15 Comments

Summary:

A federal court sided with the Justice Department in a closely-watched case involving Apple and publishers.

Judge with gavel
photo: Rubberball / Corbis

A federal court in New York has come down hard on Apple in a closely watched case over ebook pricing. In a ruling issued Tuesday morning, US District Judge Denise Cote ruled that the company “brilliantly” organized a conspiracy to raise prices and thwart competition.

In a 160-page ruling, Cote points to phone calls, emails and the words of Apple founder Steve Jobs to conclude that the company orchestrated an illegal “scheme” in which five major publishers changed their pricing practices. The court said that the prime target of the conspiracy was Amazon, whose Kindle tablet competes with Apple’s iPad, and whose pricing practices infuriated publishers.

Here is how Cote describes Apple’s activities:

Apple seized the moment and brilliantly played its hand. Taking advantage of the Publisher Defendants’ fear of and frustration over Amazon’s pricing … [i]t provided the Publisher Defendants with the vision, the format, the timetable, and the coordination that they needed to raise e-book prices. [...]  As described above, Apple, quite simply, did not want to compete with Amazon on price. [...]

The evidence is overwhelming that Apple knew of the unlawful aims of the conspiracy and joined that conspiracy with the specific intent to help it succeed.

Cote also pointed to what she said was clear evidence that the conspiracy led ebook prices to go up:  “two weeks of moving to agency [pricing led to an] increase of 14.2% for their New Releases, 42.7% for their NYT Bestsellers, and 18.6% across all of the Publisher Defendants’ e-books.”

The ruling is a victory for the Justice Department, which sued Apple last year and has already obtained settlements with the publishers. It is also a victory for state governments, which are seeking money on behalf of consumers they say overpaid for ebooks as result of the conspiracy.

The outcome of Tuesday’s decision is largely to be determined as Cote said she would schedule another hearing to define injunctive relief and damages. Apple will appeal the decision, and said in a statement:

“Apple did not conspire to fix ebook pricing, and we will continue to fight against these false accusations. 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 a press release, the Justice Department wrote: “Companies cannot ignore the antitrust laws when they believe it is in their economic self-interest to do so. This decision by the court is a critical step in undoing the harm caused by Apple’s illegal actions.”

The outcome of the decision is perhaps not surprising because, in an unusual move, Judge Cote said at the outset of the trial that she was inclined to side with the Justice Department; over the course of the 10-day trial, however, Apple appeared to gain ground by putting forth a theory that its entry to the ebook market provided healthy competition in a market dominated by Amazon.

To see how the ruling will affect consumers and ebook prices, see our explainer. Here’s the decision with some key passages underlined:

Cote Ruling in DOJ v Apple

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  1. Jennifer @ The Bawdy Book Blog Wednesday, July 10, 2013

    While I do believe that Apple engaged in price-fixing and conspiracy to price-fix with the publishers, the reasoning behind the NYC court-ruling doesn’t make sense to me. “The court said that the prime target of the conspiracy was Amazon, whose Kindle tablet was a rival to Apple’s iPad…” The iPad came out 16 months before the first Kindle Fire, and Apple engaged in price-fixing well before the public was aware Amazon was working on a tablet at all. There was no competition there in that space.

    Apple just wanted a jump on the ebook market. Call a spade a spade.

    1. The Kindle came out well before the iPad… we’re talking ebooks here… the original Kindle was a target.

    2. The original Kindle came out before the iPad, and was an ebook reader.. you know, the subject of this trial.

    3. By the time Apple released its first generation iPad (April 2010) Amazon had already released several versions of its E-Ink Kindle device (the first one on November 2007) and had established itself as the leading distribution channel for digital books. I fail to understand what the Kindle Fire has to do with anything, beyond the fact that it was Amazon’s first LCD tablet, since they were selling books well before then. Keep in mind that the issue here has nothing to do with the Kindle being a rival to the iPad where specs are concerned but with the fact that Amazon’s Kindle Store was a (very powerful) rival to Apple’s iBookstore.

    4. Kindle “e-book reader” was launched in Nov 2007.

  2. I do not understand this issue. How can you be a bad guy when you come to market with a higher quality product at a premium price? I would think the person undercutting the price of the competition and driving them out of business would be the anticompetitive one.

    1. There was no ‘quality product’. The books didn’t change. This is the entire point to anti-trust – when suppliers collude to become a monopoly and artificially increase prices.

    2. Lowering prices is not legally anticompetitve, fixing prices is.

    3. The first step to understanding would be not bending over backwards to mischaracterize it. Colluding to change prices followed by prices rising is patently anti-consumer and it’s obvious why the guys doing that would be the bad guys.

  3. Oh I see, they made Amazon raise their prices? Wow, how did they do that? I always heard that Apple just offered competition and a better user experience. I had not heard they prevented Amazon from doing business as they always had.

    1. By colluding with publishers to raise the minimum price the books could be sold for.

  4. David Malcolm Puranen Wednesday, July 10, 2013

    Apple acted in the interest of the consumer. Allowing Amazon to subsidize a take over of the eBook market was the fault of the justice department.

  5. Rubbish David,

    Apple wanted 30 percent of the profits without having to price their books 30 percent higher than Amazon to do it.

    So they colluded with the publishes to essentially raise the minimium price anyone could sell the ebooks for to the amount Apple was selling them.. including their 30% profit.

    Apple did it knowing they were at fault.

  6. Bear in mind that during this time very little was known about user behaviors when it came to the purchase of ebooks, and what effect ebook purchases might have on the print market. So is it unreasonable for publishers to want to create a level playing field, at least as far as pricing is concerned for (unenhanced) ebook and print editions of the same title?

  7. Some of the comments seem unaware that the original federal case was primarily against the conspiring publishers – it looked at first as if Apple was being included mainly for the evidence it had of what the publishers were up to. The publishers all settled with the feds.

    Apple continued to litigate on the claim that it was just an innocent “platform” for the publishers’ conspiracy. The judge found on documents saying different, that Apple was in fact an instigator.

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