Apple Loses E-Book Price-Fixing Case
posted on by Lynzee Loveridge
Federal Judge Denise Cote ruled that Apple was guilty of colluding with publishers Macmillan, Penguin (now Penguin Random House), Hachette Book Group, Simon & Schuster, and HarperCollins to fix e-book prices and effectively drive up consumer cost in an attempt to undermine Amazon's lower price offerings. Judge Cote concluded in a 159-page decision that evidence showed Apple had conspired to restrain trade in violation of Section 1 of the Sherman Act.
Apple presented three points in its defense but Judge Cote found in favor of the State on all accounts, while calling out Simon & Schuster and Macmillan executives as the most “unreliable” witnesses. Apple argued that the deal to raise e-book prices caused no harm to the market and raised competition against Amazon.
"With Apple's active encouragement and assistance, the Publisher Defendants agreed to work together to eliminate retail price competition and raise e-book prices, and again with Apple's knowing and active participation, they brought their scheme to fruition,” Cote wrote. "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."
The judge's decision will allow the government to seek damages against Apple.
Apple intends on appealing the decision, stating that its iBookstore "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."
The U.S. Department of Justice filed a civil antitrust lawsuit last year against Apple and the publishers. The suit charged the companies with colluding to raise e-book prices through the use of the "agency model," where publishers, not booksellers, set book prices.
The contracts forced retailers like Amazon to market their e-books at a US$12.99-14.99 price point. Publishers Penguin and Macmillan's opposition cited that Amazon.com, a competitor to Apple in the digital publishing front, was a "monopoly" before Apple introduced its iBookstore platform. Authors Guild president Scott Turow added that Amazon is lowering its prices "only as long as it takes Amazon to re-establish its monopoly." Amazon held 90% of the e-book market prior to the publisher's contract negotiations.
Simon & Schuster, Hachette Book Group, HarperCollins, and later Macmillan and Penguin agreed to settle with the Department of Justice. The settlement requires the publishers to end their contractual relationship with Apple in a week, as well as any other contracts with e-book retailers that do not allow retailers to set their own e-book prices or contain a “most-favored nation” clause, which says that no other retailer is allowed to sell e-books for a lower price. The publishers may not enter into any new contracts that limit a retailer's ability to set prices for the next two years or enter into any new contracts with a "most-favored nation" clause for the next five years.