Apple Guilty of E-Book Price Fixing

By: The Verge Email
By: The Verge Email

(The Verge) -After a trial and several settlements with other publishers, a federal judge has ruled that Apple conspired to raise the price of ebooks from major publishers, and a hearing for damages will be held later. Apple was originally accused of price fixing in 2012, along with five of the six major publishers. Several publishers quickly caved, and all had agreed to settlements by early 2013, leaving Apple the only company facing a trial. Now, Judge Denise Cote has found that "the Plaintiffs have shown not just by a preponderance of the evidence but through compelling direct and circumstantial evidence that Apple participated in and facilitated a horizontal price-fixing conspiracy."

The Department of Justice accused the companies of banding together to keep ebooks above Amazon's rock-bottom discounts and chip away at its Kindle-fueled runaway lead in the ebook market. To do so, they relied on an agency model, which allowed publishers — not retailers — to set prices. The case hinged not on the agency model directly, but on the allegation that Apple's Eddy Cue and others met with publishers and suggested they accept the model, then helped them coordinate pricing. By doing so, Apple could boost its market share, and publishers could avoid the dreaded $9.99 price point that Amazon offered. Cote agreed, saying that fear of Amazon had driven publishers to accept Apple's price-fixing deal.

In her ruling, Cote said that she found the Justice Department's case compelling. "The Plaintiffs have shown that the Publisher Defendants conspired with each other to eliminate retail price competition in order to raise e-book prices," she wrote, "and that Apple played a central role in facilitating and executing that conspiracy. Without Apple's orchestration of this conspiracy, it would not have succeeded as it did in the Spring of 2010." Far from happening without collusion, the evidence showed "a clear portrait of a conscious commitment to cross a line and engage in illegal behavior."

Apple and publishers, she said, shared an "overarching interest" in cutting down Amazon's lead, and "Apple seized the moment and brilliantly played its hand. Through the vehicle of the Apple agency agreements, the prices in the nascent e-book industry shifted upward, in some cases 50 percent or more for an individual title." Simon & Schuster's Carol Reidy had records of Apple saying it "cannot tolerate a market where the product is sold significantly more cheaply elsewhere." And some of the most damning statements, Cote said, came all the way from the top of Apple.

"Compelling evidence of Apple's participation in the conspiracy came from the words uttered by Steve Jobs, Apple's founder, CEO, and visionary. Apple has struggled mightily to reinterpret Jobs's statements in a way that will eliminate their bite. Its efforts have proven fruitless." In one statement, Jobs told James Murdoch that Amazon's $9.99 sales were "eroding the value perception" of its products, and that Apple would be trying higher price points. This was confirmed at launch. "Jobs's purchase of an e-book for $14.99 at the Launch, and his explanation to a reporter that day that Amazon's $9.99 price for the same book would be irrelevant because soon all prices will "be the same" is further evidence that Apple understood and intended that Amazon's ability to set retail prices would soon be eliminated." Video of that quote, given to Walt Mossberg, can be seen above.

Jobs' statements, Cote said, "remain powerful evidence of conspiratorial knowledge and intent."

Apple's conspiracy apparently involved the Hachette, Macmillan, Penguin, HarperCollins, and Simon & Schuster publishing groups; the only major publisher not included was Random House, which has now merged with Penguin. As part of their settlements, these companies were ordered to end agency pricing agreements for two years, and to stop "most favored nation" agreements that could guarantee Apple or others the lowest prices. Apple's damages have not yet been decided, but these restrictions on publishers will stop it from continuing with its previous model; individual states will also seek to fine Apple for its behavior.

Update: Apple spokesperson Tom Neumayr has said the company, unsurprisingly, plans to appeal. "Apple did not conspire to fix ebook pricing and we will continue to fight against these false accusations," he said in a statement to The Verge. "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. We've done nothing wrong and we will appeal the judge's decision."

The Department of Justice has also commented on the decision, calling it "a victory for millions of consumers who choose to read books electronically."


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