Amazon.com, ‘Big Five’ Publishers Conspired to Fix Prices for E-Books, Class Action Alleges

Readers who’ve bought e-books from the biggest publishers through various online retail outlets have paid “supracompetitive” prices as the result of a price-fixing conspiracy, a proposed class action alleges. 

The 37-page antitrust lawsuit alleges that contractual agreements between Amazon.com and the dominant “Big Five” publishers—Hachette Book Group, HarperCollins Publishers, Macmillan Publishing Group, Simon & Schuster and Penguin Random House—prevent Amazon’s actual and potential rivals from implementing competitive pricing models, thereby causing consumers who buy e-books from retailers other than Amazon to be overcharged.

“Had Amazon and its Big Five co-conspirators only raised prices on Amazon, consumers would be free to shop for competitively-priced e-books on other online platforms,” the complaint, filed in New York’s Southern District Court, says. “But they agreed to price restraints that prevent that from happening.”

In a competitive market, the Big Five, who are not named as defendants, could sell e-books at lower prices on their own websites or through Amazon’s competitors who might offer lower commissions and fees, the case argues. But the publishers have “agreed with Amazon not to do that,” thereby preventing Amazon.com’s competitors from expanding their market shares while at the same time reducing incentive for other sellers to enter the game, the complaint says.

Ultimately, consumers have been harmed in that Amazon and the Big Five have effectively eliminated price competition in the roughly $6 billion domestic trade e-book market, the lawsuit claims, characterizing the defendant’s alleged conduct with the publishers as “an abuse of monopoly power” in violation of federal antitrust laws.

Price-fixing conspiracy is nothing new, lawsuit says

At the center of the lawsuit are “trade books,” a category that encompasses general interest fiction and non-fiction titles as opposed to academic textbooks, reference materials or other texts, the complaint begins. Trade books published by the Big Five account for approximately 80 percent of domestic trade book sales in the country, the lawsuit says, adding that the companies are responsible for the publication of some of the most popular books and authors across all writing genres.

The Big Five generally sell e-books to the public through online retail platforms such as Amazon, Barnes & Noble and Apple Books under a business arrangement called the “agency model,” the suit says. With the agency model, online platforms through which e-books are sold by the Big Five serve as the publishers’ sales agents and take a commission on every book sold. For background, the Big Five essentially forced Amazon to adopt the agency model years ago by threatening to withhold their e-books for seven months after the release of the corresponding print book, the complaint says.

Over the last decade, investigations have been conducted by European and U.S. authorities, including the Connecticut Attorney General’s office, into the publishers’ e-book businesses, the complaint relays. In addition, the U.S. Department of Justice (DOJ), along with attorneys general from a number of states, levied a civil action against the Big Five in early 2012, alleging that the publishers colluded with Apple to raise the retail prices of e-books, the case says.

Back then, the suit says, the agreement between Apple and the publishers involved switching from a standard wholesale model—in which the retailer decides prices—to the above-referenced agency model, wherein the publisher sets retail prices and the retailer wets its beak by earning sales commissions. In describing the arrangement between Apple and the Big Five, the lawsuit says the publishers agreed to what are known as “most favored nation” clauses—essentially a guarantee of favoritism—with Apple, and were thereby required to sell their e-books for the same prices in Apple’s online store as they did in the stores of all other e-book sellers—including Amazon.

What resulted were two consent decrees from a New York federal court against the Big Five, the suit says, noting the publishers also reached settlements around the same time with the EU Commission.

“Both the consent decrees and settlements required the Big Five to cease colluding with each other, to refrain from using [most favored nation clauses] in their agreements with e-book retailers for five years, and to permit e-book retailers to subtract their own discounts from the retail prices of the Big Five’s e-books for two years,” the lawsuit reads.

During those two years, the complaint goes on, the Big Five’s e-book prices “decreased substantially” before immediately increasing again in 2015 once the companies renegotiated their agency agreements with Amazon.

“Although Amazon claimed publicly that it was negotiating with the Big Five to ensure that it could continue to discount their e-books following the term of the consent decree, that did not transpire,” the complaint claims.

According to the lawsuit, each of the Big Five publishers raised their e-book prices the week after disclosing their respective agency contracts with Amazon and continue to “maintain supracompetitive prices,” or prices that would not be sustainable in a competitive market.

An EU Commission investigation commenced in 2015 determined that Amazon had also used most favored nation clauses in its agreements with the Big Five that required the publishers to set retail prices on Amazon that were no higher than retail prices charged by competitors, the case continues. According to the suit, the EU Commission found that the contractual agreements between the publishers and Amazon had “probable anticompetitive effects,” and a settlement was reached in 2017 that prohibited Amazon from enforcing its most favored nation clauses and similar provisions for five years.

The lawsuit says, however, that the settlement had no effect on Amazon’s agreements with the Big Five publishers here in the United States.

Today’s e-book readers see more of the same, suit claims

After a broad 16-month investigation into competition in digital markets, the House Judiciary Committee, who launched the probe in 2019, determined that Amazon’s use of most favored nation clauses in its agreements with book publishers was indeed harmful to the retail book market, the lawsuit says. According to the complaint, the House report stated, in part, that Amazon’s “dominance in e-books” and “anticompetitive application” of most favored nation clauses to its business relationships “eliminates the ability of rivals or new entrants to gain any meaningful competitive advantage relative to Amazon.”

Through its most favored nation clauses with the Big Five, Amazon has required, and the companies have agreed to grant, “prices, terms, and conditions equal to or better” than those offered to the defendant’s competitors. Moreover, Amazon mandates that it be notified about such terms, a requirement that serves to restrict discounts to consumers and stifle innovation in the trade e-book market, the suit claims.

Once notified of the availability of its co-conspirators’ e-books at lower prices, Amazon typically ‘requested’ that they charge the same prices on Amazon. If publishers did not comply, Amazon retaliated or threatened to retaliate by disabling purchases for one or several of the publisher’s e-books on its platform, by excluding the publisher’s e-books from all promotional activity, by removing the pre-order buttons for the publisher’s e-books, or by prominently displaying banners for other publishers’ e-books.”

The contractual requirements laid out by Amazon prevent “actual and potential retail competitors from introducing alternative business models, offering promotional advantages, or offering customers lower prices on their own,” the complaint says, summarizing that the agency price model in which Amazon and the Big Five operate has contractually obligated the publishers to more or less do what Amazon says with regard to setting prices or offering discounts.

Further, whereas one would think readers would benefit from the cost reductions related to the low printing and distribution expenses of e-books when compared to printed texts, the high commissions and other costs Amazon charges to publishers all but wipe out those savings, the complaint summarizes:

Amazon increases the cost of selling e-books by tying its distribution services (e.g., helping consumers find and purchase e-books on the Amazon platform, processing payments, delivering e-books) to its advertising services, which are designed to optimize the placement of advertisements to consumers on its online platform. Amazon further raises the Big Five’s selling costs by manipulating e-book ‘discovery tools to make a publisher’s books difficult to find without the purchase of advertising or refuses distribution unless the publisher also purchases advertising.’”

Who’s covered by the lawsuit?

The case looks to cover all individuals who, on or after January 18, 2017, purchased in the U.S. one or more e-books sold by any of the Big Five publishers through any online retail platform nationwide other than Amazon.com.

How do I join?

As with most class actions, there’s generally nothing you need to do to “join” the case. You’ll likely only need to take action when and if the case settles. You can read more about this right here.  

How do I keep track of this case?

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The complaint can be found below.