Justice Department Sues In E-Book Price-Fixing Case

The Justice Department is suing publishers and Apple for price fixing in the e-book market. Three publishers — Simon & Schuster, HarperCollins and Hachette — decided to settle the suit. But Apple — along with publishing companies Macmillan and Penguin — plan to fight the allegations.

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The publishing business is still trying to absorb the news that the Justice Department is suing Apple and publishers for price fixing in the e-book market. Three publishers - Simon and Shuster, Harper Collins and Hachette - decided to settle the suit. But Apple, along with the companies Macmillan and Penguin, plan to fight the allegations. Here's NPR's Lynn Neary.

LYNN NEARY, BYLINE: The case goes back to Apple's introduction of the iPad. Until then, Amazon had dominated the e-book market with its Kindle, and it was willing to lose money on e-books with a price point of 9.99 in order to sell more of its reading devices.

The publishers were unhappy with that price so they and Apple agreed on a new way of doing business, the agency model, which allowed publishers to set the price of e-books and gave Apple a 30 percent commission on each sale. Attorney General Eric Holder called that a conspiracy.

ERIC HOLDER: Now, as a result of this alleged conspiracy, we believe that consumers paid millions of dollars more for some of the most popular titles.

NEARY: Acting Assistant Attorney General Sharis Pozen said the Justice Department believes this anti-trust action will make the e-book market more competitive.

SHARIS POZEN: This enforcement action is about, as I said, opening the playing field so it's open and fair and that competition can flourish at the retail level. We want that competition to take whatever form it's going to take.

NEARY: But Orrin Teicher, CEO of the American Booksellers Association, which represents independent book stores, questions that assertion.

ORRIN TEICHER: Since the agency pricing model for e-books was put in place, there has become a far more competitive e-book market. Our members, other retailers, are now competing in the sale of e-books, which we were largely unable to do before that.

NEARY: Joseph Bauer, professor of law at Notre Dame, says the legal questions involved are complex. Amazon may have dominated the e-book market, says Bauer, but that is not always unlawful.

JOSEPH BAUER: On the other hand, agreements to set prices among competitors is always unlawful.

NEARY: Apple and the publishers might argue that they were the victims of ruinous competition from Amazon, says Bauer. That's an argument that goes back to the end of the 19th century.

BAUER: Where you had six sellers of cast iron pipe, and they said, gosh, the competition is far too vigorous, our prices are being driven down, we need to get together and agree among ourselves to get the prices back up, and the Supreme Court of the United States rejected that and it's rejected it, you know, for the past century.

NEARY: Bauer believes Apple, Macmillan, and Penguin will ultimately settle with Justice. So does James McQuivey, an analyst with Forrester Research. McQuivey says it's likely that both Apple and Amazon will be fine in the end, but the publishers will still be left with the daunting challenge of adjusting to a whole new way of business, digitally.

JAMES MCQUIVEY: There's a whole series of things that publishers have to learn how to do, and the sooner they get to that task, the better off they'll be. But no, not everyone's going to make it. And they certainly won't make it in the same configuration that they came into this digital transition.

NEARY: The publishing companies named in the suit declined to be interviewed, but John Sargent, CEO of Macmillan, released a letter saying his company decided to fight the suit because the Justice Department demands were too onerous and would have allowed Amazon to recover what he called its monopoly position.

Sargent also said the decision to enter the agency model agreement with Apple was the loneliest decision he ever made.

Lynn Neary, NPR News, Washington.

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