The US Department of Justice's lawsuit against Apple and a handful of e-book publishers "could wipe out the publishing industry as we know it," according to Senator Charles Schumer (D-NY). In an editorial published in the Wall Street Journal on Wednesday, Schumer argued that the lawsuit could make it more difficult for new authors to get published if Apple is forced to adopt Amazon's wholesale model for e-books, and that by moving forward with the suit, the DoJ is "[missing] the forest for the trees."

"If publishers, authors and consumers are at the mercy of a single retailer that controls 90% of the market and can set rock-bottom prices, we will all suffer," Schumer wrote in reference to Amazon, which completely dominated the e-book market until Apple introduced the iPad and its iBookstore in early 2010. "Choice is critical in any market, but that is particularly true in cultural markets like books. The prospect that a single firm would control access to books should give any reader pause."

The DoJ set its target on Apple, Hachette, Harper Collins, Macmillan, Penguin, Pearson, and Simon & Schuster in April of 2012 for allegedly colluding to fix e-book prices. At the time of the iPad's introduction of 2010, Apple also rolled out iBooks (and the iBookstore), a competitor to Amazon and its Kindle market. But unlike Amazon, Apple decided to allow publishers to use the so-called "agency model," which allowed them to set their own prices for e-books. Amazon's wholesale model allowed the company to sell e-books at prices below cost, a strategy that irked publishers because they felt Amazon was undercutting their prices and devaluing their products in the marketplace. Throughout 2010, publishers pushed Amazon to switch to the agency model as well, and eventually, it did.

Agency model When people refer to the "agency model," it's usually in reference to the sale of electronic content online—in particular, e-books. The "old" way to sell e-books was to use what is known as the wholesale model. Under the wholesale model, book publishers sell a certain number of books to a reseller (such as Amazon or Barnes & Noble) for a set price, then the reseller sets its own price on each book. Read more…

But such a change seemed to come at a detriment to e-book customers; the prices for many new releases ended up going up from Amazon's standard $9.99 to anywhere from $11 to $20 (and sometimes higher), which is part of the argument used by the DoJ against Apple. The DoJ—as well as a number of states—argues that Apple worked with the named publishers specifically to raise prices. But Apple defended itself after the suit went public by saying that the DoJ "sides with monopoly, rather than competition," and patted itself on the back for breaking Amazon's "monopolistic grip on the publishing industry."

Later on, Apple wrote in a court filing that the iBookstore was launched in part to "avoid negative margins that it believed Amazon was incurring as it sold certain bestselling eBooks below cost." The company added that "representatives of each of the publishers separately expressed varying degrees of unhappiness with Amazon’s tactics, including its pricing."

Schumer's letter largely agrees with Apple, adding that the average price for e-books has actually dropped from $9 to $7 since Apple's entry into the market, despite seemingly higher prices for new releases. "While consumers may have a short-term interest in today's new release e-book prices, they have a more pressing long-term interest in the survival of the publishing industry," he wrote.

Schumer also asserts that we should be embracing new technologies and services instead of shunning them. "As our economy transitions to digital platforms, we should be celebrating and supporting industries that find ways to adapt and grow. By developing a pricing model that made e-book sales work for them, publishers did just that," Schumer said. "I am concerned that the mere filing of this lawsuit has empowered monopolists and hurt innovators. I believe it will have a deterrent effect not only on publishers but on other industries that are coming up with creative ways to grow and adapt to the Internet."

A couple of the publishers involved in the suit—McMillan and Penguin Group—have also stood up to the DoJ's suit by insisting they didn't act illegally and that they strongly believe in the agency model. Schumer appears to agree, to the point where he suggests the DoJ set guidelines for non-merger-related investigations. "These new guidelines should take a broad, pragmatic view of the market as a whole," Schumer wrote. "As the e-books case shows, this kind of perspective is sorely missing today."