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The absurd ebook case: Apple fights on as consumers spend settlement money at Amazon

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The high-fives must have been flying at Amazon(s amzn) this morning: millions of the company’s customers got notices to spend credits at its Kindle store, and Amazon didn’t have to pay a cent. Meanwhile, rival Apple(s aapl) will likely underwrite an even bigger shopping spree for Amazon customers sometime yet year.

Welcome to the ironic denouement of l’affaire ebooks, which reached a climax in 2013 when a federal judge found that Apple had brokered a conspiracy with book publishers to fix prices. The legal tussle resulted in the publishers settling their cases — which is what paid for the customer credits that went out today — while Apple fought on alone.

For now, the biggest winner is Amazon, which already dominated the ebook market at the time of the price-fixing scheme in 2010. Today, as a result of lawsuits brought by the Justice Department and state governments, Amazon is in an even stronger position with the publishers; it will also get a healthy cut of the $160 million or so that the publishers agreed to pay under a settlement.

As part of the settlement, ebook customers received credits to their Amazon Kindle, Barnes & Noble or Google Play accounts. While all this cost the publishers a pretty penny, they didn’t make out so badly since much of the money they paid out will come right back to them as customers use their credits to buy new ebooks. Meanwhile, the retailers — most of all Amazon — will collect their usual commission.

For Apple, which chose to fight rather than settle, it’s a whole different story. Right now, the company is in the midst of high legal torture at the hands of a hostile judge, class action lawyers, state attorneys general and the Justice Department.

Recent court records show that the class action lawyers and the states want Apple to pay damages of $280,254,374; they will then seek to triple that amount under special penalty provisions — which would result in a final bill close to $1 billion. The damages trial is set to start in May and, if Apple loses, consumers (and indirectly Amazon) can expect to receive another bushel of ebook credits next year.

Meanwhile, Apple is waging an uphill fight against the Justice Department to overturn last year’s anti-trust verdict. Currently, the company is waiting for its appeals court trial to begin, and is also asking for a change of venue in related proceedings to get away from the clutches of Judge Denise Cote, who has been openly hostile to Apple — even requiring the company to pay for a monitor, who is reputedly Cote’s friend and colleague, to investigate itself.

The whole business is starting to look absurd, especially as Apple remains a marginal player at best in a world where Amazon is still dominant. While Apple deserves some of the blame, not least for its ongoing intransigence, it’s also about time for the states and the Justice Department to find another target.

123 Responses to “The absurd ebook case: Apple fights on as consumers spend settlement money at Amazon”

  1. Hey writer, how much Apple stock do you own? You call yourself a journalist? This is nothing more than an opinion rant by a moron with a bias. Somebody should backhand some sense into you. Give up writing and find a career more suited to your intellectual capacity. For example, packing McNuggets into cardboard cartons would be a perfect fit for you.

  2. Michael W. Perry

    Sigh, if only this lawsuit really were absurd. It’s actually the result of cold, rational calculation. All you need do is, in the words of Watergate’s Deep Throat, “Follow the money.” And in this case that’s all the settlement money going straight into Amazon’s bank accounts.

    That’s the Amazon whose then-90% dominance of the ebook market has, right up to the present moment, attracted no attention from the Obama-administration DOJ. Sherlock Holmes once referred to the significance of a dog that didn’t bark. In this dispute, it’s the lack of DOJ barking, much less biting, at Amazon that tells the tale. This isn’t about consumer protection or anti-trust action.

    For me the final straw came when the settlement dictated to Apple included a requirement that the company negotiate new terms with each of the major publishers serially, meaning one after the other, pushing the final ones out almost two years. The alleged rationale, which was to prevent the negotiation with each from leaking out, was so absurd it was obvious that neither the DOJ or this otherwise clueless judge could really be that stupid. Negotiated serially would mean lots of time for Company 1’s deal to leak, in the tightly knit world of Manhattan publishing, to Company 2, and the deals of Companies 1 & 2 to leak to Company 3 and so forth.

    The real motive was, of course, to muddle up the business planning of Apple and the Big Six publishers and thus bestow yet more advantage onto Amazon, which is under no such restriction, despite having engaged in the classic move of all would-be monopolists, selling below cost to destroy competitors.

    Long ago, someone observed that it made poor sense to attack someone in the press who ‘bought ink by the barrel.” This dispute shows the ultimate folly of suing someone with perhaps $160 billion is cash reserves. Unlike even a giant publisher, Apple can fight the DOJ to the crack of doom. And my own suspicion is that DOJ’s lawyers are beginning to rue the day they took on Apple. They thought a quick in-and-out would buy them some book reader votes in 2012 at Apple’s expense. Instead, there must be a host of other corrupt vote-buying scams they’ve had to drop or delay to deal with this monster.

    The same is true of the judge in this case and her lawyer-friend. The reputation she was already developing among Second Circuit lawyers for deciding cases in advance is now widely know. Her dubious at best appointment of a friend to be an anti-trust monitor when he knows little about anti-trust is also now well known. And the chance that another judge would pick a guy that controversial are less likely.

    All this is, of course, typical ‘pay to play’ Chicago machine politics. In perhaps the most corrupt city in our nation, filling the right pockets means getting a regulatory free ride while the city’s regulations were used, often unfairly, against a company’s competitors. But I can’t shake from my mind the idea that Amazon side of the deal isn’t money. It’s something perhaps far more disturbing to our democracy.

    • Robotech_Master

      Again: If the DoJ were “out to get Apple,” they wouldn’t have interceded, repeatedly, ON APPLE’S BEHALF, when Samsung succeeded in getting injunctions against the sale of Apple products in its patent suit.

  3. kateillustrate

    This case is a complete miscarriage of justice and a big fat Christmas present to Amazon, who is hurting both authors and publishers by cutting prices to gain market share. How are you supposed to survive if you cannot have some sense of what your book will sell for? That’s a basic business requirement.

    I don’t think this law makes sense for publishing. Manufacturing identical widgets, OK. But not books, which has always been an odd duck of an industry.

