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Summary:

In a strongly worded opinion, US District Judge Denise Cote rejected requests by Apple and book publishers to throw out a class action suit that accuses them of price-fixing.

Court theme
photo: Corbis

In a strongly worded opinion, US District Judge Denise Cote rejected requests by Apple and five book publishers to throw out a class action suit that accuses them of price-fixing.

Citing ongoing state, federal and international antitrust investigations, Cote turned down arguments that Apple and the publishers had acted independently when they changed the pricing model for e-books. (For more details on the case, see “Everything you need to know about the DOJ lawsuit in one post.”)

Cote’s opinion is at times remarkable for the emphatic language in which she decries the alleged conspiracy. It is also noteworthy for citing the late Steve Jobs on several occasions to suggest that Apple was at the center of it:

In short, Apple did not try to earn money off of eBooks by competing with other retailers in an open market; rather, Apple ‘accomplished this goal by [helping] the suppliers to collude, rather than to compete independently.’

[...]

Finally, Jobs’ prescient prediction at the iPad launch that the prices consumers would be paying for eBooks would all ‘be the same’ and the other quotations from Jobs, Murdoch and Sargent, combine to provide ample evidence that the Publisher Defendants had agreed with each other to undertake collective action to raise eBooks’ prices and that Apple intentionally and knowingly joined that conspiracy.

Apple has argued that its entry to the e-book marketplace was pro-competitive at a time when Amazon controlled 90 percent of e-book sales. The company has also stated that it had no motive to raise e-book prices at a time when it was looking to attract content onto its new iPad tablet.

Cote said Apple had the motive to act as the hub of a conspiracy:

Finally, the fact that Apple might have had different motivations for joining the conspiracy, and was involved in only a portion of it, does not undermine the existence of the conspiracy itself or Apple’s role as a participant.

Cote does not address what may have been the plaintiffs’ strongest argument for an Apple conspiracy — that Jobs conspired with the publishers in order to slow Amazon’s rise into the tablet market.

What it means in the bigger picture

Judge Cote’s ruling came in response to a request by Apple and five publishers to dismiss the case. It does not mean that the companies are liable for price-fixing, but rather that the class action lawyers can go forward in bringing the case to trial.

Cote’s strong language, however, reinforces that Apple and the publishers may be in a deep hole. Three of the publishers (Hachette, Harper Collins and Simon & Schuster) have already settled an antitrust lawsuit with the Department of Justice and agreed to change their pricing practices.

The three publishers are also in negotiations with state governments under which they are likely to pay tens of millions in consumer restitution. In plain English, this means that people who bought an e-book in the last few years may receive a small settlement payment.

The publishers appear to have entered negotiations with the states (led by Connecticut and Texas) in order to escape the clutches of the class action lawyers. Any settlement would largely excuse them from having to pay again in the class action suit.

That leaves two publishers — Penguin and Macmillan — as holdouts. Both Macmillan CEO John Sargent and Penguin CEO John Makinson have stated that their companies did nothing wrong.

Apple is unlikely to budge, in part because the pricing system it used with the publishers (in which takes a 30 percent commission) is the same one it uses with providers of other types of content. In the past, Apple has been anything but shy about litigating.

Here’s a copy of the opinion (note: Thanks to Porter Anderson for noting that highlighting in a previously-posted complaint obscured the text. I’m posting an unmarked version instead. Apologies for the inconvenience) :

Judge Cote’s Refusal to Dismiss Unmarked)

  1. There is little doubt that Apple used, and uses, its dominate role in the hardware side of the media ecosystem to attract and collude with the owners of the media. There was/is no motivation for the price of anything that appears on an Apple product to go down. As Apple reaps 30% of everything that passes through iTunes, the higher the price the better.

    One possible, and welcome, outcome could be the breakup of media and iTunes. Meaning that media owners would have to wholesale their products through open distribution channels.
    Channels that allowed anyone to purchase and resell the media in an open competitive market.

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    1. David Thomas Tuesday, May 15, 2012

      Please remember that the Agency Plan is not on trial. What DOJ is against is how the media producers came to put the Agency Plan into action. Open competition? All for it — and it was happening WITH the agency plan pricing. I ask you and all to consider how, if Amazon was subsidizing an artificially low price on the media, how any other entity could possibly compete with them. If Amazon is succeeds in eliminating competition, they can price the media at whatever they want, i.e., MONOPOLY.

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  2. Just like Judge Koh’s case, this one will be overturned on appeal. The judge has already convicted Apple and the publishers of collusion before even hearing the evidence (this was only a preliminary motion for dismissal).

