Commentary

Apple Conspired To Fix Ebook Prices, Judge Rules

Until 2010, Amazon sold bestselling books in electronic form for just $9.99. But that spring, the price of ebooks jumped considerably.

And Apple is to blame. At least, that's what U.S. District Court Judge Denise Cote in New York believes. In a 160-page opinion issued today, Cote wrote that Apple “changed the face of the e-book industry” by illegally orchestrating a price-fixing conspiracy with five major publishers.

Cote's ruling capped a nearly three-week antitrust trial, at which federal prosecutors offered evidence that Apple worked with publishers to change how ebooks were sold. Until early 2010, the industry operated on the wholesale model, which enabled retailers like Amazon to purchase books wholesale and then sell them at any price they wished.

But the federal authorities said that Apple and the publishers -- Hachette, HarperCollins, Macmillan, Penguin and Simon & Schuster -- banded together to force a shift to an agency model, where publishers set the retail price of ebooks and pay commissions to the retailers. Once the industry went to an agency model, Amazon was no longer able to offer bestsellers for the discount price of $9.99.

Ending the $9.99 pricing benefited the publishers, who didn't like seeing their books sold so cheaply. It also was a boon to Apple, which wanted to launch a bookstore for the iPad, but didn't want to sell books at below-wholesale prices. After the shift to the agency model, the price of many bestsellers rose to $14.99.

The publishers all agreed to settle the charges. Of course, they probably didn't have much hope of beating the case anyway, if their CEOs really met regularly in private rooms of Manhattan restaurants -- like "The Chef's Wine Cellar" at Picholine -- to discuss Amazon's ebook pricing.

Apple initially seemed to have a better chance of prevailing, given that the company wasn't part of those group publisher meetings. But the government successfully argued that Apple masterminded the whole scheme in order to sell ebooks for the iPad.

“To ensure that the iBookstore would be competitive at higher prices, Apple concluded that it needed to eliminate all retail price competition,” Cote wrote in her opinion. “Thus, the final component of its agency model required the publishers to move all of their e-tailers to agency. Apple expected that this proposal would appeal to the publishers. After all, it would allow them to 'fix' their 'problem' with Amazon’s pricing.”

Cote's ruling against Apple isn't a huge surprise: She said before the trial even started that her “tentative view” was that Apple had violated antitrust laws. The company now faces new hearings about damages.

For its part, Apple has vowed to appeal Cote's ruling.

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