  4. Common Man

    People who think this is entirely an issue with the US judge and impugning her integrity are ignorant that the European Commission reached the same conclusion and even without being charged in court, Apple AND the Publishers settled to a mutually acceptable future conduct – to remove agency agreements, etc. Apple chose to go to court in the US and lost which they are appealing.

  5. The DoJ took the route of having a Civil, vs Criminal trial and sought injunctive relief. Thus they had trial by one Judge vs a Panel of Judges or a Jury trial and also avoided the higher burden of proof – beyond reasonable doubt needed for criminal cases.

    • Robotech_Master

      The funny thing is, if the DoJ really were “out to get Apple” in general, they wouldn’t have intervened REPEATEDLY whenever Samsung was able to get a court order blocking the sale of Apple products in its patent lawsuit.

  6. netscorer

    This is what happens when you collude on monopolizing the industry and forcing every other vendor else to become second class citizen when dealing with publishers. Apple got what they deserved. This is called justice, not ‘absurd case’.

  7. clambert506

    Intransigence? Is that what the author sees? I see Apple fighting to retain its reputation in the face of a hostile and prejudiced judge. I’ve said it before; Apple will win its appeal. Just watch and see.

  8. Luther Schaffer

    “While Apple deserves some of the blame”
    Actually, Apple deserves it all. Apple put this together as an attack on a competitor and to further their own business profits.

  9. NoFruitPlz

    Right, we’re going to believe the wall street journal…written and published by people with a large financial investment in apple.

    Take the white-colored glasses off, people. It’s about time somebody roasted Apple over the fire for their completely unethical and usually illegal business practices. It’s a shame it’s only for price fixing ebooks, but maybe their day will come for patent trolling later

  10. Kelli Linnes

    Another target? It’s the American way to go after whoever has money regardless of the absurdity of charges or actual responsibility. Apple is going to continue to be a target for just about any ridiculous lawsuit.

    • Chuck Dotson

      I agree. This is a shakedown of Apple because of its high profile, piles of cash, and refusal to lobby (i.e., bribe) government mandarins.

      People can say whatever they like about the technicalities of price fixing and monopolies, but consumers–who were soooooo hurt by this scheme that there needed to be years of legal wrangling and millions of dollars in lawyers’ fees wasted–get $0.73 per book bought during the period in question. Wow, that truly is the balm of Gilead for the hurt done by Apple and the Big Five.

      The very fact that this is the outcome proves that the purpose of this process was not, in fact, to actually give redress to e-book consumers but to prop up the vampires of the legal and government systems.

      • Robotech_Master

        This is a “shakedown of Apple” because THEY DID SOMETHING ILLEGAL. And they did it so blatantly that Steve Jobs didn’t even have a problem saying so ahead of time to Walt Mossberg. “Oh, the prices will be the same…”

        And if you think that the purpose of class-action lawsuits is to pay back consumers, you have greatly misunderstood the purpose of class-action lawsuits. Consumers ALWAYS get a pittance in comparison to the actual damage in ANY class-action suit; most of the money goes to the lawyers. But what class-actions ARE good for is bringing big damages against companies to teach them a lesson about what happens when you break the law. THAT’S what they’re for. Any money consumers get back out of it, they should count as “found money” and be happy about.

  11. So your suggestion is that Justice and the states should just walk away, perhaps settling for a fig leaf like they did in the Microsoft antitrust case. Nice. Wish I could get a pass like that after being found guilty.

    • Yeah, I think the WSJ has been one of the only objective sources regarding this case. For some reason, if the government throws out the word “antitrust” it seems like most journalists lose all perspective. There were lots of articles following the ruling claiming that the government had “proven” wrongdoing, as if one openly hostile judge’s opinion is a definitive statement of reality.

      • Robotech_Master

        For a definition of “objective” that reads “that I agree with.”

        Come on, people, the WSJ is owned by the Murdochs, who Jobs asked to lean on the execs at News Corp subsidiary HarperCollins to get them to toe the agency pricing line. You really think they don’t have a dog in this fight?

      • DYNAZOR

        Well you should. Cote’s own words to that very extent had been published many times before the trial even began. She should have kept her mouth shut. But I am glad she has a wagging tongue because that and her questionable personable relationship with the monitor just might be what Apple needs to win its appeal.

          • DYNAZOR

            What’s the difference if she read some evidence before hand? That’s why we have trials where ALL the evidence is heard. The accused in this country are guaranteed a fair trial, and that includes the presentation of all the facts and evidence. For Cote to publicly state her inclination to find Apple guilty before ALL the evidence was heard vis a vis the rule of law is tantamount to her making the entire proceedings a sham. It lends credence to her incompetence and recklessness at best, and her possible bias, or something even more nefarious, at worst.
            Any way, here ‘s something for you to chew on:


            • Oletros

              As I expected you gave proved nothing.

              Perhaps, apart of learning about predatory pricing, loss leader strategies you will have to learn about how your judicial system works because it is clear that you also don’t know that what Judge Cote said it is an usual procedure I’m a lot of proceedings.

              And, by the way, the ones asking Cote were Apple law team.

              Perhaps you will find a hint in the fact that no one in the Apple law team has said anything about that declaration and that those declaration are not part of the Apple appeal.

              Well, I suppose that you have informed about the cadence Appleinsider, that can explain why you believe those wrong things

            • Robotech_Master

              If you’re referring to what Judge Cote said before the trial, when she mentioned that Apple’s case seemed pretty shaky, here’s the explanation for that.

              As I understand it, it’s fairly common in civil suits for a judge to offer a “pre-trial view.” Some judges even provide partial drafts of their opinions.

              Why? Because a judge’s job isn’t just to decide cases; it’s to try to nudge both parties toward settling out of court whenever possible to relieve the burden on our overtaxed legal system. That includes pointing out ahead of time when things are looking “iffy” for the defendant (or, for that matter, the plaintiff) so they can decide whether they want to continue on to trial or try to cut a deal.

              Remember that Judge Cote was also in charge of adjudicating the settlement between the publishers and the DoJ. As part of that procedure, she would already have looked at a lot of evidence relating to the publishers’ malfeasance, and how that related to Apple from their end.

