US Department of Justice sues Apple and major publishers over e-books prices

US Department of Justice sues giant tech Apple and major publishers over pricing of e-books.

The US accuses Apple and book publishers Hachette, HarperCollins, Macmillan and Penguin of colluding on prices of books on the iPad.

This lawsuit is over the agency model where publishers set the prices of e-books, rather than sellers.

The lawsuit comes a day after Apple surpassed $600 billion in value.

The increase affirmed its position as the world’s most valuable firm.

“Apple facilitated the publisher defendants’ collective effort to end retail price competition by coordinating their transition to an agency model across all retailers,” according to papers filed in New York’s Sourthern District court on Wednesday morning.

Electronic books are sold according to a different formula from that governing the sales of physical books.

For most physical books publishers set a wholesale price, often about half the cover price, and then let a retailer decide how much they actually want to charge for the title.

This model was initially adopted for e-books but has since been changed for what is known as an agency model.

Under this scheme, publishers set the price of a book and the agent selling it gets a 30% cut. This model was adopted by publishers largely at the prompting of the late Steve Jobs.

The shift to agency pricing was also seen as a protective measure to head off attempts by Amazon to corner the market in e-books. It had been aggressively cutting prices to win customers over to its Kindle e-book reader.

Amazon once tried to apply the wholesale model on book publishers – but was rebuffed by the publishers.