Court Finds Apple Guilty Of Conspiring To Raise Ebook Prices

from the cue-angry-publisher-responses-in-3.. dept

Wed, Jul 10th 2013 10:31am — Tim Cushing

The decision is in: Apple has been found guilty of conspiring to raise ebook prices and has been ordered to face a trial on damages. With every involved publisher having previously settled with the Justice Department, this was perhaps a foregone conclusion, especially considering the presiding judge had noted pre-trial that Apple's defense was likely to fail.

The decision by U.S. District Judge Denise Cote in Manhattan is a victory for the U.S. Department of Justice and 33 U.S. states that brought the antitrust case.

Cote said the plaintiffs presented "compelling evidence" that Apple violated the federal Sherman antitrust law by playing a "central role" in a conspiracy with five major publishers to eliminate retail price competition and raise e-book prices.

"Apple chose to join forces with the publisher defendants to raise e-book prices and equipped them with the means to do so," the judge wrote in a 159-page decision. "Without Apple's orchestration of this conspiracy, it would not have succeeded as it did."

Judge Cote directly addressed the "well, what about Amazon?" question that has sprung from the lips of Apple's defenders (both in court and out), as well as by several of the publishers. (Nevermind the fact that publishers are still paid in full while Amazon sells ebooks at a loss, at least for now.)

Apple's argument that the debut of the iPad and its accompanying iBookstore would result in actual market competition was addressed thusly:

If Apple is alluding to the fact that Amazon's Kindle bookstore was the dominant e-retailer for books in 2009, and that the arrival of the iBookstore created another e-retailer, that is true. But, as this Opinion explains, Apple demanded, as a precondition of its entry into the market, that it would not have to compete with Amazon on price. Thus, from the consumer's perspective -- a not unimportant perspective in the field of antitrust -- the arrival of the iBookstore brought less price competition and higher prices.

As Cote states, competition in the marketplace isn't served by uncompetitive practices. While publishers may have welcomed a competitor that would assist them in raising retail prices, the end result for consumers (the true beneficiaries of anti-trust laws) would be higher, more static prices.

Continuing on from this point, Cote addresses the insinuation that Amazon is engaging in unfair market practices, or Apple's "two wrongs make a right" argument.

If Apple is suggesting that Amazon was engaging in illegal, monopolistic practices, and that Apple's combination with the Publisher Defendants to deprive a monopolist of some of its market power is pro-competitive and healthy for our economy, it is wrong. This trial has not been the occasion to decide whether Amazon's choice to sell NYT Bestsellers or other New Releases as loss leaders was an unfair trade practice or in any other way a violation of law. If it was, however, the remedy for illegal conduct is a complaint lodged with the proper law enforcement offices or a civil suit or both. Another company's alleged violation of antitrust laws is not an excuse for engaging in your own violations of law. Nor is suspicion that that may be occurring a defense to the claims litigated at this trial.

In other words, you don't fight a monopoly by fixing prices.

Of course, Apple is planning on appealing the decision.

Apple spokesperson Tom Neumayr has said the company, unsurprisingly, plans to appeal. "Apple did not conspire to fix ebook pricing and we will continue to fight against these false accusations," he said in a statement to The Verge. "When we introduced the iBookstore in 2010, we gave customers more choice, injecting much needed innovation and competition into the market, breaking Amazon's monopolistic grip on the publishing industry. We've done nothing wrong and we will appeal the judge's decision."

In the meantime, the settling publishers have already agreed to cease agency pricing for two years and are barred from setting up "most favored nation" agreements. This still allows for plenty of price flexibility and it has yet to show the downward trend the publishers declared "inevitable" as a result of the Justice Department's actions. If the appeal fails, Apple will be faced with 33 states seeking fines as well as any damages awarded.

Apple Opinion (PDF)Apple Opinion (Text)

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Filed Under: antitrust, ebooks, monopolies, price fixing
Companies: amazon, apple

18 Comments

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Anonymous Coward, 10 Jul 2013 @ 10:38am

I hope apple learned their lesson. Stop being so lazy when trying break the law, Encrypt your emails when you try to Price fix from now on. Jeez
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Anonymous Coward, 10 Jul 2013 @ 10:49am

Re:
I so love stories that end with a good "moral of the story".
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Internet Zen Master (profile), 10 Jul 2013 @ 11:07am

About the Amazon complaint
As I recall, didn't this whole thing start when Apple asked the DOJ to look into Amazon for supposedly anticompetitive practices. The DOJ found nothing wrong with Amazon, but when they looked back at Apple and the publishers, they saw that something wasn't adding up.

In the end, Apple got exposed for being greedy scumbags trying to drive out competition by price fixing and then having the gall to turn around and accuse their main competitor of anti-competitive practices.

