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Justice Dept. Sues Apple and Major Publishers in E-Book Price-Fixing Case

The U.S. Department of Justice on Wednesday sued Apple and five major publishers in an antitrust lawsuit alleging that the companies colluded to fix e-book prices. Just hours later, though, government officials announced that they have reached proposed settlements with three of the five publishers—though the legal fight will continue for the two other publishers and Apple.

At a press conference on Wednesday, the attorney general, Eric H. Holder Jr., said that top executives with the publishers Hachette Book Group, HarperCollins, Macmillan, Penguin, and Simon & Schuster teamed up with Apple “to eliminate competition among stores selling e-books, ultimately increasing prices for consumers.” The Justice Department’s suit was filed today in the U.S. District Court for the Southern District of New York.

The complaint alleges that the defendants conspired to take control of e-book pricing away from retailers and put it in the hands of the defendants. They did so by changing the business model that governs the relationship between publishers and retailers from a “wholesale model” to an “agency model,” according to the complaint.

Under the wholesale model, retailers such as Amazon have the freedom to set their own prices for e-books. As consumers embraced Amazon’s Kindle e-reader and the retail giant’s popular $9.99 price point for e-books, the complaint alleges, the publishers grew concerned about their business model. So they found a willing conspirator in the maker of the iPad, which would be guaranteed a 30-percent commission on each e-book it sold even as prices rose, according to the complaint.

“Our investigation even revealed that one CEO allegedly went so far as to encourage an e-book retailer to punish another publisher for not engaging in these illegal practices,” Mr. Holder said at the news conference.

The publishers Simon & Schuster, Hachette Book Group, and HarperCollins agreed to a proposed settlement, according to Mr. Holder, which would require them to end the “most favored nation” agreements that ensured Apple’s prices were the lowest.

“If approved by the court, this settlement would resolve the department’s antitrust concerns with these companies and would require them to grant retailers–such as Amazon and Barnes & Noble–the freedom to reduce the prices of their e-book titles,” Mr. Holder said. He added that the companies will be prohibited from placing limits on retailers’ ability to offer discounts to consumers for two years and will also be barred from “conspiring or sharing competitively sensitive information with their competitors” for five years.

Macmillan, one of the companies that decided against settling its suit, will continue fighting in court because the Justice Department’s terms were “too onerous,” according to a letter written by Macmillan’s chief executive, John Sargent.

“When Macmillan changed to the agency model, we did so knowing we would make less money on our e-book business,” Mr. Sargent wrote. “We made the change to support an open and competitive market for the future, and it worked.”

In his letter, Mr. Sargent also denied the complaint’s allegations that he colluded with fellow publishing executives to set e-book prices.

“I am Macmillan’s CEO, and I made the decision to move Macmillan to the agency model,” he wrote. “After days of thought and worry, I made the decision on January 22, 2010, a little after 4 a.m., on an exercise bike in my basement. It remains the loneliest decision I have ever made, and I see no reason to go back on it now.”

Representatives for Apple and Penguin could not be reached for comment.

[Creative Commons licensed Flickr photo by ajleon]

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