E-book Pricing Scheme by Apple, Publishers Leads to Lawsuit by Justice Department

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On April 11, 2012, the U.S. Justice Department filed a lawsuit in New York that accused five major publishing houses and Apple of price fixing their e-books, making their customers pay millions of dollars more to purchase their book titles.

The lawsuit illustrates how the industry wanted to sustain profits threatened by technology and the pressure of competition from online retailers. There is evidence that the upper-level executives of these companies conspired to regain control from retailers like Amazon.com by raising prices on e-books.

While none of the publishing companies involved have admitted fault, HarperCollins, Simon & Schuster and Hachette have agreed to a settlement. Macmillan and Penguin are not settling. Apple also plans to fight the charges.

Electronic books are a billion dollar industry. According to a recent survey, 20% of American adults read books in electronic form. The fact that consumers demand to pay lower prices for electronic versions of books combined with Amazon selling e-books at a reduced price posed a problem for publishers.

The complaint states that publishers were concerned about the effects of lower pricing on the publishing industry. There was concern that lower e-book pricing would encourage a demand for lower wholesale book pricing. They feared that Amazon?s distribution supremacy would allow the company to circumvent publishers and encourage authors to sell their content directly.

The publishing companies see Amazon as the real problem, believing that the company is creating a monopoly. The Justice Department is taking issue with the publisher?s response to the threat. According to the complaint, the goal was to force Amazon to change its pricing structure. An opportunity arose when Apple introduced its iPad in 2009. Apple wanted to create an e-book purchasing platform similar to iTunes, but worried that there would not be a substantial profit margin.

Read more at The Washington Post.