Justice Department may sue Apple, publishers on e-books

   Thu Mar 8, 2012 2:48pm EST

(Reuters) - The Justice Department has warned Apple (AAPL.O) and five major publishers that it plans to sue them, accusing them of colluding to raise the prices of electronic books, a person familiar with the probe said on Thursday.
Several parties have held talks to settle the potential antitrust case, said the person, who was not authorized to speak publicly on the matter.
The five publishers facing possible Justice Department action are Simon & Schuster Inc, a unit of CBS Corp (CBS.N); Lagardere SCA's (LAGA.PA) Hachette Book Group; Pearson Plc's (PSON.L) Penguin Group (USA); Macmillan, a unit of Verlagsgruppe Georg von Holtzbrinck GmbH; and HarperCollins Publishers Inc, a unit of News Corp (NWSA.O).
U.S. and European officials have been investigating whether e-book publishers and Apple fixed prices in the growing electronic book industry, blocking rivals and hurting consumers.
Publishers adopted an "agency model" in 2010, around the time that Apple launched the iPad, allowing publishers to set the price of e-books. In turn, Apple would take a 30 percent cut.
The Wall Street Journal first reported the Justice Department's lawsuit warning to Apple and the publishers.
The European Commission said in December that it was looking at the same five publishers for potential violations of antitrust law in how e-books were priced.
The escalation in the antitrust probe comes as publishers battle Amazon (AMZN.O), which had previously set its own, discounted prices for electronic books in order to sell its Kindle electronic reader.
In a parallel class action lawsuit now in a Manhattan court, Apple is accused of working with publishers just before its iPad was launched in 2010.
The suit brought on behalf of e-book customers, alleges Apple and the publishers colluded to shift e-book pricing from a wholesale method, where retailers pay for the product and charge what they like, to agency pricing, where publishers would tell retailers what they can charge.
The class action lawsuit, filed by law firm Hagens, Berman, Sobol, Shapiro, LLP, accuses Apple of being a "hub" for collusion.
Apple's push for agency pricing was detailed in Walter Isaacson's biography of Apple founder Steve Jobs.
The book says that Jobs, who died in October, was aware of publishers' frustration with Amazon. It quotes Jobs as saying: "So we told the publishers, 'We'll go to the agency model, where you set the price, and we get our 30 percent and yes, the customer pays a little more but that's what you want anyway.' ... So they went to Amazon and said, 'You're going to sign an agency contract or we're not going to give you the books.'"
An Apple spokeswoman declined to comment, as did a Justice Department spokeswoman.
HarperCollins could not immediately be reached for a comment. Penguin, Hachette and Simon & Schuster declined to comment.
(Reporting by Diane Bartz in Washington, Yinka Adegoke in New York and Georgina Prodhan in London; Additional reporting from Sakthi Prasad in Bangalore; Editing by Lisa Von Ahn and Tim Dobbyn)


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