Apple Fights US Justice Dept. over Pricing

Apple and two publishers are preparing to fight the US Justice Department in court if necessary over pricing agreements for digital books, according to two people with knowledge of the matter.

Apple, Pearson Plc’s Penguin Group, and Macmillan, a unit of Verlagsgruppe Georg von Holtzbrinck GmbH, want to protect the so-called agency model that lets publishers – not vendors -set e-book prices.

The Justice Department is probing whether Apple’s interaction with publishers over pricing hampered competition in the market for electronic books.

The government is seeking a settlement that would let and other retailers return to a wholesale model, where retailers decide what to charge customers.

CBS Corp’s Simon and Schuster, Lagardhre SCA’s Hachette Book Group, and News Corp’s HarperCollins are seeking to avoid a costly legal battle and could reach a settlement this week, a person said on Friday.

A settlement could also void so-called most-favoured nation clauses in Apple’s contracts that require booksellers to provide the maker of the iPad with the lowest prices they offer competitors, the people said, as Bloomberg stated.

Upholding the agency model would give publishers more control over pricing and limit discounting, helping the industry avoiding revenue losses as more consumers buy books online.

The Justice Department is probing how Apple changed the way publishers charged for e-books on the iPad, a person familiar with the matter said last month.

European anti-trust regulators also have said they’re investigating whether Apple’s pricing deals with publishers restrict competition.

When Apple came out with the iPad in 2010, it let publishers set their own prices for e-books as long as it got a 30 per cent cut and the publishers agreed to offer their lowest prices through Apple. This so-called agency model overtook’s practice of buying books at a discount from publishers and then setting its own price for e-reader devices.

The results of a settlement or lawsuit wouldn’t necessarily kill the agency model or prevent other publishers from continuing to set their own prices for e-books, a person with knowledge of the case said.

Random House, based in New York, has agreements with Apple and Amazon that lets the book publisher set prices for e-books, the essence of the agency model. The company isn’t a part of the US inquiry, said Stuart Applebaum, a Random House spokesman.