Apple appeals to Supreme Court in e-books price fixing antitrust case

Posted:
in General Discussion edited October 2015
Apple is looking to file an appeal with the U.S. Supreme Court in order to overturn previous court decisions, which found that the company conspired with book publishers to fix the price of e-books.




In a submitted document, Apple claims that "dynamic, disruptive entry into new or stagnant market" requires the sort of strategy it pursued and is vital to the American economy, according to Fortune. Negotiations prior to the iBooks Store launch in 2010 led to publishers adopting an agency model, and Apple winning "most favored nation" status, such that e-book prices elsewhere could be no lower than its own.

The main target is believed to have been Amazon. At the time the standard price for its Kindle e-books was $10, but following the launch of iBooks, Amazon prices went up several dollars.

U.S. District Judge Denise Cote ruled Apple's activities illegal in July 2013. Apple subsequently appealed, but the judgment was upheld in June 2015 by the U.S. Court of Appeals for the Second Circuit.

Apple's current Supreme Court filing asks only for a 30-day extension on the deadline to submit a formal petition. The company's grounds for appeal are that Cote didn't consider the case in a proper framework, namely the competitive benefits of Apple's behavior including challenging Amazon, which had overwhelming dominance of the e-book market.

When it lost its Second Circuit appeal, Apple issued a public statement arguing that while it wanted to put the case behind it, it did nothing wrong and was continuing to fight for "principles and values." Apple faces a $450 million penalty if it loses at the Supreme Court, however, and restrictions on its business dealings, including an antitrust compliance monitor it has actively battled with.
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Comments

  • Reply 1 of 49
    Interesting... to see if the Court will hear the case.
  • Reply 2 of 49
    cnocbuicnocbui Posts: 3,613member
    Smackdown number three would be my guess.
  • Reply 3 of 49
    The whole case was a perversion of anti-trust law in an effort to protect Amazon's monopoly.
  • Reply 4 of 49
    Wtf happened to AAPL at the end of the day? Down 2.13%. Did the news about this getting dragged out impact the stock, I wonder.

    Before anyone starts making attributions: I think Apple got sucker-punched, was totally in the right, and the justice system was a travesty, in this instance.
  • Reply 5 of 49

    Good luck storming the castle!

  • Reply 6 of 49
    jungmarkjungmark Posts: 6,549member
    Never in history has the Doj investigated antitrust issues so early in a market inception against a non monopoly. The Amazon grease sure works wonders in DC.
  • Reply 7 of 49
    cnocbuicnocbui Posts: 3,613member
    Quote:
    Originally Posted by anantksundaram View Post



    Wtf happened to AAPL at the end of the day? Down 2.13%. Did the news about this getting dragged out impact the stock, I wonder.



    Before anyone starts making attributions: I think Apple got sucker-punched, was totally in the right, and the justice system was a travesty, in this instance.



    Janet Yellen happened would be my guess.

     

    I don't think Apple got sucker punched, it was an own-goal.

     

    CREATOR: gd-jpeg v1.0 (using IJG JPEG v62), quality = 90

  • Reply 8 of 49
    tmaytmay Posts: 3,155member
    Quote:

    Originally Posted by sog35 View Post

     

    "Negotiations prior to the iBooks Store launch in 2010 led to publishers adopting an agency model, and Apple winning "most favored nation" status, such that e-book prices elsewhere could be no lower than its own."

     

    if true than Apple deserves to get fined.  Or am I wrong?  


    you are wrong.

  • Reply 9 of 49
    pdq2pdq2 Posts: 270member
    Quote:

    Originally Posted by tmay View Post

     

    you are wrong.




    Yeah, if you Google around you'll find that while most-favored-nation clauses in contracts can raise red flags, they are not illegal per se. They're fairly common in health care, and in some cases are felt to actually be beneficial to consumers.

  • Reply 10 of 49
    lkrupplkrupp Posts: 6,404member
    Quote:

    Originally Posted by anantksundaram View Post



    Wtf happened to AAPL at the end of the day? Down 2.13%. Did the news about this getting dragged out impact the stock, I wonder.



    Before anyone starts making attributions: I think Apple got sucker-punched, was totally in the right, and the justice system was a travesty, in this instance.



