It was this coordinated effort that raised flags for federal investigators.
“We allege that these executives knew full well what they were doing,” Acting Assistant Attorney General Sharis Pozen said.
None of the firms have admitted wrongdoing, but three publishers — Hachette, HarperCollins and Simon & Schuster — have agreed to settle the case. Apple is contesting the charges, embarking on its most prominent fight with Washington. Macmillan and Penguin Group have declined to settle as well.
“It is also hard to settle a lawsuit when you know you have done no wrong,” Macmillan chief executive John Sargent said in a statement.
The scope of the Justice Department’s investigation — and the fact that several firms are not backing down — are testaments to the intensity of the battle for dominance in a billion-dollar market that is expected to triple by 2015. A recent survey by the Pew Research Center’s Internet and American Life Project found that one-fifth of American adults read an electronic version of a book in the past year.
The problem for publishers, however, is that consumers expect e-books to be priced substantially lower than printed ones because they are cheaper to produce and distribute. But publishers were outraged when Amazon pushed prices even lower when it sold e-books for $9.99 as a way to encourage consumers to buy its Kindle e-reader.
According to the Justice Department complaint, publishers worried that this would lead to lower wholesale prices for e-books and reduce the amount consumers would pay for any books. Ultimately, they feared that Amazon’s dominance in distribution would allow it to bypass publishers altogether and sell content directly from authors.
Even as it announced its settlement with the government on Wednesday, Hachette pointed to Amazon as the real industry predator.
“Amazon effectively had a monopoly on the sale of e-books and e-readers, and was selling products below cost in an effort to exclude competitors,” the company said in a statement. “We believe the DOJ and the state [attorneys general] have a responsibility to consumers to ensure that the market for e-books remains diverse and competitive, and that we don’t return to the days of monopoly.”
But Justice said the publishers’ response to Amazon’s threat crossed the line. Starting around fall 2008, the suit said, they began meeting to discuss what was called “the $9.99 problem” and decided to act together to try to force Amazon to raise its prices. The opportunity presented itself in 2009 as Apple prepared to launch its iPad, according to the complaint. It wanted to create an e-book marketplace similar to iTunes but was concerned that profit margins were too thin.