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Amazon hit with class action antitrust lawsuit claiming it colluded with major publishers to illegally drive up ebook prices by 30%

Business Insider logo Business Insider 1/15/2021 tsonnemaker@businessinsider.com (Tyler Sonnemaker)
Jeff Bezos wearing a suit and tie holding his hand up: Amazon CEO Jeff Bezos holds two Kindle Fire HD devices during a press conference on September 6, 2012 in Santa Monica, California. David McNew/Getty Images © David McNew/Getty Images Amazon CEO Jeff Bezos holds two Kindle Fire HD devices during a press conference on September 6, 2012 in Santa Monica, California. David McNew/Getty Images
  • Amazon is facing fresh antitrust scrutiny after consumers filed a lawsuit Thursday accusing the company of illegally colluding with major book publishers to drive up prices for ebooks.
  • The lawsuit claimed that Amazon negotiated anticompetitive deals in 2015 with the "big five" publishers — Hachette, HarperCollins, Macmillan, Penguin Random House, and Simon & Schuster — that allowed them to "inflate" prices by up to 30%.
  • Amazon, which controlled nearly 90% of the ebook market as of 2018, was able to benefit immensely from the higher prices by charging consumers more, according to the lawsuit.
  • Apple was found guilty in 2013 of colluding with the same five publishers — using a similar pricing practice — to illegally fix ebook prices, and lawmakers in the US and EU have previously criticized Amazon's alleged use of the so-called "most favored nations" clauses.
  • Visit Business Insider's homepage for more stories.

Several ebook customers on Thursday filed a lawsuit against Amazon accusing it of violating antitrust laws by illegally colluding with the "big five" publishing houses to drive up the prices of ebooks.

The lawsuit alleged that Amazon entered into anticompetitive pricing agreements in 2015 with Hachette, HarperCollins, Macmillan, Penguin Random House, and Simon & Schuster that allowed the companies to artificially increase prices by as much as 30%.

Amazon, which controlled 89% of the ebook market as of 2018, according to a Bloomberg analysis cited in the suit, then used its dominance to benefit from those prices hikes by charging consumers more.

"Time and again, Amazon's response to competition is not to compete on a level playing field, but to try to eliminate the competition - and that's not how things are supposed to work," Steve Berman, managing partner of Hagens Berman, the law firm that brought the suit, told Business Insider in a press release.

Amazon and Hachette declined to comment. The other publishers did not respond to requests for comment.

The lawsuit alleged that Amazon illegally inflated prices using a tactic called as "pricing parity," which relies on "most-favored-nation" clauses. MFNs are, in the business context, agreements between buyers and sellers that ensure a buyer gets as good of a deal on that seller's products as any other buyer in the market.

But the lawsuit - similar to previous investigations by lawmakers in the US and EU - accused Amazon of using MFNs to instead prevent publishers from selling their ebooks to consumers at a lower price on websites that compete with Amazon.


Video: Amazon faces class-action over ebook pricing (Reuters)

"Amazon's behavior is astonishingly brazen, especially in light of past litigation and recent government actions in the US and abroad," Berman said.

The EU reached an agreement with Amazon in 2015 over its use of MFNs, saying at the time that the practice "may have made it more difficult for other e-book platforms to innovate and compete effectively with Amazon." That agreement barred the practice for five years, but only in the EU.

In its landmark antitrust report in October 2020, the House Judiciary Committee also slammed Amazon over the issue, saying: "Amazon has a history of using MFN clauses to ensure that none of its suppliers or third-party sellers can collaborate with an existing or potential competitor to make lower-priced or innovative product offerings available to consumers."

Amazon previously used a similar pricing tactic to prevent other third-party sellers on its online marketplace from charging customers more on competing sites, ending the practice in March 2019 amid heightened antitrust scrutiny.

The scheme Amazon and the big five publishers are accused of employing isn't new to the ebook industry, either.

In 2013, a federal court ruled that Apple illegally colluded with the same publishers to raise the prices of ebooks, sending the price skyrocketing virtually overnight, and the company eventually had to pay a $450 million penalty.

The court also barred publishers from colluding with each other or using MFNs for five years. According to Thursday's lawsuit, that led to lower ebook prices in 2013 and 2014, before Amazon's renegotiated deals in 2015 caused prices to surge again.

chart, line chart: An analysis of Amazon ebook prices included in the lawsuit that claims prices spiked after Amazon signed contracts with "big five" publishers. Hagens Berman © Hagens Berman An analysis of Amazon ebook prices included in the lawsuit that claims prices spiked after Amazon signed contracts with "big five" publishers. Hagens Berman

The lawsuit, filed in the Southern District of New York, is seeking class-action status, and the plaintiffs are asking the court to reimburse consumers who were overcharged by Amazon competitors as a result of the alleged price-fixing as well as force Amazon and the publishers to abandon the practice.

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