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Apple, Major Publishers Sued Over E-Book Pricing

The Department of Justice is accusing the companies of colluding to raise e-book prices by using the 'agency' model of e-book pricing.

The United States Department of Justice has sued Apple and five major book publishers, accusing them of colluding to raise e-book prices.

The lawsuit, filed in New York district court, names Apple, Hachette SA, HarperCollins, Macmillan, Penguin and Simon & Schuster as defendants, according to Bloomberg.

The Justice Department may announce an antitrust settlement today, presumably with some of the publishers, but unnamed sources told Bloomberg that Apple and Macmillan have refused to negotiate. Penguin may also be preparing for a legal battle.

At issue is Apple's use of the “agency” model of e-book pricing, which lets publishers set their own prices. Apple takes a 30 percent cut of sales, but requires that e-books are sold for no cheaper elsewhere. That approach came into conflict with the “wholesale” model used by Amazon, where the bookseller pays roughly half the recommended cover price, then sets its own pricing.

With the wholesale model, Amazon could offer cut-rate prices on e-books -- often $10 for bestsellers -- in order to build up its Kindle service. When Apple launched the iPad in 2010, publishers flocked to the agency model, fearing that the wholesale model would lead to a race to the bottom in pricing. Amazon was forced to adopt the agency model, and today, a $10 bestseller is much harder to find. New books tend to sell for around $13 to $15 instead.

Apple and publishers may argue that the agency model leveled the playing field for booksellers, forcing them to compete on hardware and software features instead of pricing. And as Bloomberg points out, e-book sales rose 117 percent in 2011, so it's hard to argue that higher prices ruined the digital book industry.

But customers are bearing the brunt of higher prices, according to the Consumer Federation of America. The agency says e-book price fixing will cost consumers more than $200 million this year.

The government is hoping that a settlement would allow the wholesale model to return, Bloomberg reports. The Justice Department may also seek to undo Apple's requirement that it gets the lowest prices from publishers.

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