U.S. Government Warns Apple and Publishers of Antitrust Lawsuit over e-Book Pricing

Last December, the U.S. Department of Justice acknowledged that it was conducing an antitrust investigation into the new "agency model" of e-book pricing that was championed by Apple ahead of its iBookstore rollout, a model in which publishers could set the retail prices of their books but could not sell them to retailers other than Apple for lower prices. A similar investigation has been ongoing in Europe as well.

The Wall Street Journal now reports that the Department of Justice has warned Apple and five e-book publishers that it intends to file an antitrust lawsuit against the companies over the matter, in which the companies are alleged to have colluded to raise the price of e-books.

Several of the parties have held talks to settle the antitrust case and head off a potentially damaging court battle, these people said. 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 five publishers facing a potential suit are 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. , which also owns The Wall Street Journal.

Many publishers were happy to sign on to Apple's agency model for book pricing, seeking to gain greater control of pricing for their content. After signing deals with Apple, they then turned to Amazon and other retailers, forcing them into the same arrangements by threatening to withhold their books from those retailers.

The 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, the people familiar with the matter said.

The publishers have denied acting jointly to raise prices. They have told investigators that the shift to agency pricing enhanced competition in the industry by allowing more electronic booksellers to thrive.

Arguments that the agency model has actually increased competition center on Amazon's dominant position in the retail book industry, where it had frequently sold books at razor thin profits or even losses in order to attract customers for its broader shopping offerings. Under the agency model, greater price uniformity across retailers has allowed more companies to be competitive in the marketplace.