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  3. why is this such a surprise? the judge sits on the bench to follow the law not the trend of technology. that might be difficult for technocrats to grasp but it is the truth. this class action suit must go forward because even though publishers, who are named in the suit, were probably forced to participate with Apple or get staved out of the market themselves, were actually forced into the monopoly by Apple! how are you, as a writer of this blog , unable to separate yourself from the device(s) which you use? an ipad will one day be a retronym like a transistor radio is today but the written word lasts forever and without it there would be no content for anyone to upload on any device. Device makers like Apple have no business dictating the price of e-books under any circumstances and should not be commanding the free open market of publishing and making back door deals with starving publishing companies in order to sell more ‘devices’. Furthermore, the publishers are starving because the devices were made to be more appealing and hip to own than a trust worthy hard back book, which by the way doesnt use electricity, is a renewable material-just plant more trees or use rice paper -and doesnt mine rare earth minerals from the core of the earth thus polluting everything around it when said minerals are extracted n order to make the circuitry to make the e-book devices! ipads, kindles and e-book devices were made to sell ipads, kindles and e-book devices, they were not created to sell books but it appears they were created to devalue books in order to sell devices.Technology companies are exploiting the arts by devaluing the creative culture in order to sell devices, that is a monopoly with out remorse. one day we will all be looking at these ipads and kindles in the same way we consider the famous 8 track tape and we will wonder why we let ourselves go deeper into debt in order to buy that ‘brand new-its only $500bucks electronic device’ in order to read a book. when that day comes i’ll be laughing and holding my rare hard back book, which will be worth a fortune.

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    1. Vaughn S Cordero Wednesday, May 16, 2012

      “Device makers like Apple have no business dictating the price of e-books under any circumstances.”

      Wait. It seems to me that this is what Kindle-platform and -device maker AMAZON did/does for books and ‘apps,’ dictating prices and supplier’s profit split at their discretion. At least the last time I checked. Apple’s move may have forced them to back down from this draconian stance.

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      1. if device makers want content to upload onto their ‘device delivery systems’ then they need to stop the colonization and domination of creative content. they need to stop their ‘puffing’ about music , books and art which they deem to have no value and that their technology is superior to the creativity and art which they so desperately need to upload onto their insignificant devices. are they kidding? they almost had the population believing for a second, but, finally people are starting to realize the hype about ‘ the bubble-needs-to-burst-in-the-tech world’ that books, in paper form will NEVER go away. if Apple and Amazon.com(which is really Oprah) think they are better publishers than existing publishers to date , let them go out and find authors, filmmakers and artists to sign up to their enslavement contracts. they would all be broke in a matter of months! Oprah is already down $350 million so far because of her content selection for OWN TV. from the outside it all looks so easy but in reality its not. these folks will never be able to understand the inception of creativity and what attracts those who choose to appreciate it and why they do so. devices and Amazon.com allow accessibility to content and thats all they do and that is all they should do. I am loving this anti-trust case!!!

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      2. Amazon was dictating prices in a completely different way. One that isn’t considered colluding and illegal. Now if they hadn’t switched to agency model Amazon could have become a monopoly but I highly doubt it. Also the DOJ would step in if Amazon started breaking any laws.

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      3. If you think Amazon didn’t break any laws, look up ‘predatory pricing’. It is public knowledge that Amazon was selling below cost and maintained a huge market share. It’s really surprising that the DOJ chose to ignore obvious illegal activity in order to go on a wild goose chase – where there’s no evidence of collusion (at least none that has come to light).

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  4. Strange. There IS competition in the marketplace. Apple and iTunes are just ONE of the players. There’s Amazon, there’s Barnes & Noble, there are others as well. Every player has the right to charge a price they feel their service/product deserves. In a free market, the consumer may reject certain players. Not litigation. This is almost like saying Porsche, Aston Martin, Lamborghini etc conspire to keep cost of luxury sports cars high. We should sue them.

    The consumer is free to choose any other book sellers or even books! I can’t crib about Aston Martin’s pricing, and insist that I want that particular car only!

    I know many of the readers will say books can’t be compared to cars, but at the end of the day they are both products with subjective choice.

    Medicines and healthcare, education, water etc, I feel, are more important issues where prices need to be checked.

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  5. Re: the pricing system it used with the publishers (in which takes a 30 percent commission) is the same one it uses with providers of other types of content.

    Not quite. Apple’s terms included a “most favored nation” clause. That was not the case with other types of goods.

    See e.g http://www.wired.com/epicenter/2012/04/justice-apple-publishers/

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  6. It is really interesting how corporate images cloud up and disperse their ‘evilness’ and carnivore business practices. Look at Microsoft, evil on the inside and outside. Everyone knows it. Apple and Google however, try to portray this ‘good guy’ image, ‘do no evil’, and it seems to be working even though they are both every bit as greedy and guilty of monopolistic business practices as Microsoft is.

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