Apple: 'Government Sides With Monopoly' In Antitrust Lawsuit

by , May 24, 2012, 4:30 PM
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Far from harming consumers, Apple's entry into the sale of digital books offered people "a new outstanding, innovative eBook reading experience, an expansion of categories and titles of eBooks, and competitive prices," the company contends in court papers.

"The government sides with monopoly, rather than competition, in bringing this case," Apple says in its answer to the civil antitrust case brought last month by the federal authorities.

"Before 2010, there was no real competition, there was only Amazon," Apple continues. "Apple’s entry spurred tremendous growth in eBook titles, range and variety of offerings, sales, and improved quality of the eBook reading experience."

Last month, the DOJ sued Apple and five book publishers -- Hachette, HarperCollins, Macmillan, Penguin and Simon & Schuster -- for allegedly conspiring to increase the price of bestselling eBooks from Amazon's $9.99-per-download rate. The complaint alleged that Apple forged a deal with the publishers to move to move to an "agency" model -- meaning that the publishers would set prices and Apple would act as their agent, selling the books for a 30% commission. Before, the publishers and Amazon worked on a wholesale model, which involved Amazon purchasing the books at wholesale and then retailing them for whatever price it wished -- often at deep discounts.

Three of the publishers -- Hachette, HarperCollins, and Simon & Schuster -- agreed to settle the complaints. If the agreements are given the okay by a judge, the companies will have to end their contracts with Apple, and also end any contracts with retailers that limit their ability to offer cut-rate prices. The publishers can renegotiate those contracts, but can't prevent the retailers from offering discounts for at least two years

Apple, Macmillan, and Penguin are fighting the charges.

Some observers have said that the government's case looks weaker against Apple than the publishers. Partly because the government alleges that the publishers held quarterly meetings at places like "The Chef's Wine Cellar" at the Manhattan restaurant Picholine -- where they discussed matters like Amazon's ebook pricing. If so, that's pretty damaging to their defense.

But the complaint doesn't allege that Apple executives were present at those meetings. Instead, the authorities allege that Apple "facilitated" the publishers' attempt to "end retail price competition by coordinating their transition to an agency model across all retailers."

For its part, Apple argues that the government is putting the wrong spin on the company's agreements with publishers. "It was perfectly lawful for Apple to offer an opportunity for individual publishers to sell eBooks directly to consumers with Apple as an agent on commission," Apple says in its court papers, filed this week in the Southern District of New York. "Proposing an agency model was in Apple’s unilateral and independent business interests."

Apple doesn't just deny the allegations, but attacks the government for bringing the case at all. "Without Apple’s entry, eBook distribution would essentially be ceded to a single distributor (Amazon), who would then possess virtually unlimited power in the eBook business," the company argues. "Apple provided all publishers, large or small, similar opportunities to utilize Apple as an agent to sell eBooks directly to consumers."

Apple isn't the only one to raise those points. Authors Guild president Scott Turow has made similar arguments. He says the Justice Department's deal with the three publishers who agreed to settle will boost Amazon -- by allowing it to sell books at cheaper rates than smaller companies can afford -- while also making it more difficult for traditional bookstores to sell eBooks. "Today’s low Kindle book prices will last only as long as it takes Amazon to re-establish its monopoly," he argued in a recent blog post. "It is hard to believe that the Justice Department has somehow persuaded itself that this solution fosters competition or is good for readers in the long run."

1 comment on "Apple: 'Government Sides With Monopoly' In Antitrust Lawsuit".

  1. Robert Repas from Machine Design Magazine
    commented on: May 25, 2012 at 12:46 p.m.
    I'm sorry, but I must have a different definition of competition than Apple and these other companies. When a group of companies all decide to sell their product at the same price, I call that price fixing. There is no competition there. If the argument is against Amazon, then there are other ways of handling them then through collusion to set prices.

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