Apple’s eBook publication model has caused nothing but headaches over the last few months for the tech giant, and now things are about to get much worse.
The Department of Justice is on the verge of suing Apple over price-fixing, Reuters reported Tuesday. The lawsuit could be handed down on Wednesday.
The Department of Justice is investigating whether or not several publishers engaged in price-fixing with deals they struck with Apple two years ago when the original iPad was launched.
The publishers involved in the investigation are Simon & Schuster, HarperCollins, Hachette Book Group, Pearson and Macmillan.
The DoJ is in the middle of settling with a number of the publishers, but Apple is not a part of that negotiation.
When Apple struck its deals with the publishers, it was arranged that it would set the price of eBooks and Apple would receive a 30% cut of the sales. This is standard procedure for Apple, as it has this agreement for everything sold through their store.
Through this deal, the publishers made less money than they would have under a wholesale pricing plan, like they had with Amazon, but it gave them more control over their prices.
What the Department of Justice now wants to know is whether the publishers purposely propped up the price of digital books, after Apple and the publishers struck their deals.
If they did, then they would be guilty of price-fixing.
What is at stake?
Apple currently has a “Most Favored Nation” (MFN) clause in its contracts, which allowed Apple to insist that their prices are the lowest in the market. This was done to make sure that Apple products always remained competitive, even though the publishers were the ones setting the prices.
It is believed that the Justice Department will take away Apple’s MFN status, which would be great news for second tier publishers, who were always forced to make sure that Apple prices were lower than their competitors. If, for example, another company, such as Amazon, lowered their prices then Apple's MFN status allowed them to then force the publishers to lower their prices as well.
The Department of Justice stripping Apple of its MFN status would be a boon for those second tier publishers, who would have greater power to remain competative against the larger publishers.
Unfortunately for Apple, this is not the first time the company has found itself scrutinized over its eBooks policy.
In December of last year a European Commission was set up to investigate similar deals made by the same publishers that the DoJ is now investigating, including HarperCollins and Simon and Schuster.
While the EU commission did declare that it was willing to settle with Apple last month, the investigation is still ongoing.
Apple did not return our request for comment.
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