Apple and publishing companies sued over ebook deals

Jobs’ Mob is in hot water with the US Justice Department over its cosy deals with the major book publishers.

According to the Wall Street Journal, the DoJ has penned a letter to Apple and five of the biggest US publishers that it plans to sue them for colluding to raise the price of ebooks.

Apparently some of the parties involved have panicked and are holding talks in a desperate bid to settle any antitrust case before it happens.

Any settlement could lead to cheaper e-books for consumers. The five involved are understood to be Simon & Schuster, Hachette Book Group; Penguin Group (USA), Macmillan and HarperCollins.

HarperCollins is part of News Corp which also owns The Wall Street Journal so we expect it to be informed about it all.

What happened was Apple’s tried to change the way that publishers charged for e-books when it introduced its first iPad in early 2010. In the old days publishers sold books to retailers for roughly half of the recommended cover price. They could then offer those books to customers for less than the cover price if they wished.

Amazon sold new best sellers at $9.99 to encourage consumers to buy its Kindle electronic readers, but this was hated by the publishers who were worried that consumers would grow accustomed to inexpensive e-books.

They were also worried that Barnes & Noble would be unable to compete with Amazon’s steep discounting and go under. They did not want to become like the music industry which had huge problems when Apple became the dominant player by selling songs for 99 cents.

Steve Jobs suggested moving to an “agency model,” under which the publishers would set the price of the book and Apple would take a third. Apple also demanded that publishers couldn’t let rival retailers sell the same book at a lower price.

He bragged to his biographer Walter Isaacson that while the customer paid a little more, but that was in the publishers interests too so they should accept the deal.

The publishers were then able to impose the same model across the industry. They went to Amazon and told it they were going to sign an agency contract or they were not going to get any books.

Even without Jobs’ death bed confession in his biography, the Justice Department believes that Apple and the publishers acted in concert to raise prices across the industry.

However the publishers have denied it. They have told investigators that the shift to agency pricing enhanced competition in the industry by allowing more electronic booksellers to thrive.