The Justice Department probing Apple and five major US publishers over alleged price fixing of electronic books

9to5 Staff | Mar 8 2012 - 4:43 am PT

The Wall Street Journal reports that the United States Justice Department threatened to launch an antitrust lawsuit against Apple and five of the nation’s biggest book publishers over an alleged price-fixing that has resulted in higher prices of e-books.

Several of the parties have held talks to settle the antitrust case and head off a potentially damaging court battle. If successful, such a settlement could have wide-ranging repercussions for the industry, potentially leading to cheaper e-books for consumers. However, not every publisher is in settlement discussions.

The government is specifically aiming to probe CBS Corp.’s Simon & Schuster Inc., Lagardere SCA’s Hachette Book Group, Pearson PLC’s Penguin Group (USA), Macmillan, a unit of Verlagsgruppe Georg von Holtzbrinck GmbH, and HarperCollins Publishers Inc., a unit of News Corp. that also owns The Wall Street Journal.

At question: The so-called agency model where publishers freely set prices of their titles on Apple’s iBookstore before the Cupertino company reaps 30 percent of the proceeds. The freedom to pick the price has led most—if not all— publishers to allegedly raise prices of e-books across the board as they feared customers would get accustomed to inexpensive $9.99 Kindle books from Amazon.

Barnes & Noble CEO William Lynch already gave a deposition to the U.S. Justice Department. He said abandoning the agency model would allow a single party to achieve dominance in the marketplace, alluding to Amazon. According to the people familiar with the matter, the U.S. Justice Department believes that Apple and the publishers “acted in concert to raise prices across the industry, and is prepared to sue them for violating federal antitrust laws.”

Such a serious accusation might harm Apple and publishers, so it is conceivable they will do whatever it takes to avoid an antitrust lawsuit. Another issue is Apple’s iBooks contract that includes a clause precluding publishers from selling e-books to other parties at a cheaper rate. Publishers are also scrutinized for their 2009 practice of “windowing” e-books for a limited time after the publication of the hardcover edition. Of course, Uncle Sam is following in the footsteps of the European Commission. The executive body launched an investigation last December to determine whether Apple and five major e-book publishers colluded to restrict competition in the market for e-books, thereby breaching EU antitrust rules that prohibit cartels and restrictive business practices. The five European publishers under scrutiny by the Commission are:

Hachette Livre, a unit of France’s Lagardere Publishing; Harper Collins, owned by Rupert Murdoch’s U.S.-based News Corp.; CBS Corp.’s Simon & Schuster; Penguin, owned by U.K. publishing house Pearson Group; and Germany’s Verlagsgruppe Georg von Holtzbrinck.

The European Commission will examine the agency agreements Apple signed with e-book retailers, which specify important terms of business, such as price points and the retailer’s cut of the profit. The EU probe arrived after the Commission conducted a raid of the offices of several e-book publishers in March of last year.