Update: DOJ sues Apple, publishers over e-book price-fixing

The publishers feared Amazon.com's prices would set customer expectations for e-book prices, the DOJ says

The U.S. Department of Justice has filed an antitrust lawsuit against Apple and five large publishers, accusing the companies of working together to raise prices of e-books.

Defendants in the lawsuit, filed Wednesday, are Apple, Hachette Book Group, HarperCollins Publishers, Macmillan, Penguin Group and Simon & Schuster. The six companies conspired to raise prices on e-books in retaliation for Amazon.com pricing most e-books at $9.99 beginning in late 2007, the DOJ said in court documents.

"We allege that executives at the highest levels of the companies included in today's lawsuit -- concerned that e-book sellers had reduced prices -- worked together to eliminate competition among stores selling e-books, ultimately increasing prices for consumers," Attorney General Eric Holder said during a press conference. "As a result of this alleged conspiracy, we believe that consumers paid millions of dollars more for some of the most popular titles."

Hachette Book Group, HarperCollins and Simon & Schuster have agreed to settle the lawsuit, the DOJ said. The settlement, if approved in court, would require the publishers to allow retailers to set their own prices for e-books, Holder said. The settlements would also prohibit the publishers from discussing pricing with competitors for five years and prohibit them from constraining retailer efforts to offer discounts for two years.

The DOJ lawsuit seeks to invalidate alleged e-book pricing agreements between the publishers and Apple. An Apple representative wasn't immediately available for comment.

The DOJ's lawsuit alleges that the late Steve Jobs, then Apple's CEO, approved of a new pricing model that would raise the price of e-books. "Throw in with Apple and see if we can all make a go of this to create a real mainstream e-books market at $12.99 and $14.99," Jobs wrote to one publishing executive during pricing discussions, according to the DOJ lawsuit.

Beginning in late 2008, the publishers began meeting to discuss Amazon's pricing model, the lawsuit alleged. The publishers' CEOs met quarterly "in private dining rooms of upscale Manhattan restaurants" to discuss e-book pricing, the DOJ alleged.

In early 2010, publishers agreed to shift to a new pricing model where they set the prices for e-books, instead of retailers, the DOJ alleged. In an agreement with Apple, all new books would be priced at $12.99 to $16.99, the DOJ alleged.

Each publisher "knew that, acting alone, it could not compel Amazon to raise e-book prices and that it was not in its economic self-interest to attempt unilaterally to raise retail e-book prices," the DOJ said in its lawsuit.

The publishers "feared that lower retail prices for e-books might lead eventually to lower wholesale prices for e-books, lower prices for print books, or other consequences the publishers hoped to avoid," the DOJ said in court documents.

The European Union launched its own investigation of e-book pricing in December.

The U.S. Department of Justice filed an antitrust lawsuit alleging e-book price fixing by Apple and five book publishers. The EFF will head to court on Friday. Apple publicly acknowledged a malware campaign called Flashback. A Maryland social media protection bill is awaiting approval.

Grant Gross covers technology and telecom policy in the U.S. government for The IDG News Service. Follow Grant on Twitter at GrantGross. Grant's e-mail address is grant_gross@idg.com.

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