              Based on that, she was able to tell Apple, in effect, “The evidence that’s come in from the publishers is pretty strongly stacked against you. You’re going to have to pull something pretty good out of your pocket to explain it away. Are you sure you want to go through with this? You could settle…” And she did so because that’s part of her JOB.

              As it happened, Apple wanted to go to trial anyway. And it turned out that, not only did they not have anything good in their pocket, they weren’t even happy to see her.

              I would point out that, in all the months and months since Judge Cote made that statement, I have not seen ONE SINGLE LEGAL EXPERT—and they were pretty thick on the ground after Cote issued her opinion—declare that there was anything un-kosher about what Cote said before the trial. Even APPLE didn’t try to make anything out of it when they accused Cote of bias in their most recent filing—they just focused their remarks on something she said RECENTLY about the putative harm to consumers Apple had caused. It’s only come out of the mouths of pro-Apple bloggers and commenters.

      • Dan Andersen

        @Oletros: I don’t think that claim is in any way “wrong” Oletros.

        Cote expressed her tentative view (i.e. her pre-judgment) pretrial thusly:

        “I believe that the government will be able to show at trial direct evidence that Apple knowingly participated in and facilitated a conspiracy to raise prices of e-books, and that the circumstantial evidence in this case, including the terms of the agreements, will confirm that.”

        In fact, after the pretrial hearing, Cote went so far as to admit that she was already drafting the written decision that would be issued at the end of the proceedings, indicating that she has already made up her mind on the points of law based on evidence previously seen and selected by the DOJ.

        Clear as a bell, I think. I hope this clears things up for you.

        (By the way, it appears that Cote has a nasty tendency to prejudge. See the comments at the end of Philip Elmer-DeWitt’s article entitled “The curious case of Apple ebook Judge Denise Cote.”)

    • maierwerx

      Thomas… if you want to pay inflated prices for your iPad and iPhone, by all means. However, please don’t force the average consumer to pay inflated prices along with you. Apple and the publishers colluded to inflate and fix prices, which is illegal.

      How would you feel if energy corporations colluded to inflate and fix prices? Would you not want the DoJ stepping in? What kind of message would it send if multinational corporations, like Apple, were allowed to collude to inflate and fix prices?

      I’m no big government guy by any means, but this is an instance where they stepped in to protect the average consumer. Thank you DoJ.

    • I’m not going to give any unsigned editorial any credence, especially one filled with errors such as this one.

      It is not at all uncommon for judges to give their opinions before the start of a trial; it is usually done in an effort to encourage settlement talks. In most cases it is done in chambers rather than publicly but in this particular case both the DOJ and Apple told Cote that they were fine with it being made public.

      Let Apple appeal, it is totally within their rights but I don’t understand why they’re being so obnoxious about it all. They screwed up. All they had to do was confer with counsel for an airline and they would have known how to price fix without being exposed legally.

    • maierwerx

      Amazon does not have a monopoly; Amazon has become the main player in eBooks because they put the consumer first and operate on razor thin margins. Go ahead and pay inflated prices for your iPhones and iPads, but don’t force the rest of us to pay inflated prices to multinational corporations.
      Bravo Amazon!

    • Common Man

      Wrong. Having monopoly even if that is the case with Amazon is not illegal in US laws. Only using that monopoly to drive out competition to the detriment of the consumer. Amazon was doing the opposite of what the Publishers and Apple tried to do.

  12. This whole thing was ridiculous from the beginning. At the heart of the matter is a simple question: are book publishers allowed to choose the business model under which they sell their books? App prices are decided by developers with app stores taking a fixed cut. Movies and music are sold the same way. Even Samsung and other TV manufacturers have moved to setting prices and giving a standard cut to stores. Yet, because book publishers initially used a whole sale model and talked about changing it, they are now stuck with it. Any attempt to talk about and change that model is a “conspiracy.” It’s absolutely insane, and has served no public purpose other than to further concentrate de facto monopoly power in the hands of Amazon. While theoretically a fixed-cut model could result in higher prices, the government never even bothered to prove that this was the case, nor that slightly higher prices through a common business model was worse than an Amazon monopoly. This is a perfect example of an over-active government that needs to continually come up with straw-men to justify a larger budget, or perhaps just stoke their own egos.

      • Swordmaker

        No, digital music is sold on an agency model. Apple does not buy an inventory of x number of cuts of the latest Lady Gaga track. They sell digital downloads from a master and that belongs to the publisher, take their 30% cut and credit the music publisher with their 70%. No physical inventory changes hands and nothing was sold prior to the retail sale. Similarly, Apple has only a representative license in the iTunes Store for the digital movies they sell. . . They have no purchased inventory. When a retail sale of a movie occurs, Apple, as the agent facilitates the delivery of the product, handles the exchange of monies, and takes its commission. It does not buy an inventory stock to have on hand of movies that has to be “restocked” when they get sold-out. There is an in-exhaustible supply. Amazon USED to buy the rights to x number of ebooks, digital movies, etc. and then buy more when they’d sold the contracted number. They also went to the agency model after Apple blazed the trail. They’re still on it. But you’re wrong about Apple and digital music and movies.

        • Michael Herrmann

          This is correct. The agency model is perfect for a business in which no physical inventory changes hands. The retailer (Amazon, Apple, anyone) acts merely as an agent, and in a logical, sane world, would have no say over what the retail price should be. The ultimate irony here, that no one is pointing out, is that by “colluding” to introduce the agency plan and using Apple as their white knight, publishers were working to decrease their own revenues, in a heroic attempt to preserve value in their industry. Selling wholesale on a new release, they would get 50% of $25. Selling agency, they would get 70% of $13 or $14. They did that to keep Amazon from gaining control over the whole market through what was demonstrably predatory pricing, which the DOJ does not view as their problem any more.


      Bravo! A very accurate account of the true story.
      One thing that I pointed out on several occasions is that, IN MY OPINION, if Amazon were a foreign company they likely would have been charged with a crime along the lines of “dumping”, much like the Japanese motorcycle manufacturers were in the late 70’s – early 80’s.

