Justice Department Is Still Going After EBook Price Fixing

The Justice Department is conducting a lengthy investigation of the agency model for ebook pricing. It has now come to a point that it is 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 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.

Under the Sherman Act, corporations face a maximum fine of $100 million for violations. In addition, collusion among competitors may constitute violations of the mail or wire fraud statute, the false statements statute, or other federal felony statutes.

One possible solution would be to preserve the agency model but allow some discounts by booksellers. William Lynch, CEO of Barnes and Noble, is said to have 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.

The Justice Department 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."

How will it end? We just have to wait and see......