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Apple, Macmillan Prepped to Fight DoJ Lawsuit Over E-Books

Apple and book publisher Macmillan, two parties who refused to engage in settlement talks with the Department of Justice over the whole ebook price fixing scandal, are now preparing themselves to be sued by the government, claims insiders. Both Apple and Macmillan deny that they colluded to raise prices for digital books, and plan to argue in an antitrust case that the price increase actually enhanced competition in a sector once ruled by Amazon and its Kindle devices.

The Justice Department's antitrust arm warned Apple and five publishers -- Macmillan, Simon & Schuster, Hachette Book Group, HarperCollins and Penguin Group -- that it planned to sue them for allegedly fixing the prices of ebooks back in March. Currently the government agency is probing how Apple may have influenced the publishers to go with an Agency Model industry-wide with the launch of the original iPad.

But as reported last month, the Justice Department is leaving the door open settlements which will reportedly come to a close this week. Simon & Schuster, Hachette Book Group and HarperCollins planned to settle by Wednesday to avoid a costly legal battle, which they have already done so, while Penguin Group will likely fight the Justice Department in court if necessary. Like Apple and Macmillan, Penguin wants to protect the Agency Model which puts ebook pricing in the hands of publishers, not retailers.

But if the Department of Justice wins its case, ebook pricing will likely revert back to retailers like Amazon and Barnes & Noble who set their own prices. This is what started the whole ebook pricing investigation in the first place: a collective action to prevent Amazon from dominating the ebook market by selling virtual books for $9.99 USD and less. As it stands now, the Agency Model puts ebook prices higher than paperbacks, and there's no physical media or actual print publishing involved.

Click here to see the DoJ's filing (PDF).

A win by the Justice Department would also void most-favored nation clauses in Apple's contracts that require publishers to provide the iPad maker with the lowest prices they offer competitors. "Consumers and competition could be hurt if several companies sign contracts that refer to prices charged to rivals even if those firms aren’t dominant," said Fiona Scott-Morton, a Justice Department economist.

According to Bloomberg, upholding the agency model would give publishers more control over pricing and limit discounting, helping the industry avoid sales losses as more consumers buy books online. But consumers don't want to pay $12.99 USD for the next Dark Tower novel in ebook form when the actual hardback can be purchased for $16.20 USD. Sales of ebooks supposedly rose 117-percent in 2011, but the numbers may have been even higher had the ebook prices been more reasonable.

Random House also enforces the Agency Model, but for some reason isn't part of of the Department of Justice inquiry.

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