        • DYNAZOR

          Because they were selling product below cost to stifle competition and glom market share, and that, my friend, is the working man’s definition of “dumping”, and it IS illegal.

          That’s “exactly why”.

            • Swordmaker

              All best sellers. . . Which account for 80% of the profits of book sellers and new releases were being sold by Amazon for $9.99, below cost. The rest of the ebook catalog was not. However the pretense that Amazon was selling the best-sellers and the A list books as loss leaders is just that. A pretense. I’m an economist. You’d have to sell dozens of full priced non-A list books that make a profit to compensate for the loss of just ONE sale from a loss leader sold for $5 below cost given the razor thin margins Amazon was selling their B and C list ebooks at. That’s assuming that customers who buy Best selling Alex Cross mystery Novels Would at all be interested in buying ebook copies classic copy of Pride and Prejudice, or The Zen of Motorcycle Repair, or perhaps Igorot Tribesmen of Borneo and Sexual Awakening. . . after being lured to Amazon’s ebook department by below cost best seller pricing. It’s economically absurd. . . and is only justifiable and a necessary cost as a predatory practice to prevent competitors from entering the market or to drive existing competitors out of the market!

              The facts are that average ebooks went DOWN after Apple entered the ebook market and the number of participating consumers went up TEN FOLD! This is not a sign of any price fixing or a damaged market.

              Judge Cote’s decisions flew in the face of the US Supreme Court’s very specific instructions on how to judge this very kind of case. . . and their instruction that merely because prices increase it does not mean that there has been “price fixing” and that a judge cannot use that as the determining factor. . . Which she SPECIFICALLY DID!

            • Oletros

              “You’d have to sell dozens of full priced non-A list books that make a profit to compensate for the loss of just ONE sale from a loss leader sold for $5 below cost given the razor thin margins Amazon was selling their B and C list ebooks at. ”

              The FACT is that they did that because the whole ebook division was consistently profitable

              “The facts are that average ebooks went DOWN after Apple entered the ebook market ”

              The fact is that average ebooks went UP after Apple entered the ebook market for the accused publishers.

              ” Which she SPECIFICALLY DID!”

              The Apple will win the appeal, no?

            • Swordmaker

              Please prove your contention. The publishers who provided ALL ebooks contend otherwise, and they should know better than anyone what the mark-ups are on the ebooks they were providing. They stated they could not compete even on the B list offerings. The profits on any book store are made on the volume sales made on best sellers which comprise the largest percentage of sales. A business cannot survive by selling the majority of its product at a loss forever. Amazon has been at break even or posting losses for most years.

        • Thomas Wolf

          Because Amazon’s cost for the books it sold at $9.95 was higher than $9.95. Selling something below cost (subsidized by revenues from other sources) in order to drive competition out of business is called “dumping”. I completely agree with @DYNAZOR.

          • Oletros

            Perhaps people has to learn the difference between selling at a loss leader and predatory pricing.

            By the way, Amazon was not subsidizing the ebook division with other divisions, it was profitable since day one

            Do people really know what they talk about or just write the first nonsense they read on Internet?

            • Oletros

              “Selling something for less than what you pay for it does not equate to being “profitable”.”

              What part of selling some books at a loss is hard for you to understand?

            • Robotech_Master

              Sure it does.

              Amazon puts the new Stephen King book on sale at a $3 loss. ($13 wholesale.) You go buy it, read it, think you want to read more…so you go buy five more Stephen King books. These books are in paperback, so their wholesale price is $4. Amazon is selling them for $6. At $2 each for five books, Amazon has made a profit of $10 – $3 = $7 overall. (Heck, they’d have made a $1 profit overall if you’d only bought TWO backlist e-books.)

              The legal definition of predatory pricing requires that the business must be losing money across its entire product line. It has to be selling more e-books at a loss than at a profit, basically dumping everything it sells at fire sale prices. It’s not. It never was. And it still isn’t.

              Check it out yourself for any series or author that has a new book out. Such as, for example, Stephen King. See how much the e-books of his older works are going for. If they cost more than half of the publisher’s suggested retail of the print edition, surprise! Amazon is making a profit every time a customer buys one. And a customer buying a cheap new book by King often leads to a number of those backlist purchases.

              It’s the same thing Best Buy does when it prices a few TVs at insanely low prices in its weekly circulars: bring people in to buy the TV, then ding them on pricey cables and accessories.

              Why do you think the publishers never tried to SUE Amazon if they thought Amazon was doing something illegal? They were just as able to look up frontlist and backlist e-book prices on Amazon as anyone else, and they would have known (or their lawyers would have told them) that if they tried to bring an action for “predatory pricing” they’d be laughed right out of court.

            • Swordmaker

              You’re wrong. One publisher threatened to sue Amazon and tried to sequester ebooks while the hardback was released for one month. . . and Amazon suddenly removed the “move to shopping Cart” button from ALL of that company’s products. All of them. The market power of Amazon is tremendous. That is what a predatory monopoly can do! Amazon knows it has these companies exactly where they want them. There were very few other outlets to sell their products.

              Until Apple came along and made an offer to sell ebooks, a company that was going to make a new reader, Amazon had more than 90% of the ebook market. That’s a monopoly in any book. They had also essentially put 85% of the brick and mortar book stores out of business too. . . and Amazon was selling ebooks BELOW what the publishers themselves could profitably sell them direct for on their own web pages!!!! That’s cut throat predatory pricing!

          • Common Man

            You have to show that this was designed to drive out a competitor rather than as a loss leader for it to be called “dumping”. To prosecute under that law, you have to prove that such pricing is unsustainable for the company and therefore designed only as a short-term measure to kill competition. Amazon does not fit that. Loss leaders are a common practice in most retailers. If Amazon was losing money in the business and selling things at a loss, they would have been prosecuted.

            Same reason why American Airlines has never been convicted of “predatory pricing” in its competition with SouthWest.

            • Common Man

              Whether VCs will fund or not means nothing in terms of anti-trust concerns.

