The Justice Department has told Apple and the nation’s biggest book publishers that it would sue them for their alleged price-fixing of electronic books unless the companies agree to change their business practices.
Federal officials found that Apple, Simon and Schuster, Hachette Book Group, Penguin Group, Macmillan and HarperCollins have “engaged in a pattern of behavior that violates antitrust laws,” according to a person familiar with Justice’s investigation.
The charges, the latest Justice probe of the e-books market, come as consumers flood to e-book readers and tablets, such as the Kindle and the iPad, for online versions of books, newspapers, magazines and movies. In February 2010, the Justice Department criticized Google’s deal with book publishers that blocked competition. At a December Congressional hearing on antitrust, Sharis Pozen, acting head of Justice’s antitrust division, said that the agency was looking into the e-book industry.
Apple and the publishers are in ongoing settlement talks with Justice officials to try to avoid charges and a federal lawsuit, according to the person familiar with the case, who spoke on the condition of anonymity because the investigation and talks are private.
Apple declined to comment on the case. Justice Department spokeswoman Gina Talamona confirmed that the e-books matter was open but declined to comment further.
The companies are charged with colluding to raise e-book prices on Apple’s iPad and iPhone. Publishers saw Apple’s challenge to Amazon’s dominance in the e-book market as a way to lift prices. They were unhappy with Amazon’s strategy of pricing e-books around $9.99 — a discount from the cost of many hardback books — in order to sell more of its Kindle devices.
Apple, however, allowed book publishers to charge higher prices and split the proceeds. Apple would get 30 percent of sales, and publishers would get the remainder.
The agreement, however, precluded competition, other companies complained. Barnes and Noble chief executive William Lynch testified to Justice officials that if publishers refuse Amazon’s pricing model, Apple will inevitably dominate the market, according to the Wall Street Journal, which first reported on the potential Justice lawsuit.
Staff writer Hayley Tsukayama contributed to this report.