Apple prepares to defend e-book pricing agreement

Apple and two publishers are preparing to fight the US justice department in court if necessary over pricing agreements for digital books, according to two people with knowledge of the matter.

Apple, Pearson's Penguin Group, and Macmillan, a unit of Verlagsgruppe Georg von Holtzbrinck, want to protect the so-called agency model that lets publishers — not vendors — set e-book prices, said the people, who declined to be identified because they weren't authorised to talk publicly.

The justice department is probing whether Apple's interaction with publishers over pricing hampered competition in the market for electronic books. The government is seeking a settlement that would let Amazon.com and other retailers return to a wholesale model, where retailers decide what to charge customers, the people said.

CBS's Simon & Schuster, Lagardère's Hachette Book Group, and News Corp's HarperCollins are seeking to avoid a costly legal battle and could reach a settlement next week, a person said this week. A settlement could also void so-called most-favoured nation clauses in Apple's contracts that require book sellers to provide the maker of the iPad with the lowest prices they offer competitors, the people said.

Upholding the agency model would give publishers more control over pricing and limit discounting, helping the industry avoiding sales losses as more consumers buy books online.

The justice department is probing how Apple changed the way publishers charged for e-books on the iPad, a person familiar with the matter said last month. European antitrust regulators also have said they're investigating whether Apple's pricing deals with publishers restrict competition.

Sales of e-books rose 117% in 2011, generating $969.9 million, Publishers Weekly reported on February 27, citing data from the Association of American Publishers. By eliminating printing and shipping costs, digital versions generate higher profit margins than physical copies.

When Apple came out with the iPad in 2010, it let publishers set their own prices for e-books as long as it got a 30% cut and the publishers agreed to offer their lowest prices through Apple. This agency model overtook Amazon.com's practice of buying books at a discount from publishers and then setting its own price for e-reader devices.

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