The DOJ’s half-baked explanation of Apple’s role in the e-book case

Apple (AAPL)

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.

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