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Apple caves in ebooks fight: what the big settlement means for you

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Apple(s aapl) appears to have finally thrown in the towel in a two-year court fight over its role in brokering a conspiracy with publishers to fix the price of ebooks. The publishers have already paid millions to consumers, and now Apple could soon do the same under a sealed settlement  that came to light on Monday.

It’s not technically over but, for practical purposes, consumers can expect to collect before long. Here is a plain English Q&A about what the settlement means, and what happens next — including when a payout might occur.

So why is Apple prepared to pay ebook consumers?

Last July, a federal judge ruled that Apple organized a conspiracy in 2010 to raise the price of ebooks. In a related proceeding, class action lawyers and state governments sued on behalf of consumers — money from Apple is supposed to make them whole.

A trial over damages was supposed to start next month, but the lead class action lawyer told the court this week that Apple decided to settle.

How much will Apple pay out?

The proposed settlement is still under seal (we can expect to see details in July) but it’s a safe bet that it’s worth considerably less than the $840 million that the class action lawyers said Apple might owe. Keep in mind that the five publishers who were Apple’s co-conspirators paid a total of around $160 million.

We can expect Apple to pay more than the publishers since the court said it was the ringleader, and since the company initially chose to fight rather than settle. This means that a figure of $100-$300 million seems likely — but for now that’s just a guess.

So how much will I get and how will Apple pay?

We won’t know for sure until the settlement is published, but we can make a good guess based on the publisher settlements.

Under those terms, ebook buyers received $3.17 if a title they bought from Hachette, HarperCollins, Simon & Schuster, Penguin or Macmillan between April 1, 2010 and May 21, 2012 was ever a New York Times bestseller.  If it wasn’t, they got a credit of $0.73 per ebook. Nearly all consumers received the money as a credit to their Kindle, Barnes & Noble(s bn) or iTunes accounts.

There’s no guarantee that the terms of the Apple deal will be the same, but they will likely be in the same ballpark.

Is this a sure thing?

No, since the settlement is contingent on the outcome of an ongoing appeal by Apple. The company has NOT conceded the judge’s finding last year that it violated antitrust laws, but it HAS agreed on the amount it should pay if the appeals court upholds the original decision.

Realistically, the appeal is a long shot since the appeals court judges have already ruled on other parts of the case, and nothing suggests they are interested in disturbing the underlying verdict. The settlement must also be approved by the trial court judge to ensure it’s fair — but that likely won’t be a problem.

“What we have is a settlement agreement that both sides are putting in front of her. Normally, a judge will accept an agreement by both parties,” said Andre Barlow, an antitrust expert and former Justice Department lawyer.

So why did Apple settle if it didn’t think it did anything wrong?

Apple has bitterly fought the antitrust charges since the get-go, and many people (including me) are on the company’s side — pointing out that Apple didn’t kill competition, but may have improved it in an ebook market that was (and is still) dominated by Amazon.

By now, however, Apple’s legal case looks hopeless, especially in the face of a hostile judge. Settling also helps Apple avoid another trial, and avoid exposure to antitrust rules under which plaintiffs can seek triple damages at trial.

“That’s the benefit for Apple. You don’t have to go through and determine damages. You avoid treble damages. I’m sure the amount is much lower than what could be proved at trial,” said Barlow, who added that a settlement also helps the plaintiffs since it avoids surprises at trial.

So when will I get paid?

Apple has yet to plead its case before the appeals court judges whose ruling is required before the payment provisions can be triggered. The lawyers will then have to work to notify customers by email, and to find a way to distribute the credits — or possibly cash. Realistically, this may not be resolved until late this year or early 2015.

This story was updated at 9PM ET to make clear that Apple’s payment is still contingent

15 Responses to “Apple caves in ebooks fight: what the big settlement means for you”

  1. Jean K

    You do realize that this settlement only applies to the class action suits filed by 33 states and various individuals, right? It has NOTHING to do with the Justice Department case, other than the poison pill caveat that the settlement only goes through if Apple wins their appeal against Judge Cote.

    Justice Department case is still very much going through.

  2. pjs_boston

    Apple hasn’t caved. Apple settled in damages, pending the outcome of their appeal. If Apple wins in appeal, there won’t be any damages.

    Apple is in the record that they will appeal a the way to the Supreme Court.

  3. I’m unsure as to why the writer of this article would think what Apple did was ok and created competition. It would’ve created better competition of the prices were LOWER than amazons, but to punch up the price of new ebooks to almost 15$…. That’s pure thievery.

    • Thanks for your comment, Aly. I agree that what Apple did was pretty brazen (and apparently illegal), but I still question the Justice Department’s gung-ho litigation tactics. Fast forward two years, and it appears that Amazon is more dominant than ever while Apple is a bit player. I’m not sure that’s good for consumers or the ebook market.

      But both Justice and Judge Cote made a media spectacle of this thing, which made it hard for them to climb down. Apple’s intransigence didn’t help either, of course

      • gopher65

        Think about it this way: ignore the fact that this is dealing with ebooks, and pretend that it’s a physical product. Say Apple and Amazon both sell Product A. Amazon sells it at 10 dollars, and Apple at 20. It’s the same product, so Apple is not doing well in sales.

        Then Apple goes to *every* *single* *manufacturer* of said product, sits down in a private meeting to which Amazon (and Mom & Pop sellers as well) aren’t invited, and “suggests” to the manufacturer that they demand a universal “suggested retail price” of 20 dollars from every retailer who sells Product A. If the 20 dollars isn’t agreed to, then the manufactures will stop selling to the retailers in question.

        Do you see what Apple did wrong in this scenario? I hope so, because it would be highly illegal. And it’s what they did in real life. The only difference is that it wasn’t a physical product (it was a file delivered over the internet), so people are treating this as a special case.

        But it isn’t special.. The US hasn’t seen this kind of corporate gangsterism since the days of Standard Oil.

      • Robotech_Master

        The thing is, Amazon didn’t get to where it is by doing anything illegal. It just built a better mousetrap that was so much better than anything anyone else could do that everyone just climbed on board. It’s the same reason FedEx “dominates” next-day shipping, or Google “dominates” web searching.

        Getting big isn’t a crime if you don’t do it criminally. If Amazon does try to do something illegal, I have little doubt someone will call them on it.

      • Robotech_Master

        And it was only thanks to those “gung-ho litigation tactics” that the excessively high pricing was rolled back, by the way. The publishers weren’t exactly going to do it if they just asked nicely.

  4. Jack C

    I have a hard time seeing this as anything other than an unqualified win for Apple (and Publishers). They’ve gotten a massive amount of exposure, much of which has been astonishingly favorable given the situation. Corporate crime has never been spun so well.

  5. Robert

    for Pete’s sake please proof read before you publish. Especially your large-type headings:
    “So much will I get and how will Apple pay?”