million in compensation to eBook consumers and other relief.

Jepsen’s statement reads as follows:

“This settlement – contingent on the outcome of Apple’s appeal – represents a fair and equitable effort by all parties to resolve this litigation. EBook consumers across the country have already received compensation from $166 million in settlement funds paid by the five publishers involved in this price-fixing conspiracy. Through the terms of this settlement, they will receive additional compensation from another $400 million should the states prevail in the appeal. This enforcement action and the settlements that arose from it are representative of my continued commitment to ensuring Connecticut consumers the benefits of an honest, open and competitive marketplace. While we cannot predict the outcome of the appeal with certainty, we are confident in the case we made against Apple at trial.”

It is unfortunate that the transition from printed books to eBooks has been such a mess. At first traditional publishers balked at the idea. They didn’t want to have anything to do with eBooks, it was going to destroy their business and people were going to pirate books the same way they pirated music or movies. Then they wanted encryption and copy protection schemes that made it nearly impossible for people to download and read eBooks. Then they wanted to try and leverage eBooks sales and costs paid to distributors in order to pay authors less and less. Now we’re seeing price fixing and back-room deals.

And somehow everybody missed the fact that eBooks cost virtually nothing to publish, distribute and sell. There are no printing costs. No paper. No shipping. No returns of unsold copies. No inventories. And for the most part you don’t even need a human being to ring up the sale and say ‘have a nice day.’

There are only two critical people necessary for an eBook – the author and the reader. Everyone else is simply making money off someone else’s work.

It reminds me of when CDs began to replace vinyl records. An album might cost around $6 but a CD of that same album would cost $14 to $18. The claim was that the technology was complicated and production was expensive. But it turned out that to mass produce a CD it costs the publishers less than $.20 each while a vinyl record costs roughly five times that amount in raw materials.