              VCs will not fund companies that have hundreds of companies in it either. On the other hand, VCs will fund companies that will disrupt an entrenched monopoly player if they come up with a disruptive model (this actually is the best case scenario for a venture company than a number of incumbent players). They will not fund a company if the proposition is based on price competition alone.

          • maierwerx

            Thomas… you and DYNAZOR are just plain wrong. Since you seem to know so much about this, how much was/is Amazon’s cost for the ebooks they sold at $9.95? Since you know it was less, you should know they amount, right?
            You’re wrong. Don’t spread untruths.

            • Swordmaker

              The whole sale price came out at tril. . . $15. But Amazon was selling at $9.99. So a couple of publishers RAISED the wholesale to $17. . . and Amazon paid it but kept the retail price at $9.99. Amazon didn’t care how much they were losing. . . And no one could find out ANYTHING about profits, contrary to those who claim profits were being made elsewhere. The theory was NOT about loss leaders attracting people to buy other paperback books. . . the margins are too thin. And the overall profi of AMAZON itself is almost non-existent!!! They claimed it was to attract people to buy Kindles. . . But again, no figures on sales numbers, profits, etc., EVER released. We know the parts, labor, marketing costs that go into the various Kindles. . . and Amazon was selling THEM at a loss. So where was the profit? Amazon posted a profit of $7 million in 2012. WOW!

    • maierwerx

      You’re wrong, Sam.
      For one, App prices are like comparing apples to oranges… and at no time did all the major developers meet and collude to fix prices.
      Two, movies and music use the same wholesale model that books did.
      And three, how would you feel if all the energy companies got together and colluded to raise prices on all of us average consumers? Wouldn’t you feel screwed over? Wouldn’t you want the DoJ to step in?

      I’m no big government guy, quite the contrary, but this is a time that the DoJ stepped in to protect the consumer against illegal corporate collusion, and I’m thankful for it.

      Apple has hundreds of billions sheltered away in overseas account… they don’t have any right penny (or dollar) pinching from average consumers.

    • Common Man

      This is an extremely misleading characterization demonstrating ignorance of US laws.

      In US laws there are two basic rules:

      1. Wholesale producers cannot force retailers to sell at a particular price IF they want to use a retailer. Nothing prevents them from setting up a vertical of their own and selling at any price they wish (which is why Tesla bans will not hold up in a Federal challenge if and when Tesla takes it to Federal courts). This vertical can run on third-party platforms/locations such as App Store, EBay, Store-in-store, etc., paying a fee to the host and not violate this rule. If a wholesaler wants to change to a self-retail model, they can stop selling to the retailer. What they cannot do is to force the retailer to charge a price they would like. The publishers tried to do this with Amazon (we will not give you inventory unless you agree to selling at a minimum price) and violated this rule. This does not require a “collusion” to be illegal. Apple is not even in this picture and hence why the publishers have been quick in settling because this rule was clearly broken. It has nothing to do with preventing Publishers from creating new business models.

      2. Entities cannot collude to the detriment of the consumer. The structure of the proven “collusion” between Publishers and Apple (which was proven beyond doubt from the communications) makes the negative effect on the consumer obvious because it was explicitly designed to raise prices IF it had succeeded. Nothing prevented the Publishers from establishing the new business model with Apple without doing anything about Amazon. This case would not exist if they hadn’t done anything to Amazon. But, the reason they had to try to restrict Amazon violating the first rule above was precisely because Amazon was selling them at a cheaper price than what these publishers wanted to do. This was not in the interests of the consumer. This is what made the “collusion” illegal and Apple was a party to this along with Publishers. It would have been the responsibility of Apple and the Publishers to prove that this apparent structure to raise prices was in the interests of the consumer. They didn’t do this. Their only assertion was that Amazon was a monopoly.

      Saying Amazon is a monopoly is a red herring. It is not illegal to be a monopoly in US laws, it is only if a monopolist uses their monopoly to the detriment of the consumer. It is not illegal even if a monopolist sets the prices very high because of the monopoly, because that allows a competitor to undercut and so market forces take care of that. It is illegal for a monopoly to use that monopoly to drive out competitors. For example, by artificially lowering prices below cost until it forces the competitors out. Amazon did not do any of these things, quite the opposite by selling the books at a razor thin margin which is perfectly legal. The “collusion” was designed to break this benevolent behavior and hence Apple getting nailed as part of this collusion.

      This is not an Apple vs Amazon issue as many people seem to be perceiving this possibly based on their affiliations with these companies. It is a consumer vs. industry as far as the US Govt is involved.

      • The Bard

        1. Yes, but the publishers gave Amazon a choice. Amazon could continue under wholesale as before along with windowing of e-book versions of titles (something that was already being done with paperback versions). Or Amazon could switch to agency. The collusion came when publishers decided to all go to Amazon with the same terms so that Amazon could not retaliate against all of them.

        2. Apple through its agreement with the publishers could easily be seen to be in its self interest; it did not actively meet as a ringleader as it would truly be concerned. It did put in the Most Favored Nation clause (which supposedly is not illegal) so that if Amazon continued to sell at a lower price, it could reduce the price in the iBook store. Apple also used 12.99 and 14.99 as ceiling prices that the publishers could price at; they wanted the ability to price even higher.

        From everything I have read, it is very clear that the publishers did collude and so they settled quickly. Apple was the only company standing and instead of being able to prove its innocence, it was found to be basically liable as the ringleader, even though all the publishers pretty much said that Apple was not leading them and was negotiating very hard in its own self interest.

        This isn’t Apple vs Amazon; it is industry vs. Amazon, but the government and states have played checkers while Amazon just played Chess. Apple gets to pay the bill.

        • Common Man

          1. Distinction without a difference. Publishers could have done windowing on a non-discriminatory basis for all retailers as they do with paperbacks. If they allowed any retailer to sell it earlier in an agency model, that would be argued the same as “forcing” all retailers to sell in that model at a publisher set price. It would still have been considered against consumer interests though not as strong for enforcement. You are correct that the collusion part made that determination moot.

