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Apple and publishers are accused of price fixing e-books higher and has been warned to cease the practice. Or else.

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The US Justice Dept. believe the iBookstore owner along with 5 other publishers have been raising the price of electronic books to the detriment of consumers.

The publishers in question include Simon & Schuster (owned by CBS), Hachette Book Group; Penguin, Macmillan, and HarperCollins Publishers, owned by Rupert Murdoch’s News Corp.

The story was revealed by the Wall Street Journal, also owned by News.

“Several” of the parties are now said to be in discussion with the Justice Dept in order to resolve the case and prevent it from going to court and facing million dollar fines for antitrust breaches.

Cupertino forced a new pricing model for the ebook industry in 2010 just prior to iPad launch under the instruction of Steve Jobs, where retailers like Apple took a 30% cut of every ebook sold, with the price set by the publisher rather than the retailer.

However, the snag is under the new deal known as the “agency model” proposed by Jobs and prevented rival retailers from selling ebooks at a lower price, something that Amazon did a lot in the early days of Kindle to lift sales and also had the scale to do so.

The e-tailer often sold electronic titles for as little as $9.99 – until the iPad came along.

Jobs admitted the scheme to his biographer, saying “yes, the customer pays a little more, but that’s what you want anyway.”

Apple currently flogs 700,000 titles in its iBookstore which can be viewed on Apple’s iPhone, iPad or iPod. Steve Jobs’ book by Walter Isaacson is sold on the iBookstore for US$14.99, while other books titles can cost as much as $24.99. 

 

If the publishers agree to back down from the pricing model, it could mean lower prices for ebook customers and Amazon may go gung-ho on undercutting rivals, to the horror of Apple.

The EU is also engaged in a similar investigation into the price fixing scandal across the pond.

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