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Summary:

The Justice Department is pouncing on statements by Apple like “aikido move” and “trounce Amazon” to prove its case that Apple was the hub of a illegal conspiracy to fix the price of e-books. While the statements sounds serious, the government’s overall explanation of Apple’s role […]

Apple (AAPL)
photo: Getty Images / Daniel Barry

The Justice Department is pouncing on statements by Apple like “aikido move” and “trounce Amazon” to prove its case that Apple was the hub of a illegal conspiracy to fix the price of e-books.

While the statements sounds serious, the government’s overall explanation of Apple’s role in the conspiracy is far from convincing.

The “aikido” comments appear in a court filing that coincided with a long-expected announcement that the government is suing Apple and book publishers for antitrust violations.

The filing instead relies on circumstantial evidence like frequent phone calls and lunches between executives, as well as the publishers’ common concern over Amazon’s $9.99 e-book pricing.

While this might or not be evidence of a conspiracy among the publishers, the government’s explanation for why Apple participated is far-fetched at best.

According to Justice:

  • “Apple was motivated to ensure that it would not face competition from Amazon’ s low-price retail strategy.”
  • “Apple soon concluded, though, that competition from other retailers – especially Amazon – would prevent Apple from earning its desired 30 percent margins on e-book sales.”
  • “[The contract] was designed to protect Apple from having to compete on price at all, while still maintaining Apple’ s 30 percent margin.”

In other words, Apple orchestrated the entire conspiracy to make sure Amazon didn’t undercut its e-book profits.

Really? Keep in mind that Apple had $108 billion in sales last year and that the vast amount of those came from devices like the iPhone. Meanwhile, the entire e-book market was reportedly worth $878 million in 2010 according to BookStats (Apple’s marketshare is reportedly 10 percent.)

e-Books are a big deal to publishers but to a company like Apple they are insignificant. Saying that Apple created a conspiracy to protect its e-book margins is like suggesting that it would be worth Ferrari’s time to corner the market for tricycles.

The government’s explanation is half-baked but that doesn’t mean that Apple had no reason to enter a conspiracy. It’s possible, for instance, that Steve Jobs wanted to blunt Amazon’s rise into the tablet market — this is precisely what lawyers in a related class action suit are arguing.

But given the government’s strange argument, it’s not surprising that Apple is digging in for a court fight.

Three publishers have settled the suit while Penguin and Macmillan will push on. State governments are also suing on the grounds that alleged price-fixing cost readers $100 million.

  1. Wow…I am so shocked. As with most other articles on Paid Content, the author loves Apple, worships the publishing industry and hates Amazon.

    Interesting that most other legal analysis of the lawsuit indicates the feds have a very stronbg case.

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  2. Michael W. Perry Wednesday, April 11, 2012

    Those who settled may regret their move, because they’ll be stuck with what they’ve agreed even if Apple wins. What’ll be interesting to see is if the DOJ’s charges give Apple grounds to use discovery on Amazon. That’ll make the latter very unhappy.

    Of course the most suspicious aspect of this DOJ lawsuit is ‘the dog that didn’t bark’–meaning the fact that they’re not going after Amazon. Odd that ebook distributor with a 90% market share at the time and one that was using the classic competition-crushing technique of selling below cost, is regarded of doing nothing illegal but Apple, which at that time has zero market share is. Even now, Amazon’s market share is about seven times that of Apple.

    Suspicious, very suspicious.

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  3. Jeez the quality of analysis on PaidContent has gone down. Dipshit, Apple wasn’t concerned about protecting its 30% margin because the size of the e-book market was large, it was concerned because if it granted better terms to book publishers, then it would face pressure to grant those same terms on other forms of content. That would have dramatically affected their entire model for content.

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  4. First, the only monopolies that exist over any substantial period of time have been sponsored by government, e.g. Ma Bell, cable TV, etc. So I dismiss prima facia there is any harmful monopolistic practices by any of the parties named in the suit. I also reject that “lower consumer prices” of eBooks, the goal of the DOJ, is necessarily a public good. Higher “producer” prices benefits publishers/authors/distributors. Under what part of our US Constitution gives government the power or right to interfere in the marketplace to aid consumers over producers?

    We have far more to fear from the unforeseen costs and consequences of government meddling than any temporary pricing advantage a private company may enjoy.

    That said, given that each publisher is free to set prices under the agency model, how can they prove collusion? In fact, it is Amazon’s model that is dictating prices by varying the commission they pay. And Apple is not the only seller of eBooks using the agency model, nor do they have a monopoly on the different devices which can read eBooks.

    I believe the ultimate effect of the pusillanimous capitulation of the big NY publishers to the government will be the emergence of publishers selling eBooks direct to consumers off their own website — i.e. Pottermore. I might add MyTabletBooks.com provides publishers a vehicle to begin selling direct immediately.

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  5. David Emil Henderson Thursday, April 12, 2012

    Dick George is right. A “victory” for consumers is a “defeat” for producers, and the result will be “cheap” books that lack any of the time-consuming research and dedication that are necessary to produce a high-quality book. Amazon can sell 100,000 books by 100,000 authors for 99 cents each and make nearly $65,000. But each author makes only 99 cents.

    Apple’s vision for books is similar to its corporate philosophy — if you want to produce top-notch products, you have to pay for top-notch creators.

    — David Emil Henderson

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