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US Justice Department threatens Apple and publishers with court battle

Alleges firms conspired to push ebook prices up

Internet Security Threat Report 2014

The US Justice Department has warned Apple and five big publishing houses that they may be seeing the inside of a courtroom for allegedly inflating the prices of ebooks if they can't settle the issue between themselves.

People familiar with the matter went whispering to the Wall Street Journal saying that some of the parties were holding talks to try to avoid a court battle. However, if they do settle, it could push the price of ebooks down across the sector.

Apple is in the firing line along with the publishing houses Simon & Schuster, Hachette Book Group, Penguin Group, Macmillan and Harper Collins, none of whom felt like chatting to the WSJ.

The US probe of pricing comes after the EU's antitrust body said in December last year that it would be looking into the same publishers, or their subsidiaries or parents, and Apple over alleged price-fixing in the sector.

The European Commission said it was opening a formal investigation over whether the five publishers and Apple had restricted competition by colluding on ebook pricing.

Regulators are concerned about ebook pricing because the new pricing models which ebook retailers used effectively forced the publishing industry to shift its own policies accordingly. Before the advent of digital novels, publishers would sell a book to shops for around half of the recommended retail price and the shops could then sell the book at whatever price they liked, leaving them free to add discounts as they wished.

When Amazon first came on the scene, it was selling new books at a tiny profit margin over the publisher's price or even at a loss to get folks interested in its Kindle readers – which the publishers weren't happy about at all.

Then Apple started building the iPad and suggested that ebook pricing should move to an "agency model", where the publishers set the price of the book and the retailer takes a 30 per cent cut. The problem was that Apple also said that publishers couldn't then let rival ebook shops sell the same book at a lower price.

Happier with this model, publishers pushed it out across the sector, insisting that other ebook retailers like Amazon accept it.

The US Justice Dept is accusing Apple and the publishers of acting together to push prices up, and therefore threatening to sue them for antitrust violations, the people familiar with the matter said.

The publishers say they didn't act together to set prices and anyway moving to the agency model of pricing had increased competition. ®

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