          2. The ringleader was based on the evidence presented. Steve Jobs’ communications, in particular, made it difficult to say otherwise. He wasn’t exactly subtle. As an aside, for anyone who works in the industry, it would be obvious that Apple got these guys together to come together because they are all a bunch of idiots with their own dumb opinions and very likely to shoot themselves in the foot fighting with each other than colluding. Ironically, Steve Jobs did to the recording industry what Amazon was doing to the book publishers and is what he would have done if they were the first before Amazon to “minimize the complement” and increase the value of iDevices. It took a different approach here because Amazon was already there. It could have done so by selling the digital books matching Amazon on price and depending on its much bigger distribution of devices to gain a market share. But they crossed the line by trying to get the publishers to hurt Amazon which was detrimental to consumer interests. That was a bad decision even if in hindsight.

          We will see what happens with the appeal. Apple may not get the verdict thrown out but may be able to get some of the more onerous restrictions negotiated down. I suspect Apple’s continued fight is because of its entry into video distribution in the future where its negotiations for video may be hampered and closely scrutinized because of this verdict.

          Regarding Consumer vs Industry, I am saying that is the basis for DoJ involvement, not trying to protect Amazon or punishing Apple as in any enforcement of anti-trust. The actions of the publishers is as you say industry vs Amazon, that is not in doubt and not my point.

          • The Bard

            1. If done without collusion, I am not certain that if you offer a similar choice (wholesale with windowing or agency), that it is forcing. It would seem only that approaching a retailer (or all retailers) after a collusion would be wrong.

            2. All the Steve Jobs emails (and the famous video where Walt Mosberg asks the pricing question) could be taken either way. Jobs was brash, but in the video for example, he indicates the price would be the same. While this could mean that Amazon might be forced by publishers to raise prices, from Apple’s vantage point, it did not matter. With an MFN, even if Amazon kept pricing at 9.99 under any system they could pen with the publishers, Apple could also lower its price to 9.99, yet it would still make money. It is the publishers that would get burned further.

            Maybe this was the impetus for them to switch Amazon to agency, but again, it was a choice and Amazon could continue under wholesale with windowing. In fact, Amazon retaliated against the first publisher that went to them. Only after the rest also gave Amazon the same terms did they relent. Again, going to a retailer in essence together is what got them into trouble. Perhaps Apple’s agreement finally gave them the strength, but to say Apple orchestrated it to hurt Amazon vs doing its agreements out of self-interest is just one interpretation.

            Now, there were those email drafts, but I am not sure the ones where he was more blunt to Eddy were ever sent. And I believe it came up in testimony that Barnes and Noble and the publishers were talking about agency even before Apple got started negotiating with the publishers. Yet, Barnes and Noble has never been implicated despite all of their meetings with the publishers…. oh but then, they are already a failing company.

            Apple can and does make mistakes; it will be interesting and ironic if after all this, it ends up paying significantly more than the publishers to consumers, most of whom are Amazon customers.

            • Common Man

              You are just arguing what Apple’s lawyers argued (and would argue on appeal) but they lost that argument at trial and we will have to see what happens on appeal.

              Like I said before, if you know the publishing industry, you would know that they cannot get together and agree on a single menu for a group dinner let alone an action plan of this magnitude. It is like getting the UN to agree on something. This is not something that can be argued in court obviously but why people who know the industry have no doubt Apple was instrumental in getting these publishers together and the communications are circumstantial evidence that strongly supports this. What can be argued and proved in court is a different matter, of course.

              The reason windowing is not a way out even without collusion is because all these DoJ determinations are made in the interests of the consumer and people keep forgetting this. They are not trying to resolve trade agreements and contracts between companies. In that context, asking the company to delay sales (that hurts consumer access at a competitive price) or sell at publisher specified prices would be detrimental to consumer interests and equivalent to forcing any retailer to fall into the agency model for competitive reasons (even if potentially).

              If that was not the case, then there is no way to enforce the rule against manufacturer specified pricing at all because every one of the manufacturers that want to maintain pricing levels for branding purposes (auto manufacturers, electronic manufacturers, etc). would simply have done the same thing long time ago – supply only to be sold under the manufactured specified prices until they are ready with the next model and only then open it up for discounting. In other words, you are presupposing such a huge loophole that makes that rule completely useless exists and none of the manufacturers and their lawyers are aware of such a loophole! Seriously?

              Apple is not relevant to this determination at all.

              However, if the agreement done with the publishers together. led to Amazon increasing the prices, Apple and its lawyers might feel it doesn’t concern them but the court disagreed. Because the collusion (with Apple involved in a concurrent agreement) is what led to this anti-trust situation. Apple lawyers have argued in the trial and will argue on appeal like you have argued that they are just a bystander in this, but it is highly unlikely that they will prevail. Most likely, bargain down the “sentence” in particular the future scrutiny and monitoring that will not taint/restrict them in future video offerings.

              As someone wrote below, the lawyers of Apple and Publishers are the ones who really screwed up because it is very easy to structure things to not be considered as colluding or anti-competitive, they just had to consult the airline industry lawyers on how to phase these things out. Sometimes, arrogance can blind companies. AA got away with obvious predatory pricing against Southwest in Love Field in Dallas by efficient lawyering alone.

            • The Bard

              As I wrote, a lot of this is open to interpretation. Still, the only thing that I can’t get is to say the DOJ only considers the effect of any change to the status quo when considering the consumer interest, for example in the case of windowing. I would like to believe that they are smarter than this and not so narrow minded. Then again, one only need to consider what commercial deals (e.g. mergers) they have allowed with minor concessions as well as blocked to see that their choice are not immune to influence.

            • Common Man

              Saying DoJ isn’t smart and is narrow minded is a self-serving argument, not an argument of the merits of the case. Even the European Commission came to the same conclusion. You can say they are dumb and narrow too or the whole world is wrong. That is persecution complex for an indefensible stand not a valid argument.

