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Seattle law firm Hagens Berman has filed a class action suit in the U.S. District Court for the Northern District of California claiming that Apple and several publishers illegally conspired to fix e-book prices. As spelled out in the suit, prior to Apple’s 2010 entry into the e-book market, Amazon.com had worked out a 2007 deal with the major publishing houses using a “wholesale model” for pricing that mirrored arrangements used with physical bookstores. As a result, Amazon was able to sell many popular e-book titles at the consumer-friendly price of $9.99. According to MacRumors blogger Jordan Golson, “Publishers were concerned that Amazon’s aggressive $9.99/book pricing strategy—where the bookseller sold books for a loss, presumably to drive adoption of its new Kindle platform—would quickly erode the profits and reduce the perceived value of their books. Random House was concerned the agency model would lead to a price war between the publishing houses.” Apple’s e-book marketplace, the iBookstore, launched using an “agency model” with publishers, which, as reported by Wired‘s Matthew Lasar, allowed Apple to “act as an agent for the publishers, accepting their pricing and simply taking a cut of the proceeds.” In the wholesale pricing approach, the retailer buys each digital copy from the publisher and can set its own pricing—even if that means taking an intentional loss on some titles to encourage customers to buy other products. Along with Apple, the suit names HarperCollins, Hachette Book Group, Macmillan, Penguin Group Inc., and Simon & Schuster Inc. as parties to the price-fixing scheme. Lasar quotes Hagens Berman attorney Steve Berman saying, “Fortunately for the publishers, they had a co-conspirator as terrified as they were over Amazon’s popularity and pricing structure, and that was Apple. . .We intend to prove that Apple needed a way to neutralize Amazon’s Kindle before its popularity could challenge the upcoming introduction of the iPad, a device Apple intended to compete as an e-reader.”

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