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Justice Department Warns Apple, Publishers of Impending Suits

Settlement Talks Ongoing

Published: 03/09/2012 01:11am
The Justice Department has told Apple Inc. and five major publishers including Simon & Schuster, Hachette, Penguin, HarperCollins, and Macmillan that it plans to file antitrust cases charging them with colluding to raise prices on electronic books.  The potential suits stem from a major change in the way that e-books were sold that occurred about the time that Apple brought its popular iPad on to the market. 
 
Amazon, the leading e-tailer, had been selling books on a “wholesale model” and had adopted a low $9.99 price point to encourage readers to sample e-books.  Publishers were leery of the $9.99 price point and wanted to protect the higher prices of their print editions.  Apple’s Steve Jobs suggested a shift from a wholesale model in which publishers sold the books to wholesalers who were then free to set their own price to the public (sometimes Amazon was selling books for less than they had paid for them).  Jobs suggested the adoption of an “agency model” in which the publishers set the price and Apple took 30% of whatever that price was as its fee for distribution (see “Multiple Investigations of E-Book Pricing”). 
 
In his biography of Steve Jobs, Walter Isaacson quotes the Apple honcho as telling him that the publishers agreed on the agency model and then forced Amazon to accept it.  The Wall St. Journal, which broke the news that the Justice Department had warned Apple and the major publishers, notes that the publishers all deny working together to influence Amazon to change its pricing structure.
 
According to the WSJ, “several of the parties have held talks to settle the antitrust case and head off a potentially damaging court battle.”  This settlement could result in lower e-book pricing, though there is no telling how long it might be before a settlement is reached with all parties involved.
 
 
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