eBook-gate: US sues Apple, publishers for conspired price-fixing

A woman holds up an iPad with the iTunes U app after a news conference introducing a digital textbook service in New York (Reuters/Shannon Stapleton/Files)
The US Department of Justice filed a lawsuit against Apple Inc. on Wednesday, as federal investigators claim that the country’s biggest name in the computer industry worked to fix prices of electronic books to drive away competition.

The Justice Department believes that Apple conspired with five major US-based publishing firms to fix the prices of e-books available on the company’s iPad tablet computer dating back to the device’s unveiling two years ago. By cutting a deal with publishers then, the DoJ conceives that Apple attempted to eliminate pricing competition within the industry.

"Apple facilitated the publisher defendants' collective effort to end retail price competition by coordinating their transition to an agency model across all retailers," reads the federal complaint filed in New York this week by the Justice Department’s antitrust division.

According to the Justice Department, Apple introduced a plan to the country’s top publishers two years ago that shifted the system of selling e-books to a new model where publishing houses could set the price of the digital copies for the iPad. Under Apple’s current model, publishers can release books for download at any price, as long as their lowest prices are offered through Apple, who in turn takes a 30 percent cut of all e-book sales. Through that model, the antitrust division of the Justice Department alleges that retail price competition would essentially end, while the retail price of e-books would increase all while Apple profits significantly.

“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,” adds the suit.

The five publishing firms linked in the case include Hachette SA, HarperCollins, Macmillan, Penguin and Simon & Schuster.

Bloomberg News believes that the government is seeking a settlement that would involve, in part, retailers returning to a business model where they can come up with prices for consumers, rather than the publishers. Such a model was proved to be success for online retailer Amazon.com before Apple’s iPad was introduced and with it came a change in the industry.

The news comes at the same time that Apple announced that its value has surpassed the $600 billion mark for the first time in the company’s history.