              To repeat again, anti-trust has to do with consumer benefits, not serving the self interests of any company or group of companies. Apple/Publishers would need to show why the changes they wanted to bring about would benefit the customers. They didn’t. They made a case for why it was good for Apple and Publishers. Even the economists they have obtained to write briefs make the same mistake. It is like they are completely tone deaf to the consumer argument. They are believing their own cult, it seems to make their case.

              As I have written before, just saying Amazon was a monopoly (although it didn’t fit the technical definition of monopoly the same way Apple doesn’t fit the technical definition of monopoly for digital music sales) isn’t a valid argument to say it is bad for consumers. You have to show that the monopoly is hurting the consumer. Apple’s argument for the appeal continues to ignore this basis tenet.

              Their argument essentially boils down to saying they wanted to provide consumer more choices to pay higher prices because that would be in the best interests of the publishers and Apple and that is what efficient markets are about. There is no broader interpretation than that. The courts and DoJ aren’t buying this. Nobody other than blind followers of Apple would buy this. Calling them names isn’t going to help the argument.

            • The Bard

              I am open to reason and debate, but it seems at this point that you are not so and any negative statement made against the DOJ is now left to blind followers of Apple.

              I think that there are enough opinions that differ as to the merits of the case, and I am not convinced that Apple should or will escape any liability. However, I am also not naive to believe that this is a simple and straightforward case. These cases are important not simply for the case at hand, but also for what precedence they set for the future. Much like everything that seems to happen in the world, they are not open and shut cases; they require a nuanced perspective and I am not sure the DOJ has practiced that here. Their other cases during the last several years (or even decades) cement this opinion for me.

              I would like to see how the long-term interest of consumers will be served, but also the long-term interests of authors and content creators; note I don’t frankly worry about the publishers, although they may have some role.

            • Common Man

              Since when is a blanket opinion of DoJ as dumb and narrow minded a reasoned debate? If that was a reasonable argument Apple would have used it in court for their case. ;-)

              Nor is a generic statement that there are many nuances to a case. Of course, there are many opinions to any case, not all of which makes sense. Blind is the opposite of objectivity and I don’t see these as objective statements. It stretched credibility to postulate a theory of a huge loophole in the law against wholesaler pricing of retail to support the agency model “choice”.

              If the moves by Apple and Publishers were in the interests of consumers (which i what DoJ is concerned about), it should have made a case for it because on the surface it looks, smells, feels exactly the opposite. They should have explained the “nuance” that it is not the case. They have done no such thing other than say Amazon was a monopoly and as I pointed above that doesn’t automatically create a anti-consumer scenario.

              The economic briefs that have been elicited in support of Apple are a travesty. Efficient markets require efficient price discovery. The model attempted by Apple and Publishers is quite the opposite.

              So, obviously we disagree on the burden of proof on Apple. That is OK, but it is a bit silly to assume the high road of reasoned debate as the argument. Please.

            • The Bard

              “Still, the only thing that I can’t get is to say the DOJ only considers the effect of any change to the status quo when considering the consumer interest, for example in the case of windowing. I would like to believe that they are smarter than this and not so narrow minded.”

              I repeated my earlier sentence where I brought up the term narrow minded. I don’t think it was a blanket statement; in fact, I was pointing out that they must be looking at more than effect to status quo for consumers. My next sentence was somewhat sarcastic, implying they are not immune to political influence.

              As for the rest of your comment, if something does not make sense, in your humble opinion, or that of a particular judge, or the DOJ for that matter, that is not necessarily less objective.

              I am sure in your opinion, the economic briefs filed by anti-trust economics professors are a “travesty” and do not make sense either.

              By the way, do you have legal or economic training? I ask only because you are very sure of your thoughts on both the legal and economic aspects of this case.

  13. Oletros

    “it’s also about time for the states and the Justice Department to find another target.”

    Trying to grasp what it is being implied here

      • While the ebook settlement is hardly the most important thing going on in my life and especially the world, I still think some of the publisher CEO’s ought to be counting their lucky stars that criminal charges were not filed against them.

        They and Apple have no one to blame but themselves that Amazon came out the winner here. The price fixing basically removed any kind of competition. The smaller retailers, which were the ones I supported, went months without gaining access to titles published by the colluders and that sent many buyers to the big retailers and many of the smaller retailers have had to close as a result.

        I’ll enjoy spending my rather small settlement on books published by the non-colluders but that joy is going to be nothing compared to my joy at spending the Apple settlement.

        • Thompson

          The smaller players had no way to Crete against Amazon until Apple forced them to stop their predatory pricing (ie selling at a big loss to prevent competition) and raise their prices so others can compete. How many of those smaller players that you are referring to existed and were financially sound before that move?

        • eldernorm

          “They and Apple have no one to blame but themselves that Amazon came out the winner here.” I totally understand that you hate Apple. After all, they did foster the mp3 /iPod growth, the advancement of the smart phone from fancy phone to portable computer, and the iPad from failed for 10 years tablet to modern mobile device.

          So its easy to see why Apple is so bad, I mean, after all the Justice Department admitted that Amazon was a possible illegal monopoly but since Amazon bitched to the JD first, they must be the good guys.

          Look, was Apple involved in trying to sell e-books? SURE. Were they the ringleader, leading the major book makers to violate the law???? Are you out of your mind???

          Hey, lets all run over to samsung who has been copying apple for years, cheats and lies about its designs (yes they have gotten caught several times) and buy stuff from them because they have NO CUSTOMER SERVICE and really don’t care about you, only your money. Just because we hate Apple.

          Just saying.

          • @eldernorm

            Have you ever worked in anti-trust or even taken a course in it? I suspect not.

            This has nothing to do with me hating Apple. It has to do with the fact that they and the publishers were indeed breaking anti-trust law and that I’m irritated with the author of this piece. This article belongs on a editorial page with a disclaimer that the author is fine with anti-trust laws being broken when he doesn’t like the results.

