Court Rules Against Apple in E-Book Antitrust Case

On Wednesday, July 10, a federal judge ruled that Apple violated antitrust laws by conspiring with five publishers to raise and fix e-book prices. Judge Denise L. Cote, U.S. district judge for the Southern District of New York, found that “Apple played a central role in facilitating and executing that conspiracy. Without Apple’s orchestration of this conspiracy, it would not have succeeded as it did in the spring of 2010.” Apple has said it will appeal the judge’s decision.

The Department of Justice (DOJ) and 33 states brought the antitrust suit against Apple and the five publishers on April 11, 2012. The suit alleged that Apple, Hachette, HarperCollins, Macmillan, Penguin, and Simon & Schuster conspired to raise, fix, and stabilize the retail price for newly released and bestselling trade e-books in violation of the Sherman Antitrust Act and various state laws. While the publishers settled their cases without admitting wrongdoing, Apple proceeded to trial, insisting that it had done nothing wrong.

While finding against Apple, Judge Cote noted, “This trial has not been the occasion to decide whether Amazon’s choice to sell NYT Bestsellers or other New Releases as loss leaders was an unfair trade practice or in any other way a violation of law. If it was, however, the remedy for illegal conduct is a complaint lodged with the proper law enforcement offices or a civil suit or both. Another company’s alleged violation of antitrust laws is not an excuse for engaging in your own violations of law. Nor is suspicion that that may be occurring a defense to the claims litigated at this trial.”

In addition, the judge said that Wednesday’s ruling does not “necessarily impl[y] that agency agreements, pricing tiers with caps, MFN clauses, or simultaneous negotiations with suppliers are improper… What was wrongful was the use of those components to facilitate a conspiracy with the Publisher Defendants.”

Apple spokesperson Tom Neumayr said, “Apple did not conspire to fix e-book 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,” as reported by the New York Times.

Conversely, the DOJ hailed the decision. “This result is a victory for millions of consumers who choose to read books electronically,” said Assistant Attorney General Bill Baer in a statement. “After carefully weighing the evidence, the court agreed with the Justice Department and 33 state attorneys general that executives at the highest levels of Apple orchestrated a conspiracy with five major publishers … to raise e-book prices.  Through today’s court decision and previous settlements with five major publishers, consumers are again benefitting from retail price competition and paying less for their e-books.”

In her ruling, Judge Cote wrote that there was “very little dispute about many of the most material facts in this case” and that Apple and the five publishers shared “one overarching interest — that there be no price competition at the retail level.” She further stressed that Apple did not want to compete with Amazon.com or any other e-book retailer, and that the publishers wanted to end Amazon.com’s $9.99 e-book pricing “and increase significantly the prevailing price point for e-books.”

The result, Judge Cote wrote, was that “through the vehicle of the Apple agency agreements, the prices in the nascent e-book industry shifted upward, in some cases 50 percent or more for an individual title. Virtually overnight, Apple got an attractive, additional feature for its iPad and a guaranteed new revenue stream, and the Publisher Defendants removed Amazon’s ability to price their e-books at $9.99.”