Apple, publishing companies face anti-trust suit

In the burgeoning field of e-publishing, as in so many other fields both virtual and physical, the line between the illicit and the legal is often blurred. For most people, the problems often stem from the definition of “fair use” vis-à-vis music, movies, e-books, and software. For businesses, the use of proprietary information or technology can cause even greater headaches. For large corporations like Apple and Amazon, the problems that arise from exploring new web-based commercial territory can be most formidable.

The Justice Department intends to sue Apple Inc., alongside publishers Simon & Schuster Inc., Hachette Book Group, Penguin Group, Macmillan, and HarperCollins Publishers Inc. for collusion and price fixing. The lawsuit is the result of Apple’s “agency model” agreement, which the five publishers signed in order to market their books on the iBookstore. Under the agency model, publishers are free to set the price for their books, from which Apple would take a 30% cut per sale. The agency model was the brain child of the late Steve Jobs, dissatisfied with the near-universal “wholesale model,” in which publishers sell books to booksellers at a significant discount off the cover price.

More controversially, the includes a provision barring publishers from selling their books elsewhere for a cheaper price. The Justice Department believes this provision violates the Sherman Anti-Trust Act.

The agency model appears to be, in part, a response to Amazon’s practice of selling e-books at a steep discount, often for less than the company paid to acquire the titles. By selling content at a loss, the Internet retail giant hoped to spur sales of its Kindle e-reader.

Publishers worried that this would both depress their own revenues. They also argued that Amazon’s tactics adversely affected competition by making it difficult for other retailers to break into the e-book market.

The Justice Department, however, remains unconvinced. It seems that a settlement remains the goal, but negotiations appear to have a long way yet to go.

The Wall Street Journal report can be found here.

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