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US government launches legal action against Apple over e-book pricing


The late Steve Jobs conspired with the bosses of the world's biggest publishers to fix the price of electronic books, it was dramatically alleged in the US today.

The US government launched legal action Apple and five book publishers for a scheme that it said jacked up the cost of e-books not just on Apple's iPad devices but across the industry and across the world.

Amazon, whose Kindle e-reader was among the first to popularise digital books, was forced to follow Apple's lead and raise prices.

The US Department of Justice investigation unearthed an email from Mr Jobs to the major publishing house bosses in which he discussed a new business model that would allow them to set prices, with Apple taking a cut of almost one third.

"We'll go to [an] agency model, where you set the price, and we get our 30 per cent, and yes, the customer pays a little more, but that's what you want anyway," Mr Jobs wrote.

The price-fixing lawsuit in the US came on the same day as developments in a parallel investigation in the European Union, which could bring down e-book prices in the UK. The EU said it had received "proposals of possible commitments" from Apple and four international book publishers, though it was not immediately disclosed what these changes would be.

The EU launched its investigation last December; the US Department of Justice began looking into price-fixing allegations several months earlier.

According to the price-fixing lawsuit filed today, executives at the publishing houses spoke regularly and even met in "the private dining rooms of upscale Manhattan restaurants" to discuss Mr Jobs's offer. The executives took pains to cover their tracks, ordering certain emails be "double deleted".

The cost to consumers of the scheme could be as much as $100m, according to Connecticut Attorney General George Jepsen. Eric Holder, the Obama administration's Attorney General  said at a news conference that $2 or $3 was added to average price of an e-book. "We believe that consumers paid millions of dollars more for some of the most popular titles," he said.

Apple's entry into the e-books market, with the launch of the iPad and the related iBookstore in 2010, revolutionised the market. Until then, Amazon's e-book store operated like a high street bookshop chain, paying a wholesale price and then selling e-books at a price of Amazon's choosing. To juice sales of the Kindle in the US, they were being sold at a knock-down price of $9.99. That was a figure the book publishers thought was too low.

Apple's "agency" model would allow publishers to set the customer price directly, at whatever level they wanted. The business agreement, which all the publishers signed within days of each other, stipulated that they would not let anyone else sell e-books for less than Apple.

The UK's Pearson Group, owner of Penguin books, is among the five publishers sued in the US. The others are Macmillan, Hachette, Simon & Schuster and Rupert Murdoch's HarperCollins. The last three immediately agreed settlements with the US government, but Mr Holder promised a "vigorous" court battle against Apple, Penguin and Macmillan.

Last month, the Author's Guild of the US warned that the price-fixing suit would damage the book industry. Scott Turrow, the Guild's president, hurting "everyone who cherishes a rich literary culture" He said: "Amazon was using e-book discounting to destroy bookselling, making it uneconomic for physical bookstores to keep their doors open."