Judge Rules Apple Keeps The Ebook Competition Away

The Justice Department claims the big winners in its successful antitrust action against Apple for conspiring to fix ebook prices with five major publishers are the “millions of consumers who choose to read books electronically.” Others -- including Apple, of course -- will tell you that it’s Amazon.

After a three-week trial in Manhattan, U.S. District Judge Denise L. Cote ruled yesterday that Apple capitalized on the “publishers’ ‘fear of and frustration’ over Amazon.com’s control of ebook pricing, and the tight window of opportunity in the weeks leading up to the iPad’s introduction in 2010, to get the publishers to agree to its terms,” Brian X. Chen and Julie Bosman report in the New York Times



“Amazon is not in most of the headlines, but all of the big events in the book world are about Amazon,” Paul Aiken, executive director of the Authors Guild, tells David Streitfeld in a separate analysis of the ruling in the Times. “If the publishers colluded, it was to blunt Amazon’s dominance.”

And Mark Coker, CEO of indie ebook distributor Smashwords, says, “If you want a vibrant ecosystem of multiple publishers, multiple publishing methods and multiple successful retailers in 5, 20 or 50 years, we took a step backwards this week.”

“Apple seized the moment and brilliantly played its hand,” Cote writes in a 160-page decision. “Taking advantage of the Publisher Defendants’ fear of and frustration over Amazon’s pricing, as well as the tight window of opportunity created by the impending launch of the iPad on January 27 (the ‘Launch’), Apple garnered the signatures it needed to introduce the iBookstore at the Launch.”

The publishers named in the DOJ’s suit -- Hachette, HarperCollins, Macmillan, Penguin and Simon & Schuster -- had previously settled, as PaidContent’s Laura Hazard Owen reported in February. Still, they took a bit of chiding from Cote for chewing and colluding at the same time.

“Executives from the companies would meet in the private dining rooms of upscale New York restaurants to bemoan the low prices charged by the ebooks market leader Amazon, and what they could do about it, Cote said in her ruling,” Amanda Holpuch reports in The Guardian.

Executives in Cupertino, Calif., starting with Steve Jobs, were empathetic. Cote “quoted Jobs, who died in 2011, as saying he understood publishers’ concerns that Amazon’s $9.99 price for new releases was eroding the perceived value of their products and that Apple was willing to try pricing e-books at $12.99 and $14.99, the AP’s Larry Neumeister writes.

“Apple argued that the company’s entrance into the ebook market provided healthy competition against Amazon, which at one point controlled 90% of the ebook market,” Erik Kain reports on Forbes.com. “This argument was made less compelling by the fact that ebook prices went up after Apple’s entry into the market.”

The company is sticking to its story, and says it will appeal.

“Apple did not conspire to fix ebook pricing and we will continue to fight against these false accusations,” Apple spokesman Tom Neumayr says in a widely published statement. “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.”

“In the final analysis, the case wasn’t even close,” Andrew Albanese writes in Publisher’s Weekly. “In its defense, Apple had argued on three main points, and lost soundly on all three.” 

  • It claimed “there was no conspiracy to raise prices”;
  • “It argued that Amazon and other retailers actually embraced the agency model.” In the agency model, explains CNNMoney’s Julianne Pepitone, “the publishers set their own prices and Apple took a 30% cut off the top.”
  • It “sought to show that the ebook market suffered no ill-effects.”

As definitive as the decision may seem, there are observers who believe it will be overturned. 

“Apple is being penalized for introducing a new way of selling the printed word online, by providing the electronic marketplace for publishers and taking a fee for every unit sold,” Daniel Fisher observes on Forbes.com. “That upset the old wholesaling approach, in which marketers bought works at a discount and sold them for what the market would bear.”

George Priest, an antitrust professor at Yale Law School, is among those Fisher cites who is at least “not certain” the decision will stand on appeal.

Randal Picker, a professor of law at the University of Chicago, tells the Washington Post’s Timothy B. Lee that the “practical” takeaway from the case is “the line between the legal and the illegal seems so thin.”

His advice to other tech companies?

“Don’t say you’re going to be able to raise prices, even if everyone is thinking to themselves that maybe they’ll do that. That’s an atmospherics point, but it also often carries a lot of weight.”

And never, ever fill out an expense account for a meal in a tony restaurant with the phase “bemoan low prices in industry with competitors.”

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