updated 11:45 pm EST, Wed March 7, 2012
DOJ warns Apple must change iBookstore rules
The US Department of Justice is readying an antitrust lawsuit against Apple and publishers unless they change their pricing strategy for e-books, leaks revealed Wednesday night. Agency officials reportedly slipped to the Wall Street Journal that both the iPad designer as well as Hachette, HarperCollins, Macmillan, Penguin, and Simon & Schuster would face legal action for possibly having colluded on e-book pricing. DOJ prosecutors objected to Apple's since confirmed insistence on an agency model, where publishers set the price, as it allegedly kept e-book prices artificially inflated.
Even before the original iPad had been unveiled, Apple was known to have been courted by major publishers looking to raise prices. Many were upset that Amazon's loss-leading $10 maximum price per Kindle book, as well as its use of a wholesale model where it set the price, was setting unrealistically low expectations for e-book pricing. Apple made publishers happy when it flipped to the agency model and let them raise prices, but its demands for having the best price also led to publishers strongarming Amazon and making it difficult or impossible to charge any less than the iBookstore.
Barnes & Noble chief William Lynch has supposedly countered the DOJ in a deposition, in which he was concerned that going back to the wholesale model would lead to once more having a single dominant store, likely a reference to Amazon. Apple in objections to the European Union has argued that its getting into the market by itself created a "vastly larger" group of readers and helped competition.
The DOJ hasn't accepted this point of view, as it sees uniiform price increases as reducing competition rather than making it easier.
"Several" of the targets have been in negotiations for a settlement with the DOJ, although whether that included Apple wasn't determined. Discussions had been going on for "some time," a source explained. One option mentioned by publishers was to keep the coveted agency model but let publishers offer discounts in some cases.
If successful, the move could have a ripple effect on all US e-book stores, not just Apple's, by letting prices at least sometimes go down. It would also represent a rare concession in pricing from Apple, which last had to change its prices for any iTunes content with the DRM-free shift in 2007 and the requirement for variable pricing.