Justice Department Said to Threaten Suit Over Agency eBook Pricing

The Wall Street Journal says that the Justice Department's lengthy investigation of the agency model for ebook pricing has escalated, with the government threatening to sue the "Agency Five" publishers and Apple "for allegedly colluding to raise the price of electronic books, according to people familiar with the matter." The paper says that "some but not all" of the publishers involved have held settlement talks with Justice. Those same people said "the Justice Department believes that Apple and the publishers acted in concert to raise prices across the industry, and is prepared to sue them for violating federal antitrust laws."

One publishing executive says the discussions have been underway for a long time and "negotiations have taken many turns." Another executive said "a settlement is being considered for pragmatic reasons but by no means are we close." That person added, "You have to consider a settlement, whether you think it's fair or not." Under the Sherman Act, corporations face a maximum fine of $100 million for violations. A Justice Department "antitrust primer" notes that "in addition, collusion among competitors may constitute violations of the mail or wire fraud statute, the false statements statute, or other federal felony statutes."

Among the possible solutions, "one idea floated by publishers to settle the case is to preserve the agency model but allow some discounts by booksellers, according to the people familiar with the matter." The paper notes that BN ceo William Lynch is said to have testified to Justice that the agency model promoted a marketplace that provides consumers with choices, arguing that without it a single player--the one that can afford to lose money, using what some argue is predatory pricing--would have an even more dominant market share.

In an "antitrust primer," Justice maintains that proving illegal price-fixing "does not require us to show that the conspirators entered into a formal written or express agreement. Price fixing, bid rigging, and other collusive agreements can be established either by direct evidence, such as the testimony of a participant, or by circumstantial evidence, such as suspicious bid patterns, travel and expense reports, telephone records, and business diary entries."

There has been tension in the interpretation of the Sherman Act ever since the Supreme Court's 2007 ruling in the Leegin Creative Leather Products case. The Court reversed almost 100 years of judicial precedent that found vertical price restraints were illegal per se, and substituted a "rule of reason" and recognized retail price maintenance can in some cases have a "procompetitive effect that are in the  consumer's best interest."

Meanwhile, Google Play's new promotion offering a different ebook every day for 25 cents is doing wonders for Amazon. Jonathan Safran Foer's Extremely Loud and Incredibly Close rose to No. 1 on the hourly Kindle bestseller list when Amazon matched the 25-cent price and is still there, at least for now, at the revised price of $7.03. Gaining on it is Chuck Palahniuk's FIGHT CLUB, the next Google promotion, now at No. 8 on Amazon's list (after ranking in the 40,000s last night).