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: