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Justice Dept Settles With Three Publishers In E-Book Antitrust Suit

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The U.S. Department of Justice filed terms of a settlement Wednesday with Hachette Book Group, HarperCollins Publishers L.L.C. and Simon & Schuster Inc, over an e-book anti-trust lawsuit.

The suit, which stated Apple Inc (AAPL: Quote) and five major publishers colluded to fix e-book prices and limit retail price competition, was also announced during the press conference today by Attorney General Eric Holder.

The DOJ has not reached a settlement with Apple or two other publishers, Macmillan and Penguin, and said it will continue to fight against them.

The Justice Department's Antitrust division filed the antitrust lawsuit in New York district court against Apple, and Hachette Livre (Lagardere Publishing of France), HarperCollins (News Corp.), Simon & Schuster (CBS Corp.), Penguin (Pearson Group) and Verlagsgruppe Georg von Holzbrinck (owner of inter alia Macmillan).

The settlement reached with the three publishers would require them to allow retailers the freedom to price e-books. Hachette, HarperCollins and Simon & Schuster also agreed to terminate their agreements with Apple and other e-books retailers. As per settlement, they will be prohibited for two years from entering into new agreements to constrain retailers' ability to offer discounts or other promotions.

"As a result of this alleged conspiracy, we believe that consumers paid millions of dollars more for some of the most popular titles," Holder told press today.

"We allege that executives at the highest levels of these companies-concerned that e-book sellers had reduced prices-worked together to eliminate competition among stores selling e-books, ultimately increasing prices for consumers," he added.

Justice complained the defendants reached an agreement whereby the retail price competition would cease, retail e-book prices would increase significantly and Apple would be guaranteed a 30 percent commission on each e-book it sold.

The alleged price fixing dates back to early 2010 when Apple was getting ready to launch the iPad and when the publishers were worried about Amazon.com's successful marketing strategies. Amazon.com had lowered the prices of newly released and best-selling e-books substantially to $9.99.

The publisher defendants feared lower retail prices for e-books might lead eventually to lower wholesale prices for e-books, lower prices for print books, or other consequences.

The defendants conspired and adopted the "agency model" replacing the "wholesale model," stated the Justice Department's case. Under the agency model, publishers took control of pricing by appointing retailers as "agents" who would have no power to alter the retail prices set. As a result, the publishers were able to end price competition among retailers and raise the prices. In the wholesale model, the publishers had left it to the retailers to set the price.

AAPL is currently trading at $627.80, down $0.64 or 0.10%, on a volume of 16 million shares, on the Nasdaq.

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by RTT Staff Writer

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