- The Washington Times - Wednesday, April 11, 2012

The Obama administration has stepped into a heated battle for supremacy in the digital book industry, accusing tech giant Apple of scheming with publishers to fix prices.

The Justice Department’s antitrust division on Wednesday filed a lawsuit against Apple Inc., maker of the iPad, and five e-book publishers. It charges that Apple colluded with Simon & Schuster, HarperCollins, Hachete, Penguin and Macmillan to limit competition and fix the prices of e-books sold on the company’s wildly popular iPad and other e-readers.

“As a result of this alleged conspiracy, we believe that consumers paid millions of dollars more for some of the most popular titles,” Attorney General Eric H. Holder Jr. said in a statement. “We allege that executives at the highest levels of these companies - concerned that e-book sellers had reduced prices - worked together to eliminate competition among stores selling e-books, ultimately increasing prices for consumers.”

The case sets up a legal clash between the government and Apple, one of the nation’s most successful and internationally admired companies.

The outcome could also have major impact on the longstanding business model for the publishing industry as it seeks to adapt to the explosion of digital publishing options.

Jeff Kagan, a wireless and telecommunications industry analyst based in Atlanta, said the case shows how traditional publishers have struggled to adapt to the rapidly changing digital market.

“E-books should be selling for much less, but they’ve gone up in price,” he said. “The traditional publishers that are moving into the e-book business are moving in with their old [print] model, when they should move in with the new model.”

According to the lawsuit, the collusion began in the summer of 2009, before the first iPad was sold. Amazon, the prominent online book retailer at the time, had forced the price of most e-books down to $9.99.

The government charges that publishers, concerned that prices were too low, turned to Apple to create a new business model, known as the “agency model,” under which the publishers, rather than the retailers, set the prices. Most popular e-books now sell for $12.99 or $14.99.

According to the government’s case, the illegal scheme gave Apple a 30 percent commission on all sales through its iBookstore. The company was also guaranteed that no other retailer would be allowed to sell for less through an anti-competitive agreement known as “most-favored-nation.”

Apple said in email that it would not comment on the suit.

The Justice Department on Wednesday reached settlements with three of the companies, including CBS Corp.’s Simon & Schuster, Lagardere SCA’s Hachette Book Group and News Corp.’s HarperCollins.

“If approved by the court, this settlement would resolve the department’s antitrust concerns with these companies, and would require them to grant retailers - such as Amazon and Barnes & Noble - the freedom to reduce the prices of their e-book titles,” Mr. Holder said. “The settlement also requires the companies to terminate their anti-competitive most-favored-nation agreements with Apple and other e-books retailers.”

Amazon cheered the pending settlement.

“This is a big win for Kindle owners,” Amazon spokesman Andrew Herdener said in a statement, “and we look forward to being allowed to lower prices on more Kindle books.”

Apple, Macmillan and Pearson PLC’s Penguin Group plan to fight the antitrust lawsuit.

Apple, the world’s most valuable company, Tuesday became just the second company in history to reach the $600 billion level. But it shares fell Wednesday to $626.20, down $2.24 from the previous day’s close, after news of the lawsuit broke.