Apple Faces DOJ Lawsuit Over E-Book Pricing: Report

Apple and five book publishers have been warned of a pending lawsuit from the U.S. Justice Department, which believes these companies colluded to keep e-book prices high, reports the Wall Street Journal.

Apple's notorious desire for control is getting it into trouble again, this time for allegedly colluding to raise the prices of e-books. Prosecutors are also accusing several large publishing houses of being part of the scheme.

Suspecting such collusion, the U.S. Justice Department has warned Apple and five of the largest U.S. book publishers €” Simon & Schuster, Hachette Book Group, Penguin Group, Macmillan and HarperCollins Publishers €” that it plans to file an antitrust suit against them. News of the pending suit has quickly led to talks, in the interest of avoiding a court debacle, the Wall Street Journal reported March 8, though an unnamed publishing executive told the Journal that "by no means are we close [to a settlement]."

The Journal explains that publishers generally sell books to retailers for half of the suggested retail price. It's up to the retailer to decide whether to sell at the suggested price or at a discount €” though still at a profit.

Before the introduction of the first iPad, Steve Jobs, Apple's late CEO, reportedly had the idea of instead using an "agency model," in which the publishers set the price for a book and Apple takes a 30 percent piece of that €” as it does in its app store, for example.

According to Jobs' biographer Walter Isaacson, Jobs told publishers, "Yes, the customer pays a little more, but that's what you want anyway." He also insisted that publishers couldn't let rival retailers sell the same book at a cheaper price.

Jobs added that the publishers then went to Amazon and told them, "'You're going to sign an agency contract, or we're not going to give you the books.'"

The Justice Department is reportedly also unhappy about the practice of "windowing" books. When it was worried that inexpensive e-books would affect sales of hardcovers, Simon & Schuster, HarperCollins and Hachette agreed to delay the release of the certain e-books for a specified time after the hardcover's release. 

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

The report adds that the European Union is also looking into the matter, that several class action lawsuits against Apple have been filed in a New York Federal court, and that Apple has moved to dismiss the case, arguing that it didn't "coordinate" with the publishers.

"Apple's entry created new competition in eBook distribution and a vastly larger pool of e-book consumers," it wrote in its motion.

In an Oct. 2011 Boston.com article, Forrester Research analyst James McQuivey said that Forrester surveys have found 49 percent of iPad owners to be using the tablets for reading e-books.

"Although the iPad is a blockbuster device," McQuivey said, "it doesn't necessarily lead to book reading for even a majority of its owners."

McQuivey added that "Apple's effect on books so far has not approached its force in the music business," and that book lovers who likely already have a relationship with Amazon are likely to continue that relationship with their e-book purchases, rather than through Apple's iBookstore.

In January, Apple announced its entry into the textbook market as well, introducing iBooks Author, a free app that enables textbook authors and publishers to create books and offer them through Apple €” which gets a 30 percent cut. Conservatively, it's said to be a market that could bring in a billion a year.