Bigger Than Agency, Bigger Than E-Books: The Case Against Apple and Publishers


Screenshot from 2010 Steve Jobs iPad keynote introducing iBooks

Apple and five of the “Big Six” trade publishers are reportedly under investigation by the Department of Justice for antitrust violations. The point of concern is the five publishers’ staggered but identical move to an agency rather than a wholesale pricing model, not just for Apple, but for all e-book retailers — a move that caused e-book prices for consumers to rise.
But the DoJ’s investigation and a related civil lawsuit touch on issues bigger than rising e-book prices or even collusion between publishers. The cases are also about who has the right to sue e-book publishers, the nature of publishers’ bilateral interactions with Apple and other retailers, and whether it’s even possible for a true agency model to exist for virtual goods like e-books.
In an interview with The Wall Street Journal’s Thomas Catan, Justice Department antitrust official Sharis Pozen outlines the framework guiding the agency’s investigation. The real issue, Pozen says, isn’t the agency model, but secret agreements between competitors.
“We don’t pick business models — that’s not our job,” Pozen told the WSJ. “But when you see collusive behavior at the highest levels of companies, you know something’s wrong. And you’ve got to do something about it.”
Pozen points to the DoJ’s 2010 case against Apple and other technology companies, who in a settlement agreed to refrain from any agreements not to poach each other’s employees. The ultimate effect of such agreements doesn’t matter; the point is that they’re deals at the top of companies to refrain from fully competing with each other — and freeze out companies who don’t agree.
Pozen’s comments to the WSJ confirm what IP and antitrust experts have told Wired: this is much bigger than agency pricing alone.
“Plenty of business practices raise prices that aren’t antitrust violations,” says Donald Knebel, an IP and antitrust attorney affiliated with the Center for Intellectual Property Research. “Agency pricing is perfectly legal. But something isn’t an agency relationship just because you call it that.”
Knebel says there are three major points of law at stake in both the class-action suit and the Justice Department investigation against Apple and the five publishers:
  1. Whether and how the agency model applies to virtual goods;
  2. Whether Apple and publishers engaged in a “hub-and-spoke” conspiracy or simply “conscious parallelism”;
  3. The status of the “most-favored nation” clause, common to many legal contracts today, which Apple used to ensure that books could not be sold elsewhere at a lower price than in the iBooks store.

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