            I’m sure some people do take joy in the fact that Amazon came out a winner, I don’t. I see it as an undeserved win and an unintended consequence of parties breaking the law. I don’t know if it was stupidity or arrogance on their part but they deserve to pay and I suspect they’re going to pay even more before this is done as the smaller retailers are starting to file suit against the same parties. Those retailers are the ones I feel for in this mess. While consumers were “hurt” according to the law because of the agreements, I doubt many people bought a book they thought was overpriced. The smaller retailers were the ones really hurt and they were hurt badly.

      • maierwerx

        Apple colluded with publishers to raise eBook prices on consumers. Not only was this illegal and an attempt to become a major player in eBooks, it was also screwing the consumer… and it backfired on them. I, for one, am glad the Justice Department stepped in to protect consumers. The publishers admitted they were wrong, paid their fines and are moving on. Apple is still bitterly fighting and arrogantly believes they did nothing wrong. What would “leaving them alone” teach them and others about illegal corporate collusion? They should be held accountable. Thank you Justice Department!
        Jeff… you obviously like your iPad and iPhone, but Apple has hundreds of billions of dollars sheltered in overseas accounts and should not be allowed to pinch pennies (or dollars) out of my hands or the hands of the average consumer. Shame on you for being their tool.

        • The publishers never admitted they were wrong. Facing threats of fines much higher than they could possibly pay if they lost, they threw up their hands and said, “We’ll do whatever the government says.” That’s hardly an admission of guilt. The DEA gets plea-bargain convictions from innocent people who are afraid to go to trial all of the time, it doesn’t mean those people were guilty. That’s a very naive view of how the justice system works.

          I don’t like Apple. I refuse to buy their products, ironically because they handicapped competitors e-book apps on their devices and I don’t trust them not to move further along those lines in the future. But in this case, the government is clearly in the wrong.

          • maierwerx

            We’ll agree to disagree, Sam. If Apple and other multinational corporations are given a free pass to collude to inflate and fix prices, then what message (and more importantly, precedent) does that set/send to others?

            Should multinational energy companies be allowed to collude? Why not allow them to get together and agree to inflate and fix prices on all our energy costs?

            • eldernorm

              But you showed earlier your real thought. You hate Apple cause it has money and you feel that they should use that money to make products cheap for you to buy. !!!!!!

              I would like things to be cheaper too. But I do not hate the house builder for charging a fair price (he has to live too) for selling me a great house that lasts 3-5 times longer than the competition.

              Just saying.

        • hugoboom

          You used “colluded … to raise prices” and “attempt to become a major player in eBooks” in the same argument. Priceless. I suppose you will take on the communist bankers next and then onto the people who strap on iron weights to help them float.

          • maierwerx

            Hugo… did Apple not collude to inflate and fix prices (so they could have fat profits and prevent Amazon from selling at thin margins, thereby eliminating their competitive advantage)? Did Apple not attempt to become a major player in eBooks?

            • “Hugo… did Apple not collude to inflate and fix prices (so they could have fat profits and prevent Amazon from selling at thin margins, thereby eliminating their competitive advantage)? ”

              No they didn’t, and you know it. You write like a professional propagandist. Apple was trying to be a “savior” to a publishing industry that had become the slaves of Amazon.

          • Brad Alexander

            Think back in history before all these antitrust laws existed. Nefarious companies(namingly the railroads) would offer their serivces for cut throat prices in order to run their competition out of business. Either by buying them out or running them out of business. Once that happened and only one railroad company was in the area, that railroad company dramatically increased their prices.

            This type of market control is at high risk whenever one company has so much market share. The tactics amazon has used to gain so much market share are squarely in line with early nefarious 20th century business practices.

        • eldernorm

          Tongue in cheek comment coming. Beware.

          “I have it on good advice that maierwerx has attempted to over throw the entire Netflix company for his own advantage…. Even thou he would not really gain anything, all the companies that are competitors of Netflix MUST BE GUILTY of something…. or rather…

          Cause I hate Netflix….. so its evil. There, take that………. ” All done.

          See, its easy to fully side with whoever you want to be correct and ignore fact, truth, details, etc.

          You show your hate of Apple several times in your piece. “but Apple has hundreds of billions of dollars sheltered in overseas accounts and should not be allowed to pinch pennies (or dollars) out of my hands or the hands of the average consumer. ”

          Yes Apple has money. Its overseas because our greedy government wants it, even though the law says they are not allowed to have it. Even the government agrees with this. But you want Apples money. Great.
          You want to have someone force Apple to save you money, give you money, whatever, just because someone has it and has earned it. GREEDY YOU.

      • Robotech_Master

        All Apple has to do is settle to make it all go away.

        I mean, come on here, Apple was the ringmaster in an immense case of anti-competitive pricefixing. They broke the law. They broke it BIG TIME.

        We don’t give lawbreakers a pass because, oh dear, the case has become “too political”—especially when the reason it’s GOTTEN so political in the first place is defendant Apple pulling out every dirty trick in the book to stall for time, try to get the case moved elsewhere, and do effectively anything and everything BUT conclude the case swiftly and efficiently.

        If Apple wants to fight it out all the way to the Supreme Court, then let ’em. If they want to get rid of the politics, they just need to do the right thing, stop stalling, and settle up. It’s not like a billion dollars could even hurt them financially. That’s, what, one sixth of one percent of their market cap? Yeesh.

        • Swordmaker

          Apple was not the “ringmaster”. Apple came late to the circus. . . And was an unwitting vertical participant in a horizontal conspiracy among the publishers. Apple was merely one among many VENDORS willing to sell ebooks. Apple offered the SAME model they use to sell software on their App Store and music in iTunes, the Agent model, where the publishers retain ownership of the product, decide what price to sell it for, and Apple provides access to buyers for a flat 30% of the selling price. Apple suggested that the prices of the books be tiered at three set prices related to the retail selling price of the hardback copy of the book. . . And required that Apple customers be allowed to buy the book at the lowest price the publisher allowed any other dealer to sell the same book for. That is ALL Apple offered. . . in separate meetings with any publisher. No collusion. No conspiracy. All perfectly legal, but Judge Cote, before the trial and before hearing expert witnesses, and refusing Apple’s right to call it’s own expert witnesses, announced she thought Apple guilty, now let’s have the trial.