Wednesday, April 11, 2012

Justice Dept. sues Apple, publishers over e-book pricing collusion

Slightly more than a month after it was first reported that the Justice Department was close to filing a lawsuit over collusion between Apple and publishers on e-book pricing, the hammer has fallen. The U.S. on Wednesday announced a suit against Apple and publishers Hachette Book Group, HarperCollins, Macmillan, Penguin and Simon & Schuster in Manhattan federal court.

However, it was announced shortly thereafter that Hachette, HarperCollins, and Simon & Schuster have already settled their lawsuits. It was reported previously that some of the publishers had been discussing a settlement.

However, both Apple and Macmillan have refused to engage in any settlement discussions with the Justice Department, sources said. They are prepared to argue that any agreement made enhanced competition in the e-book market.

Penguin Books, the other publisher that has not settled, is also prepared to fight the matter in court, two people with knowledge of the matter told Bloomberg News on earlier this month.

The alleged agreement between Apple and the publishers occurred ahead of the introduction of the first iPad in 2010, the Justice Department said. At the time, Amazon.com had established fairly consistent pricing at $9.99 for newly released and best-selling e-books.

Publishers have long wanted to maintain the so-called agency model of book pricing, which allows publishers as opposed to retailers to set prices. Amazon.com, with its dominance of the e-book industry prior to this alleged move by Apple and the publishers, had managed to get them to move away from that model to a wholesale model, where vendors set the prices.

The settlement demanded by the U.S. Justice Department would allow Amazon.com and other retailers to return to the wholesale model. In addition, it would eliminate the so-called "most-favored nation" clauses that Apple has in its publisher contracts "that require book sellers to provide the maker of the iPad with the lowest prices they offer competitors."

Bigger still, and said to be the sticking point, is that it would require the contracts signed between Apple and publishers to be torn up, and institute a "cooling-off period" before they could sign another deal.

If a lengthy "cooling-off period" is set, it could mean that Amazon.com goes back to selling new and bestselling e-books for $9.99, while Apple is still pricing its e-books based on an agency model, could negatively impact Apple's e-book business.

That said, it's hardly the case that the iBookStore has made major inroads into Amazon.com's e-book business. Amazon's e-book apps on virtually every platform as well as its Kindle and Kindle Fire devices give end users a much more diverse selection of reading devices than the iBookStore does.



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