A group of more than thirty states have agreed to a $52 million settlement from three publishers as part of a price fixing investigation involving Apple. More money may be on the way. While state leaders say the money is for overcharged consumers, the arrangement is unusual.
The tens of millions at stake raise questions about the political and business motives behind the deal, and could provide more fodder for critics who question government decisions in the high-profile e-book case.
The case involves the question of whether Apple and five publishers broke antitrust laws by introducing a commission-style pricing system for e-books in early 2010. The new pricing system was a response to Amazon selling e-books below cost.
The partnership between the publishers and Apple soon touched off a wave of class action lawsuits over alleged price-fixing as well as investigations by the Justice Department and state governments. The controversy crested this spring when the Justice Department formally sued Apple and five publishers for violating the Sherman Act.
Three of the publishers promptly settled and agreed to change their pricing policies but Apple and two other publishers, Penguin and MacMillan, are fighting the case in court. The court proceedings (including the settlement talks) are a sprawling affair scheduled to take years. The case has become especially complicated, however, due to the overlapping roles of the Justice Department, the state governments, and the class action lawyers.
The Justice Department is only asking Apple and the publishers to change their pricing — not to pay out any money. It is the state governments and the lawyers who are seeking damages.
Class action lawsuits are commonplace, but the one filed by the state governments is not. The states’ case is based on a power called parens patriae (“parent of the nation”) that lets them sue on behalf of their citizens.
Connecticut and Texas initiated the civil lawsuit in April and more than thirty other states and Puerto Rico since decided to tag along. The dozen or so states sitting it out are mostly in the west.
For the states that are taking part, the initial lawsuit paid immediate dividends. In April, the Connecticut Attorney General held up a trophy in the form of a $52 million settlement with publishers Hachette and Harper Collins which will be used to pay “consumer restitution.” A third publisher, Simon & Schuster, settled soon after. The details of the Simon & Schuster deal have yet to be released but, if it’s consistent with the previous settlements, that publisher will also pay tens of millions.
If Connecticut’s prize was an immediate win for the states, it was a direct loss for the class action lawyers. These lawyers, who filed dozens of cases on behalf of Americans across the country, will not be able to collect if the defendants have already paid once to the state governments. (Right now, the class action lawyers still have a hope of collecting from Apple and the two holdout publishers — unless they too decide to settle with the states.)
Parens patriae suits have been around forever but are still quite rare. The most prominent ones involve mass torts related to pollution or industry.
For now, the states are scheduled to file for a preliminary approval of the settlement with the three publishers in late August. That filing (if it is not delayed) will lead to a period in which groups, including the class action lawyers, can file objections.