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The European Union's antitrust watchdog is probing whether Apple helped five major publishing houses illegally raise prices for e-books when it launched its iPad tablet and iBookstore in 2010.
The probe, announced Tuesday by the European Commission, offers a glimpse into the fierce fight for share of the growing e-book market as Apple tries to take on Amazon and its Kindle e-book reader. It also highlights the struggle for profits between retailers and publishers, as more and more readers download books electronically.
In particular, the Commission is investigating a significant shift in the way the price of e-books is determined that occurred in 2010, just as the Cupertino, California-based Apple introduced the iPad and its own online bookshop, iBookstore.
Apple was the first retailer to allow publishers to move to so-called agency agreements, which let publishers set the price that online bookshops sell e-books to consumers. Until then, publishers were able to set the wholesale price of e-books, while retailers decided what price to sell them on to readers.
"The Commission has concerns that these practices may breach EU antitrust rules that prohibit cartels and restrictive business practices," the regulator said in a statement.
Giving publishers the power to set retail prices could effectively restrict competition between online bookshops, since it takes away the individual retailers' powers to set lower prices. Since Apple's deal with the publishers, several other online retailers have also shifted to the agency model, possibly in an attempt to secure the rights to sell popular e-books.
The EU investigation targets publishers Hachette Livre, a unit of France's Lagardere Publishing; Harper Collins, owned by Rupert Murdoch's U.S.-based News Corp.; CBS Corp.'s Simon & Schuster; Penguin, which is owned by U.K. publishing house Pearson Group; and Germany's Verlagsgruppe Georg von Holtzbrinck, which owns Macmillan.
The Commission stressed the probe was in its early stages and did not mean that the companies had actually broken EU competition law. It follows a similar investigation by Britain's Office of Fair Trading and a class action lawsuit against the same five publishers and Apple filed this summer in the U.S. District Court for the Northern District of California.
The U.K. agency on Tuesday closed its own probe, since the Commission has taken over the case, but said it was cooperating closely with the EU investigation. It said its investigation was triggered by several complaints, without naming any complainants.
Apple representative Bethan Lloyd said the company declined to comment at this time.
Pearson said the fact that the Commission has opened a probe did not prejudge its outcome. "Pearson does not believe it has breached any laws, and will continue to fully and openly cooperate with the Commission," it said.
Holtzbrinck echoed that statement, saying it found the Commission's case "without reason." HarperCollins and Simon & Schuster said they are cooperating with the investigation, while Hachette Livre declined to comment.
The e-book market has been dominated by Amazon.com Inc. and its Kindle reader, with both Apple and Barnes & Noble's Nook reader fighting to break in.
In a summary of its complaint, the U.S. law firm Hagens Berman, which filed the U.S. class-action suit, claims that "Apple believed that it needed to neutralize the Kindle when it entered the e-book market with its own e-reader, the iPad, and feared that one day the Kindle might challenge the iPad by digitally distributing other media like music and movies."
The lawsuit also alleges that, following Apple's deals, Amazon was forced to abandon its discount pricing model and move to the agency model.
However, Keith Hylton, a professor at the Boston University School of Law, said Monday that allowing publishers to set prices for retailers didn't necessarily hurt competition in the market for e-books.
"Resale price maintenance can enhance competition by giving retailers a stronger incentive to promote the goods that they are selling," he said in an email. "In the absence of resale price maintenance, some retailers may cut their promotional efforts in order to 'free ride' on the promotional investments of other retailers."
In fact, such lack of promotion of books could hurt sales and thereby competition, Hylton said. "Given this, it's not at all clear that Apple's efforts were harmful to competition."
Robert Barr in London, Hillel Italie in New York, Elaine Ganley in Paris, and Kirsten Grieshaber in Berlin contributed to this report.