The Justice Department and 15 states sued Apple Inc. and major book publishers Wednesday, alleging a conspiracy to raise the price of electronic books they said cost consumers more than $100 million in the last two years by adding $2 to $5 to the price of each e-book.
Attorney General Eric H. Holder Jr. said executives at the highest levels of the companies conspired to eliminate competition among e-book sellers. Sharis A. Pozen, chief of the Justice Department's Antitrust Division, said the executives were desperate to get Amazon.com, marketer of the Kindle e-book reader, to raise the $9.99 price point that it had set for the most popular titles, which was substantially below their hardcover prices.
The federal government reached a settlement with three of the publishers, Hachette, HarperCollins and Simon & Shuster. But it will proceed with its lawsuit in federal court in New York City against Apple and Holtzbrinck Publishers, doing business as Macmillan, and Penguin Publishing Co. Ltd., doing business as Penguin Group.
Connecticut and Texas, two of the 15 states filing a separate complaint, reached agreements with Hachette and HarperCollins to provide $52 million in restitution to consumers, using a formula based on the number of states participating and the number of e-books sold in each state. Other states in the case may sign onto the agreement.
Holder told a Justice Department news conference Wednesday that "we believe that consumers paid millions of dollars more for some of the most popular titles" as a result of the alleged conspiracy. Pozen said the alleged scheme added an average of $2 to $3 to the prices of individual books.
Connecticut Attorney General George C. Jepsen said that the individual book markups went as high as $5 and that the total cost to consumers was more than $100 million since April 2010, when the alleged scheme took effect.
According to Pozen, Apple's Steve Jobs told publishers involved in the alleged conspiracy that "the customer pays a little more, but that's what you want, anyway."
The lawsuit says the effort to get e-book prices reduced by Amazon.com came as Apple was preparing to launch the iPad. The government said the conspirators agreed that instead of selling books to retailers and letting them decide what retail price to charge, the publishers would convert the retailers into "agents" who could sell their books but not alter the publisher-set retail price. The alleged scheme called for Apple to be guaranteed a 30 percent commission on each e-book that it sold, according to the lawsuit.
"To effectuate their conspiracy, the publisher defendants teamed up with defendant Apple, which shared the same goal of restraining retail price competition in the sale of e-books," the lawsuit says.
Apple did not immediately respond to a comment request.
Macmillan CEO John Turner Sargent Jr. said in a letter to authors, illustrators and agents that the company has not settled because it is "hard to settle a lawsuit when you know you have done no wrong."
He said: "Macmillan did not act illegally. Macmillan did not collude."
At the heart of the e-book pricing debate is the industry's continuing concerns about Amazon. Publishers see the "agency model" as their best, short-term hope against preventing the online retailer from dominating the e-book market and driving down the price of books to a level unsustainable for publishers and booksellers.
Since launching the Kindle in 2007, Amazon has made a point of offering best-sellers for $9.99. The discount is so deep from list prices of $20 or more that it's widely believed Amazon is selling the e-books at a loss as a way of attracting more customers and forcing competitors to lower their prices.
When Apple launched its tablet computer two years ago, publishers saw two ways to balance Amazon's power: Enough readers would prefer Apple's shiny tablet over the Kindle to cut into Amazon's sales, and the agency model would stabilize prices.
According to court papers, the settlement agreement reached with three publishers said the companies agreed that for two years they will not restrict, limit or impede an e-book retailer's ability to set, alter or reduce the retail price of any electronic book. It said the retailers will be able to offer price discounts and other forms or promotions to encourage consumers to buy one or more electronic books.