Apple Accused of Price Fixing E-Books
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DIANE BARTZ
Reuters
April 11, 2012

The Justice Department accused Apple Inc and five major publishers of conspiring to push up the prices of e-books and limit retail price competition.

The conspiracy has caused e-book consumers to pay "tens of millions of dollars more for e-books than they otherwise would have paid," the Justice Department said in a lawsuit filed on Wednesday.

The department alleged that Apple and the publishers had a common interest in fighting Amazon.Com Inc's practice of selling e-books for as little as $9.99, and decided to work together to raise prices.

Three of the publishers - News Corp's HarperCollins Publishers Inc, CBS Corp's Simon & Schuster Inc and Lagardere SCA's Hachette Book Group - agreed to settle with the Justice Department. The settlement terms were not immediately disclosed.

"To effectuate their conspiracy, the publisher defendants teamed up with defendant Apple, which shared the same goal of restraining retail price competition in the sale of e-books," the Justice Department complaint said.

The lawsuit was filed in the U.S. District Court for the Southern District of New York on Wednesday.

The Justice Department said it would proceed to litigate against Apple and two other publishers - Pearson Plc's Penguin Group and Macmillan, a unit of Verlagsgruppe Georg von Holtzbrinck GmbH.

Macmillan Chief Executive John Sargent said in a letter made public on Wednesday that settlement terms demanded by the Justice Department "were too onerous." He also said Macmillan did not act illegally and did not collude.

The Justice Department complaint cites an email from an executive for an unnamed publisher pointing out the need for the publishers to work together to convince Amazon to raise prices.

"We've always known that unless other publishers follow us, there's no chance of success in getting Amazon to change its pricing practices," the executive wrote.

"Without a critical mass behind us, Amazon won't 'negotiate,' so we need to be more confident of how our fellow publishers will react," the executive said in the email.

The European Union is also investigating allegations of conspiracy to fix the prices of e-books.

The Justice Department has been looking into whether deals Apple cut roughly two years ago, when it launched its iPad tablet computer, with the quintet of publishers were done with the intent of propping up prices for e-books, people familiar with the matter have said.

As part of those agreements, publishers shifted to a model that allowed them to set the price of e-books and give Apple a 30 percent cut of sales, the sources have said. Amazon had been paying publishers for the books, and then discounting them to win market share.

Apple and the other four publishers could not immediately be reached for comment.

(Reporting By Grant McCool and Diane Bartz; editing by John Wallace)