Apple Sued Over E-Book Pricing: Report (Update 1)

Updated from 10:55 a.m. EST to include settlement talks, emailed statements in the fourth through sixth paragraphs.

NEW YORK (TheStreet) - The Justice Department has sued Apple (AAPL) over e-book pricing in a wide-ranging lawsuit that impacts the broader publishing industy.

"The Department has reached a settlement with three of the nation's largest book publishers - and will continue to litigate against Apple, and two additional leading publishers - for conspiring to increase the prices that consumers pay for e-books," explained Attorney General Eric Holder, in a statement.

French book publisher Hachette Book Group, News Corp.'s (NWSA) HarperCollins Publishers and Simon & Schuster have settled with the DOJ, while Apple, Macmillan and Pearson's (PSO) Penguin Group have not.

Hachette, HarperCollins and Simon & Schuster will end their "most-favored nation" agreements with Apple and other e-book retailers, Holder said in the release. He went on to say that the companies will be "prohibited for two years from placing constraints on retailers' ability to offer discounts to consumers. They will also be prohibited from conspiring or sharing competitively sensitive information with their competitors for five years."

Rumors of a lawsuit first appeared a few weeks ago, when it looked like a settlement may not be reached.

In an emailed statement, Hatchette said it has "reluctantly agreed to join the settlement of this matter with the U.S. Department of Justice (DOJ), and to begin the process of settling with the State Attorneys General."

Concerns over e-book pricing have been an issue for Apple in Europe, as well as the United States. In late 2011, the European Commission launched a probe into whether Apple and these same five publishing houses raised prices for e-books illegally in 2010.

Antitrust expert Joseph Bauer, a professor of law at the University of Notre Dame, said the lawsuit raises interesting issues, particularly on pricing. "Competition on price has historically been the most important goal of antitrust enforcers, since it is seen as the best way to maximize consumer welfare," Bauer explained, in an email. "This lawsuit raises interesting issues about agreements regarding pricing behavior, both between competitors and by firms at different levels of distribution."

Apple could not be immediately reached for comment.

Shares of Apple dipped slightly in Wednesday trading, slipping 0.63% to $624.50.

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--Written by Chris Ciaccia in New York

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