U.S. reportedly warns Apple, e-book publishers about price-fixing

Reading on a first-generation Apple iPad.
(Jay L. Clendenin / Los Angeles Times)
<i>This post has been updated. See the note below for details.</i>

The U.S. Justice Department has warned Apple Inc. and five top book publishers that lawsuits over alleged e-book price fixing might be in the offing, according to a report in the Wall Street Journal.

Citing “people familiar with the matter,” the Journal said the Justice Department has told publishers and the Cupertino tech giant that lawsuits could be filed accusing the companies of colluding to keep e-book prices high for both Apple users and rivals such as Amazon and Barnes and Noble.

Some publishers “have held talks to settle the antitrust case and head off a potentially damaging court battle,” the Journal 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 report said that the five publishers facing pressure from the Department of Justice are: Simon & Schuster Inc., Hachette Book Group, Penguin Group USA, Macmillan and HarperCollins (which is owned by the Journal’s parent company, News Corp.).


Officials at the publishing houses and Apple were unavailable for comment on Thursday morning.

Justice Department spokeswoman Gina Talamona said Thursday that the agency’s investigation into electronic book pricing remained open, but would not comment further.

Sharis A. Pozen, the acting head of the Justice Department’s Antitrust Division, said in December that the agency was looking into possible anti-competitive practices involving the sales of e-books, along with the European Union and state attorneys general.

The news of the Justice Department threats follows Apple’s launch of its third-generation iPad on Wednesday, as well as the company’s January announcement that it would sell digital textbooks on its iPad tablet at prices of about $14.99 or less, far less than the hundreds of dollars that printed textbooks can fetch.

When Apple unveiled its textbook plan, it did so with the support of three major publishing houses -- Houghton Mifflin Harcourt, McGraw-Hill Education and Pearson -- while also releasing a free app for its Mac computers called iBooks Author that allows users to easily create iPad versions of e-books.

Among the reported gripes the Justice Department has with the way Apple and publishers are doing business is a move toward setting standard prices and giving Apple a 30% cut of revenue for e-books sold on its devices. The business model, which Apple rolled out with the launch of its first iPad tablet in 2010, differs from what publishers offer to traditional bookstores, which is to sell books to retailers for about half of the suggested cover price and let the booksellers charge whatever they’d like.

As e-books have become more popular and brick-and-mortar bookstores have struggled, the industry has moved to the “agency model” Apple dictated with the iPad and, the Justice Department believes, publishers have acted in concert to replicate Apple’s model with Amazon and others. Publishers have denied such collusion, the report said.

“Apple also stipulated that publishers couldn’t let rival retailers sell the same book at a lower price,” the Journal said.


Apple’s e-book prices, for the most part, line up with the digital book prices offered by rivals such as Amazon, Barnes & Noble and Kobo, with most titles selling at about $9.99.

The Journal report notes that the words of the late Steve Jobs as related in Walter Isaacson’s biography of the Apple co-founder, could be used to back up accusations of publishers working together to set prices.

In “Steve Jobs,” published in October, Isaacson quotes Jobs as saying: “We told the publishers, ‘We’ll go to the agency model, where you set the price, and we get our 30%, and yes, the customer pays a little more, but that’s what you want anyway.’

Jobs continued, “They went to Amazon and said, ‘You’re going to sign an agency contract or we’re not going to give you the books,’ ” Isaacson wrote.


[Updated, 9:30 a.m. March 8: Comment was added from the Justice Department on the Journal report.]


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Times staff writer Jim Puzzanghera contributed to this report.