Justice Department Warns Apple And Publishers

Warnings have been given to Apple and five of the biggest United States publishers by the Justice Department. Lawsuits are pending for the alleged collusion of the companies named to raise the price of electronic books. The five publishers facing the potential suits are: Simon & Schuster Inc. (CBS Corporation), Hachette Book Group (Lagardere), Penguin Group, Macmillan and HarperCollins (News Corporation).

The case is centered around Apple. The company wants to change the way publishers are charged for e-books. The company also just launched a new iPad product. There is no coincidence here. Several of the companies have met in order to try to settle the antitrust case to avoid any lengthy amounts of time in court. The settlement could have wide, very important effects on the price of e-books.

Publishers have sold books to retailers traditionally for about half of the cover price. This has always given them room to sell the books for less than the recommended cover price. Amazon took the early lead in selling e-books by encouraging readers to use electronic Kindles and by pricing new best sellers for only $9.99. Publishers were concerned consumers would grow accustomed to the inexpensive e-books and retailers wouldn’t be able to compete with Amazon’s deep discounts. What publishers truly feared was a repeat of what Apple did to the music industry when they began selling songs for under a dollar on iTunes.

The late Steve Jobs, Apple’s Chief Executive suggested moving to an “agency model,” under which publishers would set the book price and Apple would take a 30% cut. Apple required that publishers couldn’t let rival retailers sell the same book at a lower price. The Justice Department believes the publishers and Apple acted together to raise prices across the industry and is prepared to sue them for violating federal antitrust laws. The publishers deny having acted in concert and reason they shifted prices to enhance competition to allow more electronic booksellers.