Apple heads to court in 'unusual' antitrust trial over e-book prices

Posted:
in General Discussion edited January 2014
Today the U.S. Justice Department will take Apple to court over allegations that the computer maker illegally conspired with publishers to fix the prices of electronic books, in order to sell them to users of its iPad and other iOS devices at a higher cost.

iBooks


Apple is the last defendant in the price-fixing case, as the other publishers have agreed to settlements with the Justice Department in recent months. Apple, the government claims, knowingly engaged in a conspiracy with Macmillan, Simon & Schuster, Hachette Book Group, Pearson, and HarperCollins in order to set prices above the $10 norm that Amazon was charging for e-books.

A lawyer with Patton Boggs told Bloomberg it is "pretty unusual" to see a case like this go to trial ? likely due to the tendency for defendants, even tech giants, to settle. Observers note that it is indicative of a larger trend that has seen the Obama administration's Justice Department more vigorously pursuing antitrust actions against companies.

Should the government win the case, Apple would likely be barred from certain anticompetitive actions, including price fixing, in the ebook market.

Apple holds that it acted on its own, negotiating contracts with each individual publisher to establish an "agency" model. Under that model, publishers set prices for books instead of the retailers. Apple, under that model, receives 30 percent of the price for each book.

Apple says that, prior to its entry into the ebook market with the 2010 introduction of the iPad and the iBookstore, nine out of 10 ebooks bought by consumers were purchased through Amazon. Publishers are said to have been unhappy with the low $10 price the online retailer was set on charging for their products, even though Amazon was actually paying more money to the publishers than it was charging customers for the books.

According to Apple, its entry into the ebook market gave consumers more choices, better e-readers, and lower overall prices. CEO Tim Cook has been ardent in his defense of the company.

"The ebook case to me is bizarre," Cook said last week at AllThingsD's D11 conference. "We've done nothing wrong there and so we're taking a very principled position on this... And so we're going to fight."

The trial will proceed without a jury, with U.S. District Judge Denise Cote presiding. Cote's pre-trial comments may give Apple pause, though, as she previously said that the government likely has enough evidence to show a knowing conspiracy on Apple's part.

Among the evidence the Justice Department will produce are emails from late Apple cofounder Steve Jobs, as well as testimony from Eddy Cue, the Apple executive most involved with the negotiations with publishers. Jobs' email may be among the DOJ's most damning pieces of evidence, as it asks the publishers to "Throw in with Apple" at a price floor of $13 "and see if we can all make a go of this."

Lawyers for Apple and the Justice Department will give their opening statements on Monday in a Manhattan federal court.
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Comments

  • Reply 1 of 41
    charlitunacharlituna Posts: 7,217member
    With luck the first thing Apple will do is request a new judge, as this one has already decided the case before it starts.

    Or if there is a chance of appeal, perhaps they won't and will hold it as an issue to file appeal.
  • Reply 2 of 41
    solipsismxsolipsismx Posts: 19,566member
    charlituna wrote: »
    With luck the first thing Apple will do is request a new judge, as this one has already decided the case before it starts.

    Or if there is a chance of appeal, perhaps they won't and will hold it as an issue to file appeal.

    I think that's not going to happen as I don't see how the judge stated the outcome ahead of time. At worse it just seems like poor form, but that may only because I've never heard a judge commenting publicly on a case before the final verdict.

    She said what she thinks is likely, but in no way said Apple is guilty. Based on the evidence I've read I'm saying that I think Apple will be found not guilty, but if actual collusion evidence comes up I won't hesitate to change what I think the most likely result will be.
  • Reply 3 of 41
    I think this will be the first time ever that a company goes to trial over anticompetition allegations when said company does not only not have a monopoly, but is competing against a company that does.

    I really don't like wearing tinfoil hats but this just reeks of lobbying by Amazon.
  • Reply 4 of 41
    newbeenewbee Posts: 2,055member

    Quote:

    Originally Posted by charlituna View Post



    With luck the first thing Apple will do is request a new judge, as this one has already decided the case before it starts.



    Or if there is a chance of appeal, perhaps they won't and will hold it as an issue to file appeal.


    I think the reason for the comments made by the judge is actually good for Apple. To me it's a last attempt to get Apple to settle out of court by "indicating" they will lose. Apple is not biting on this one .... good on them. At worst, if Apple loses...  (they won't) ... there are the grounds for an appeal.

  • Reply 5 of 41
    solipsismxsolipsismx Posts: 19,566member
    newbee wrote: »
    To me it's a last attempt to get Apple to settle out of court by "indicating" they will lose.

    I like that that theory.
  • Reply 6 of 41
    newbeenewbee Posts: 2,055member

    Quote:

    Originally Posted by Mike Barriault View Post



    I think this will be the first time ever that a company goes to trial over anticompetition allegations when said company does not only not have a monopoly, but is competing against a company that does.



    I really don't like wearing tinfoil hats but this just reeks of lobbying by Amazon.


    It's been said before ..... we have the best legal system that money can buy (and often does).

  • Reply 7 of 41

    Quote:

    Originally Posted by Mike Barriault View Post



    I think this will be the first time ever that a company goes to trial over anticompetition allegations when said company does not only not have a monopoly, but is competing against a company that does.



    I really don't like wearing tinfoil hats but this just reeks of lobbying by Amazon.


     


    Being the biggest player in a market isn't a prerequisite for anticompetitive behavoir and price fixing.  If you look at past examples, such as pricing fixing for memory chips several years ago, none of the players by themselves dominated the market, but when they came together they represented the majority of the market.  Same thing here, Macmillan, Simon & Schuster, Hachette Book Group, Pearson, and HarperCollins combined represents a significant part of the market.  What's unique here is that Apple role is more of a facilitator, broker, middle-man, or whatever you want to call it.

