By Jeffrey A. Trachtenberg and Dana Mattioli 

Amazon.com Inc., which originally came up with the idea of charging bargain-basement prices for electronic books, is now being accused of forcing customers on other book sites to pay too much for them.

A lawsuit filed Thursday in a federal district court in New York alleges that a deal between Amazon and five major book publishers has led to higher e-book prices for all consumers, because it prevents rival retailers from selling any of these publishers' e-books at a lower price than on Amazon.

The suit, which was filed by the law firm Hagens Berman and is seeking class-action status, said Amazon charges high commissions and other costs to publishers, "which in turn significantly increases the retail price of the e-books they sell on Amazon.com." As a result of the deal with the five big publishers, the price they charge on Amazon also has to be the price they charge everywhere else.

"In a competitive market, the Big Five could sell e-books at a lower price on their own websites or through Amazon's retail competitors that offer lower commissions and fees," the lawsuit said.

Calling it a "conspiracy to fix the retail price of e-books," the suit alleges that the deal between Amazon and the five publishers -- which it said account for 80% of all books sold in the U.S. -- violates antitrust law.

"If you are Barnes & Noble and your stores are in trouble and your Nook device didn't go as far as you'd have liked, you would have liked to be able to say that your digital books are 10% cheaper than on Amazon," said Gregory Arenson, an antitrust lawyer and partner at Kaplan Fox & Kilsheimer LLP.

The five publishers cited in lawsuit are HarperCollins Publishers, which like The Wall Street Journal is owned by News Corp.; Lagardère SCA's Hachette Book Group; Penguin Random House, a unit of closely held German media company Bertelsmann SE; Simon & Schuster, the book publishing arm of ViacomCBS Inc., and Macmillan. Penguin Random House has agreed to acquire Simon & Schuster, pending regulatory approval.

Amazon and all five publishers declined to comment. Barnes & Noble didn't have an immediate comment.

Under current U.S. antitrust law, a company typically isn't viewed as being anticompetitive if customers aren't harmed by the company's actions. One of the major ways customer harm is determined is if a company agrees with others to increase prices above the level they otherwise would have been at.

"All you have to show is the agreement, the impact on the customer, and then seek damages," said Mr. Arenson of the deal between Amazon and the five publishers.

Amazon is the dominant U.S. e-book retailer, accounting for 76% of digital books sold in the U.S. in September, according to Codex Group LLC, a book-audience research firm. Rival sellers of digital books include Apple Inc., Alphabet Inc.'s Google and Barnes & Noble, which is owned by the hedge fund Elliott Management Corp.

The suit challenges the notion that Amazon has been a force for lower e-book prices. Amazon kick-started the business when it introduced its Kindle e-reader in November 2007, a launch that promoted digital bestsellers for $9.99. The discounted offering helped Amazon build market share, but the company was criticized by publishers at the time for hurting the industry.

A few years later, Apple entered the business as it launched the iPad, with deals that allowed publishers to set the retail prices of their books. That upended the old model, where publishers let retailers set prices for consumers, and effectively blocked discounting without publishers' approval.

The Justice Department subsequently filed its civil antitrust suit against Apple and five major publishers. The publishers settled. Apple went to trial but lost.

Amazon is currently at the center of a number of investigations into the way it competes. In October, the House Antitrust Subcommittee completed a 16-month investigation into Amazon and other technology companies, concluding that Amazon has amassed "monopoly power" over sellers on its site.

The U.S. Justice Department in 2019 launched a broad investigation of the market power of large technology companies including Amazon, and the Federal Trade Commission has oversight of Amazon as part of a broader look into the business practices of big tech companies.

The state of Connecticut is also investigating Amazon's business practices in the electronic book market, the Journal reported, with a focus on how the Seattle giant sells and distributes digital books. In addition to Connecticut, investigators from California are looking into Amazon's business practices, the Journal has reported.

Third-party sellers in other categories on Amazon, such as toys, have also complained about Amazon pressuring them to sell their wares for lower prices on Amazon than at other retailers. Amazon has received backlash for the practice and changed the terms in recent years so as not to run afoul of regulators in the U.S. and in Europe.

Write to Jeffrey A. Trachtenberg at jeffrey.trachtenberg@wsj.com and Dana Mattioli at dana.mattioli@wsj.com

 

(END) Dow Jones Newswires

January 15, 2021 17:25 ET (22:25 GMT)

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