Apple: No 'Direct Evidence' Of Ebook Price-Fixing

Did Apple conspire with book publishers to end Amazon's $9.99-per-ebook price? That's the question at the center of the government's antitrust lawsuit against the company.

Not surprisingly, Apple and the Department of Justice disagree about what the evidence shows. Both sides have now outlined their positions in papers filed with U.S. District Court Judge Denise Cote, who has presided over the government's price-fixing case against Apple and five publishers since it was filed last April.

The publishers -- Hachette, HarperCollins, Macmillan, Penguin and Simon & Schuster -- all agreed to settle the charges. But Apple says it had no part of any price-fixing scheme. What's more, the company says that its entry into the ebook market in 2010 -- when it released the iPad -- has resulted in change for the better. “Every critical indicator of market health -- lower price, higher output, more selection, higher quality, lower concentration -- signals that the trade ebooks market has been thriving since Apple’s entry and consumers have been reaping the benefits,” the company argues in court papers.

When Amazon first started selling ebooks, it purchased them as a wholesaler, and then set whatever prices it wished. For bestsellers, the company set $9.99.

The publishers didn't approve and, according to the court papers, they held a series of meetings where they discussed how to put a stop to Amazon's bargain-basement prices. In the end, they decided to start using an agency model, where they set the retail price of books and paid a commission to the retailers.

Apple signed agency agreements with publishers, as did Amazon. The move obviously helped Apple to enter the market, as it enabled the company to sell ebooks at rates competitive with Amazon. But Apple says it negotiated with the publishers individually, and didn't conspire with them to force Amazon to accept an agency agreement.

Apple also argues that Amazon decided to move to an agency model because publishers had threatened to delay ebook new releases on Amazon, in order to fight the company's low prices. “Amazon’s move to agency had absolutely nothing to do with Apple’s [contracts],” the company argues. “Amazon was aware that the market was changing and that agency could very well emerge as the model preferred by publishers over the traditional wholesale model, which had prevailed for physical books. Ultimately, Amazon recognized that it faced a choice between wholesale with windowing and agency.”

Apple adds: “Lacking direct evidence that Apple conspired, plaintiffs string together a chain of unreasonable inferences, drawn from a patchwork of ambiguous evidence.”

The DOJ sees things differently. “Over a three-day period in January 2010, the five publisher defendants each agreed to all-but identical Apple agency agreements ... and each then promptly took steps to force Amazon to an agency model as well,” the government writes in its legal papers. “Amazon caved to the combined pressures of the five publisher defendants, who threatened to cripple Amazon’s ebook business by withholding their ebooks. The results were exactly what Apple and publisher defendants intended. The $9.99 problem at Amazon was solved, retail prices went up, and publisher defendants began setting retail prices at levels remarkably consistent with the price tiers in the Apple agency agreements.”

In the year since the case was filed, the five publishers who settled canceled their agency contracts with Apple. The DOJ says that consumers will benefit in the form of lower prices.

But not everyone thought the Justice Department is on the right side of this issue. Some critics say that Amazon's $9.99 pricing was predatory and would have resulted in the company's monopoly over ebooks -- a bad situation for consumers as well as other booksellers. Cote, however, ruled last year that even if Amazon's pricing was predatory, the publishers still didn't have the right to conspire to fix prices.

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