Justice Department Planning To Sue Apple and Book Publishers Over Price Collusion

Posted Mar 8, 2012

The Justice Department is warning Apple and five book publishers about raising the price of electronic books according to sources with the WSJ. Some of the parties have had talks to settle the antitrust case. If the case is settled, then the price of e-books may drop for consumers.

The five publishers involved in this case are Simon & Schuster, Hachette Book Group, Penguin Group (USA), Macmillan, and HarperCollins Publishers Inc. In order to build an early lead in the e-book market, Amazon.com sold many best sellers for $9.99 to encourage consumers to buy the Kindle. However the book publishers did not like this strategy because they feared consumers would grow accustomed to buying books on the cheap. The publishers also feared that Barnes & Noble would be unable to compete with Amazon.com’s steep discounts.

The late Apple CEO Steve Jobs suggested that publishers move to an “agency model,” which publishers were able to set the price of the book. Apple would take their 30% cut from that price. “The customer pays a little more, but that’s what you want anyway,” said Jobs in a biography written by Walter Isaacson. The publishers were able to impose the same model across the industry.

“They went to Amazon and said, ‘You’re going to sign an agency contract or we’re not going to give you the books,'” added Jobs in the biography. The Justice Department believed that Apple and the publishers worked in concert to dictate the prices in the industry.