Macmillan settles with DOJ; Apple last company standing in e-book battle

By Brendan Sasso - 02/08/13 12:34 PM ET

The Justice Department settled charges with book publisher Macmillan on Friday, leaving Apple as the last company standing in the government's legal battle over e-book price-fixing.

The department's Antitrust Division sued Apple and five publishers last April, accusing them of colluding to raise the price of e-books. Three publishers — Hachette, HarperCollins and Simon & Schuster — agreed immediately to settle with the Justice Department. Penguin agreed to the government's terms in December.

The case against Apple is scheduled to go to trial in June. The company did not respond to a request to comment on Friday.

According to the Justice Department's lawsuit, Apple and the five publishers were unhappy that Amazon was driving down the price of e-books. Amazon had set the price of all of its e-books at $9.99.

Justice officials said the companies conspired to set up a new business model, called the agency model, which raised the price of many e-books by about $2 to $3. Under agency pricing, the publishers, not bookstores, set the retail price of e-books.

The publishers agreed to give Apple 30 percent of the revenue from the e-books sold in the company’s iBookstore. Additionally, they gave Apple "most-favored nation" status, which guaranteed that no other retailer could sell an e-book for less than Apple.

The agency model itself is not illegal, DOJ argues, but the backroom collusion that established it was.

The settlement with the publishers requires them to abandon their agency-pricing agreements with Apple and other retailers and bars them from setting up similar agreements for about two years.

“As a result of today’s settlement, Macmillan has agreed to immediately allow retailers to lower the prices consumers pay for Macmillan’s e-books,” Jamillia Ferris, chief of staff of the Antitrust Division, said in a statement. “Just as consumers are already paying lower prices for the e-book versions of many of Hachette’s, HarperCollins’ and Simon & Schuster’s new releases and best sellers, we expect the prices of many of Macmillan’s e-books will also decline.”

In its court filings, Apple has argued that the contracts were arranged legally.

Many critics, including Sen. Charles Schumer (D-N.Y.), have worried that the lawsuit could empower Amazon to regain dominance of the e-book market. Under the old model, Amazon controlled about 90 percent of the market, but after the publishers instituted the new pricing, Amazon's share fell to 60 percent.