Apple finds itself on the wrong end of a lawsuit today, according to reports from Reuters and Bloomberg. Following reports that the company was involved in an e-book price-fixing scheme surrounding books for Apple’s iPad, the US Justice Department has filed a lawsuit against Apple, Hachette, HarperCollins, Penguin, and Macmillan Publishing today in New York District Court.
The move comes after failed settlement talks with several of the companies. Apple, Penguin, and MacMillan Publishing had not taken part in the settlement talks, though the Justice Department was leaving the door open for these companies to settle prior to filing suit. Today’s suit indicates that the major publishing companies are ready to play hardball, and will fight it out in court.
Apple and Co. are hoping a victory in court could save the pricing model in which publishers (rather than retailers) are allowed to set e-book prices as they wish, the model Apple and these other publishers follow with Apple’s iBooks platform. The Justice Department feels this pricing methodology opens the door for price-fixing and higher e-book prices, and would prefer to return to a model in which Amazon, Barnes and Noble, and other retailers would decide what price to charge customers. This model would invite competition and ultimately drive down the cost of ebooks, the Justice Department asserts.
A a drawn-out, lengthy battle with the Department of Justice would hurt Apple on two fronts. First, the costs associated with these types of legal battles are astronomical. Not that Apple doesn’t have the money, mind you, but they could certainly spend this money in a much better way. Second, after a certain cool-off period, Amazon and others could go back to selling bestsellers for $9.99 while Apple continues to add a 30% surcharge, a move that would drive customers away from Apple.
We’ll likely be hearing much more about this suit in coming months, and we’ll be sure to bring you the news as it emerges.
Update: The Justice Department released its official statement and confirmed:
“Earlier today, we filed a lawsuit in U.S. District Court for the Southern District of New York, against Apple and five different book publishers – Hachette, HarperCollins, Macmillan, Penguin and Simon & Schuster. In response to our allegations, three of these publishers – Hachette, HarperCollins and Simon & Schuster – agreed to a proposed settlement. If approved by the court, this settlement would resolve the Department’s antitrust concerns with these companies, and would require them to grant retailers – such as Amazon and Barnes & Noble – the freedom to reduce the prices of their e-book titles. The settlement also requires the companies to terminate their anticompetitive most-favored-nation agreements with Apple and other e-books retailers.”
You can read the full statement on the DOJ’s website.
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