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Apple Catches Europe's Antitrust Eye (Update 1)

Updated from 2:50 p.m. ET to include latest share price, and additional comments on Amazon pricing model.

NEW YORK ( TheStreet) -- Apple (AAPL - Get Report) has run into more legal woes in Europe.

The European Commission has launched a probe into whether Apple and five major publishing houses raised prices for e-books illegally, when the iPad and iBookstore were launched in 2010.

Also included in the probe are publishers Hachette Livre, a division of Lagardere Publishing; Harper Collins, a division of News Corp. (NWSA - Get Report); Simon & Schuster, owned by CBS (CBS - Get Report); Penguin, a division of Pearson Group; and Germany's Verlagsgruppe Georg von Holtzbrinck, which owns Macmillan.

Hagens Berman, a Seattle-based law firm, filed the U.S. class-action lawsuit against Apple, saying the Cupertino, Calif.-based company felt a need to "neutralize the Kindle" when the iPad was released. The firm claims that Apple feared Amazon would one day seek to distribute media such as music and movies on its Kindle device, which as come to pass with the release of the Kindle Fire tablet.

When Amazon (AMZN - Get Report) originally launched the Kindle e-reader, it used a wholesale discount pricing model, as opposed to agency prices. This allowed Amazon to set the prices of the content, usually at a loss, to help push sales of the Kindle. The company then had to move to an agency model after Apple and the group of publishers worked off that model, which allows the publishers to set the price of the content. Apple would get a 30% cut of the price.

Now, as part of the agency pricing model, Amazon receives the same 30% cut that Apple receives, but only in a select list of countries, including the U.S., Canada, the United Kingdom, Germany, Austria, Switzerland, Luxembourg and Liechtenstein. If the country is not on a list, Amazon pays only 35% of the price. If the e-book is sold in the European Union, 15% of the price is held for the value-added tax, VAT. Amazon then returns the price net of the VAT.

The Kindle Fire and Barnes & Noble's (BKS) Nook aren't prevalent in Europe, but the iPad is. The issue at hand may be that the European Commission is worrying about the lack of competition in Europe, which forces consumers to pay higher prices for media then they might if the Kindle Fire and Nook were available.

The iPad is significantly more expensive than the Kindle Fire and Nook as well. The base price for the iPad 2 is $499, while the base price for the Kindle Fire and Nook Color is $199. Both of these tablets and e-readers are geared towards the lower end, reflected by a lower price point and fewer features than the iPad 2.
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