Looks like the DOJ actually did its job right this time. Well, you know what they say about broken clocks...
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out_of_the_blue, 10 Jul 2013 @ 11:07am

Anti-trust needs far more enforcement.
Against Wall Street banks, Microsoft, and Google, for a start, but ALL corporations are practically conspiracies by definition -- that's why they must ask permission from the public to exist in the first place -- which always go for money profits regardless of all else.

Despite loony liberatarian notions, one of the proper and vital roles of government IS to constantly watch and harass corporations because of their intrinsic nature, to see they don't turn BLATANTLY criminal.
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PRMan, 10 Jul 2013 @ 11:19am

Re: Anti-trust needs far more enforcement.
I agree about the banks. "Too big to fail" should mean "to big to not be the subject of anti-trust".
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Elie (profile), 10 Jul 2013 @ 11:29am

An important distinction
Thank you for including the quote about how, if Apple was responding to possible problems with Amazon's pricing, their solution was flawed. You're the only site that seems to be reporting this particular tidbit.

I've been an ebook purchaser since 2008 and I'd always thought something was fishy how prices suddenly hiked when Apple came on the scene.
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BentFranklin (profile), 10 Jul 2013 @ 12:22pm

How is it that price fixers somehow think they have the moral high ground later on when they are complaining about pirates?
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Anonymous Coward, 10 Jul 2013 @ 12:49pm

what a shame the same arguments about competition aren't used against the entertainment industries, instead of just bringing in another law to aid them to eliminate competition by having it bankrupted, shut down, blocked or imprisoned. mind you, these industries are so used to having everything how they want, they probably have no clue how to compete. if some competitor were to score a goal, the industries would stop the game and take the ball home. fucking pathetic!!
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Anonymous Coward, 10 Jul 2013 @ 12:51pm

Court Finds Apple Guilty Of Conspiring To Raise Ebook Prices

"Guilty" means it was a criminal case. The word you want is "liable."
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Anonymous Coward, 10 Jul 2013 @ 1:10pm

Re:
Wouldn't that make their emails a target for NSA?
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That One Guy (profile), 10 Jul 2013 @ 1:39pm

Re:
Wait, what? 'Guilty' in no way automatically implies a criminal case, it just means that they were found to have done what they were accused of.
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TaCktiX (profile), 10 Jul 2013 @ 1:48pm

Re: Re:
Price fixing isn't terrorism and generally helps the rich anyway, so it wouldn't be investigated.
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akp (profile), 10 Jul 2013 @ 4:02pm

Re: An important distinction
Anyone who bought ebooks before and after Amazon got in the market big time knew something was very wrong, and everyone knew it was Apple making the deals with publishers.

Apple's deal with publishers eliminated the "wholesale/retail" pricing model that has been the mainstay of every product sold anywhere. Distributor (publishing houses) set the wholesale price, retailers (stores, whether online or not) get to set their prices. That includes putting things on sale, selling at a loss if they want, etc.

Ebooks became the only product where the distributor got to dictate the final selling price.

And because Apple gave them that sweet power, they turned around and "blackmailed" Amazon into accepting the same deal or else they'd pull their whole catalogs.

It was a shitty, shitty deal for everyone but the big publishers. And everyone knew exactly what was happening. It was an "open" secret.
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Anonymous Coward, 10 Jul 2013 @ 4:16pm

Re: Re:
In the law, "guilty" indicates a criminal case. This was a civil action, not a criminal one, so "liable" is the correct word. I love how you have no idea what you're talking about yet say things with absolute certainty. Just like Mikey likes 'em.
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eismcsquare, 10 Jul 2013 @ 4:53pm

Apple - "Everybody wins when everybody is just us"
I am glad Apple is handed their ass over this.

But I can't help but laugh at Apple's argument:
"Yes, judge, we formed a cartel with Big Four. Yes, that would increase the price for the consumer. So everybody wins!"
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Anonymous Coward, 11 Jul 2013 @ 4:49am

this is poorly worded from the judge i think.

is the issue that the prices went UP or that they CHANGED. would apple have been 'innocent' if ebook prices had gone down due to the same pressure?

there should not be a ruling on the cost of ebooks, rather whether apple's influence was inappropriate in deciding that cost.

that being said, too damn expensive. thank you storybundle and baen for keeping my reader full.
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Anonymous Coward, 11 Jul 2013 @ 8:41am

Seems fair to me. There was some red-handed type evidence.
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John Fenderson (profile), 12 Jul 2013 @ 11:42am

Re:
is the issue that the prices went UP or that they CHANGED

As I understand it, neither of those are necessary to prove illegal price-fixing. What has to be shown is that collusion has occurred and that it has harmed consumers. There could be harm even if prices went down -- for instance, if a small group of companies decide to underprice their stuff to drive other companies out of business.
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