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Justice Dept. Warns Apple, Publishers Over E-Books Price Collusion

A customer reads a book an iPad. i i

hide captionA customer reads a book an iPad.

Manu Fernandez/AP
A customer reads a book an iPad.

A customer reads a book an iPad.

Manu Fernandez/AP

The Justice Department is warning Apple and five big publishers that it may sue them for colluding to increase the price of electronic books.

The Wall Street Journal, which first reported the story, explains that Justice's concerns emerged as Apple released its first iPad. Essentially, the paper explains, they were afraid that Apple would do to them what it did to the recording industry, which is tie them to prices set by Apple.

According the Journal, which is basing its reporting on Walter Isaacson's biography of Steve Jobs, Apple agreed and told them they could set the price and Apple would take 30 percent. That's called the "agency model." Now when that happened, Apple also insisted that publishers could not let other sellers offer books for less than what Apple was selling them for. That essentially set up a price floor.

The Journal adds:

"The Justice Department believes that Apple and the publishers acted in concert to raise prices across the industry, and is prepared to sue them for violating federal antitrust laws, the people familiar with the matter said.

"The publishers have denied acting jointly to raise prices. They have told investigators that the shift to agency pricing enhanced competition in the industry by allowing more electronic booksellers to thrive. ...

"Prior to agency pricing, Amazon often sold best-selling digital books for less than it paid for them, a marketing stance that some publishers worried would make the emerging digital-books marketplace less appealing for other potential retailers. The publishers' argument that agency pricing increased competition hasn't persuaded the Justice Department, a person familiar with the matter said. Government lawyers have questioned how competition could have increased when prices went up. Amazon declined to comment."

Apple, Simon & Schuster, Hachette Group, Macmillan, Penguin and HarperCollins, which the Journal says would be the target of the lawsuit, have not commented on the case. The Washington Post confirmed that Justice Department was looking into the price fixing.

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