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DOJ threatens Apple, top 5 U.S. publishers with e-book lawsuit

Agency accuses companies of colluding on pricing

The government is lobbing litigation threats at some of the top companies in the literary world.

The Wall Street Journal reported today that the Department of Justice (DOJ) plans to sue Apple Inc. and the country’s top five publishers—Simon & Schuster Inc., Hachette Book Group, Penguin Group, Macmillan and HarperCollins Publishers Inc.—for conspiring to raise the prices of electronic books.

The legal threats are making headlines just one day after Apple introduced its latest version of the iPad tablet, on which users can read e-books. The DOJ’s case centers on Apple’s dealings with publishers when it introduced its first iPad in early 2010.

Prior to the launch of the iPad, Amazon Inc., maker of the Kindle e-reader, established its position as the leader in the e-book industry by offering best sellers at $9.99. Recognizing that publishers disliked Amazon’s cheap pricing strategy, Apple’s late CEO, Steve Jobs, approached publishers when his company was about to launch the iPad and proposed an agency pricing model in which publishers would set book prices and Apple would take a 30 percent cut. Apple also stipulated that publishers couldn’t let rival retailers sell the same books for lower prices. The DOJ accuses Apple and the publishers of violating federal antitrust laws by using the model to raise prices across the industry.

The publishers deny the DOJ’s charges and say the agency pricing model enhanced industry competition. Some of the accused companies reportedly are in talks to settle the DOJ’s charges in order to avoid litigation. A settlement could result in lower e-book prices for consumers.

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