  • Reply 8 of 41
    newbeenewbee Posts: 2,055member

    Quote:

    Originally Posted by SolipsismX View Post





    I like that that theory.


    (in my best "Elvis voice") .... Thank you, thank you very much.

  • Reply 9 of 41
    schmidm77schmidm77 Posts: 223member
    "... even though Amazon was actually paying more money to the publishers than it was charging customers for the books."

    I love these stories. So Amazon was selling below its marginal cost to maintain its position in the market, which is itself a violation of antitrust law.
  • Reply 10 of 41
    gatorguygatorguy Posts: 23,185member
    schmidm77 wrote: »
    "... even though Amazon was actually paying more money to the publishers than it was charging customers for the books."

    I love these stories. So Amazon was selling below its marginal cost to maintain its position in the market, which is itself a violation of antitrust law.

    They weren't selling all books below cost, only a specific segment of "Best-sellers".
  • Reply 11 of 41

    Quote:

    Originally Posted by schmidm77 View Post



    "... even though Amazon was actually paying more money to the publishers than it was charging customers for the books."



    I love these stories. So Amazon was selling below its marginal cost to maintain its position in the market, which is itself a violation of antitrust law.


     


    Loss Leaders are not illegal.  

  • Reply 12 of 41
    lord amhranlord amhran Posts: 902member
    This is going to be a circus.
  • Reply 13 of 41
    lord amhranlord amhran Posts: 902member
    Edit: Double post
  • Reply 14 of 41
    I'm equally perplexed by this case. It's fundamental to want to pay the lowest price for a product. And it's only logical to want to [B]continue[/B] paying the lowest possible price. If apple can prove that the publishers were given the option to set the price, with the stipulation that it be lower than or equal to the cheapest price currently available on the market, I can't see how apple can lose. And I'm not aware of any laws which state that it's illegal for a consumer or retailer to suggest price points to a company for their products. Apple needs to prove that these suggestions were just that - suggestions. However, if the deal proposed by apple did happen to dictate a fixed $12.99 price in it's terms, (or whatever the cost actually is) then perhaps apple could indeed lose. But that's the only way I see it happening. I guess we'll wait and see what the evidence shows.
  • Reply 15 of 41
    solipsismxsolipsismx Posts: 19,566member
    Loss Leaders are not illegal.  

    Loss leaders aren't illegal, but using a monopoly position with predatory pricing that creates barriers of entry into a market is anti-competivive and illegal under most competition laws.
  • Reply 16 of 41
    schmidm77schmidm77 Posts: 223member
    Loss Leaders are not illegal.  
    Predatory pricing, if it could be established, is... and has been since the Sherman Act
  • Reply 17 of 41
    gatorguygatorguy Posts: 23,185member
    schmidm77 wrote: »
    Predatory pricing, if it could be established, is... and has been since the Sherman Act

    Perhaps the Justice Department will go after Amazon at some point after the issue with Apple is dealt with. At least for now whatever pricing Amazon specifically offers or whether it might qualify as "predatory" has nothing to do with the current case.
  • Reply 18 of 41
    rot'napplerot'napple Posts: 1,839member


    Can Apple get by with providing an opening statement saying they did nothing wrong and then plead the Fifth?!


     


    Or maybe for their defense, Apple can get the "Deniability Sayings for High Government Officials for Dummies" handbook!  Packed with everyone's favorite, "I was there for the Easter Egg roll... with my kids" and other common explanations " I don't recall", "I don't remember', "I just now heard about that", "I learned it from the media like everyone else", "That happened a long time ago.", and who can forget, "At this point, what difference does it make?!"...


    /


    /

  • Reply 19 of 41
    genovellegenovelle Posts: 1,274member

    Quote:

    Originally Posted by Gatorguy View Post





    They weren't selling all books below cost, only a specific segment of "Best-sellers".


    Only the books that were really in demand which so other store could not compete because there was no profit in the industry.  Since they took it over at the very beginning, and now had 90 % of the market no one dared enter because they could easily go back to their tactics of selling many more below cost.  There is a reason there were few smaller ebook stores.  Even the authors couldn't compete against them with their own product.

  • Reply 20 of 41
    froodfrood Posts: 771member
    Glad the DoJ stepped in.

    I really don't mind if Apple wants to sell the same books for $12.99 to Apple users as anyone else can buy for $9.99 elsewhere.

    When they implement clauses that will cause their vendors to raise prices on other sites to match theirs, that would be price fixing. (It has nothing to do with 'monopolistic' practices so those arguments being made are somewhat moot)

    So, all the book publishers wanted to make more money and arbitrarily and completely independently decided to raise their prices to the same value- which just happened to be the value that Apple had determined. That is basically Apples case. This case is indeed unusual- but only because most companies settle when they get caught with their hand in the cookie jar. Apple stands to lose little. They *could* be found innocent in this trial. Even if found guilty it will be up to the states to pursue damages and Apple knows it can steamroll them- so there is little downside to 'fighting' this.

    The 'throw out the judge' arguments are also pretty moot. There's no jury and she is the presiding judge. She was asked for her opinion on the evidence. She could have stated that there was insufficient evidence and most likely the case would not have been brought. She basically said there was enough evidence to take it to court... ie so far it 'walks like a duck' and 'quacks like a duck' Both sides still get to make their cases.

    Steve Jobs tells all the publishers... If you set your prices to more than $12.99 we're not interested in doing business with you. Less than $12.99 and we won't make our 30% rake at anything profitable to you. And all publishers shortly thereafter deciding to independently set their prices to $12.99 is just a little bit suspicious in my opinion.
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