Commentary

Apple Wants Supreme Court To Overturn E-Book Price-Fixing Verdict

Apple intends to ask the U.S. Supreme Court to overturn a ruling that the company violated antitrust laws by masterminding a conspiracy to raise ebook prices, the company said this week in a new court filing.

The case "presents issues of surpassing importance to the United States economy," Apple says in a motion filed on Wednesday with Supreme Court Judge Ruth Bader Ginsburg. The company is asking for a 30-day extension of the deadline to file a full petition seeking review; the normal deadline would be Sept. 28, but Apple says its lawyers need more time.

Earlier this year, the 2nd Circuit Court of Appeals upheld a decision by U.S. District Court Judge Denise Cote in New York, who ruled that Apple illegally orchestrated a price-fixing conspiracy with five major publishers.

The legal battle dates to 2012, when federal and state authorities charged Apple and five publishers -- Hachette, HarperCollins, Macmillan, Penguin and Simon & Schuster -- with conspiring to end Amazon's policy of charging just $9.99 for electronic versions of new releases and bestsellers.

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When Amazon introduced the Kindle, the company was able to hugely discount ebooks because the industry ran on the “wholesale” model, meaning that companies like Amazon purchased books at wholesale and then decided what price to charge.

In 2010, Apple and publishers moved to end Amazon's ability to sell books for $9.99 forging an agreement to shift to an "agency" model. With that model, the publishers set prices and retailers like Apple and Amazon act as agents, selling the books for a commission.

The price of bestselling ebooks soon rose to $12.99 and higher.

Apple allegedly wanted the shift in order to sell books on the then-new iPad, but for more than $9.99 -- a rate that reportedly was below cost, at least in some cases. The company obviously believed it wouldn't gain a foothold in the relatively new ebook market if it charged more than Amazon.

The publishers, who allegedly met regularly in private rooms of Manhattan restaurants to discuss Amazon's ebook pricing, quickly settled the charges.

But Apple fought the charges. The company garnered support from several players in the book publishing world, who argued that Apple (and the publishers) prevented Amazon from monopolizing the e-book market.

Best-selling author and lawyer Scott Turow -- president of the Authors Guild when the lawsuit was brought -- was among Apple's most outspoken defenders: "The irony bites hard: our government may be on the verge of killing real competition in order to save the appearance of competition," Turow said in a blog post shortly before the antitrust case was filed.

He added that Amazon was "using e-book discounting to destroy bookselling, making it uneconomic for physical bookstores to keep their doors open."

Cote didn't say it that way. In a ruling issued in July 2013, she said that Apple Apple illegally “changed the face of the e-book industry” through a price-fixing scheme.

Apple says in its petition to Ginsburg that its actions were justified.

"In order to enter the market and compete with Amazon, Apple needed suppliers for its iBookstore on terms that would allow it to sell e-books profitably, notwithstanding Amazon's below-market pricing strategy," the company says.

Apple adds that it entered into a series of contracts with publishers; those deals included "price caps that ensured that the iBookstore's prices would not be higher than the prices available from other e-book retailers," the company says.

"These efforts at market entry succeeded," Apple says in its petition to Ginsburg. "Millions now read e-books purchased on the iBookstore; Amazon's share of the e-books retail market has decreased to 60%; total e-book output and consumption has increased dramatically; and, in the medium term, e-book retail prices have fallen."

Apple adds: "Dynamic, disruptive entry into new or stagnant markets -- the lifeblood of American economic growth -- often requires the very type of vertical contracting and conduct that the Second Circuit's rule would condemn."

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