    It had nothing to do with this news. $450 million is barely a blip on Apple’s balance sheet. A big number to be sure but hardly anything that would affect Apple’s financial health. More likely just the typical machinations of AAPL manipulators like Jim Cramer. 

  • Reply 11 of 49
    Quote:

    Originally Posted by anantksundaram View Post



    Wtf happened to AAPL at the end of the day? Down 2.13%. Did the news about this getting dragged out impact the stock, I wonder.



    Before anyone starts making attributions: I think Apple got sucker-punched, was totally in the right, and the justice system was a travesty, in this instance.



    There are no real reasons, just sheeplike momentum.

  • Reply 12 of 49
    snovasnova Posts: 1,281member
    Quote:
    Originally Posted by cnocbui View Post

     
    Quote:
    Originally Posted by anantksundaram View Post



    Wtf happened to AAPL at the end of the day? Down 2.13%. Did the news about this getting dragged out impact the stock, I wonder.



    Before anyone starts making attributions: I think Apple got sucker-punched, was totally in the right, and the justice system was a travesty, in this instance.



    Janet Yellen happened would be my guess.

     

    I don't think Apple got sucker punched, it was an own-goal.

     

    CREATOR: gd-jpeg v1.0 (using IJG JPEG v62), quality = 90


    I think you may have left out the email prior to this one which says the Amazon was already paying the publishers $12.99, but then turning around and reselling at $9.99 for a loss. 

     

    http://qz.com/87184/the-steve-jobs-emails-that-show-how-to-win-a-hard-nosed-negotiation/

     

    Look at all three points above.

    #1.  This means, Apple buys books for $9.99 and resells for $12.99.  30% cut.  The word "real" market is important. Meaning the current $9.99 selling prices on Amazon is NOT real. Its a price sold at a loss. 

    #2.  Amazon is buying books for $12.99 but resells for $9.99.  30% loss. We already know this. This is what Steve means buy Publishers are making more money in the "short term".  They are currently getting $12.99 from Amazon, but would only get $9.99 from Apple. Steve, ask.. what happens when Amazon has monopoly and decide to actually make a 30% profit instead of a loss due to share holders in the long term.    Read #2 carefully.  Ask yourself the question. What is Amazon paying now?  Why does Steve say that they have shareholders too? 

    #3. This means you can't cut out Amazon and raise prices too high with Apple. This is why Steve recommends only paying the publishers $9.99 to resell at $12.99.. because any higher would cause piracy.

     

    The fact of the matter is Amazon can resell the books for any price they like at a loss. No one is stopping them, not even the most favor nations clause.  

  • Reply 13 of 49
    wood1208wood1208 Posts: 1,566member
    Hope Apple get to present case to supreme court and revert the lower court decision. Amazon is a monopoly in e-books.
  • Reply 14 of 49
    froodfrood Posts: 771member
    Quote:
    Originally Posted by sog35 View Post

     

    "Negotiations prior to the iBooks Store launch in 2010 led to publishers adopting an agency model, and Apple winning "most favored nation" status, such that e-book prices elsewhere could be no lower than its own."

     

    if true than Apple deserves to get fined.  Or am I wrong?  


     

    The scheme was pure Steve Jobs and quite brilliant.  Books were selling for $9.99   Apple would be *guaranteed* 30% of the take so they told publishers to raise prices to around $12.99  This really didn't help publishers all that much since Apple took such a big rake.  The key to the MFN was that now since the Apple price was $12.99, the price *had* to be raised to no lower then that at the competitions sites as well.  So Amazon and all others would have to be at a minumum of $12.99 as well.  The catch was that all those sites did not get the 30% guaranteed rake that Apple got so publishers would make a killing at all sites other than Apple. 

     

    Apple and the publishers would win.  The competition and the general public would lose.

     

    The DOJ stepped in very quickly and almost immediately the publishers recognized that they were not going to get away with the plan and market prices began to decline shortly after they complied.

     

    The chart about halfway through this article is pretty compelling, http://www.businessinsider.com/why-its-insane-that-no-one-cares-about-apples-price-fixing-conspiracy-2013-7 as ebook pricing across the entire market jumped by 30% literally on the day Apple entered the market (other than the one major publisher who didn't go along with Steve's plan, or the small fish who didn't get invited to the party).

     

    That chart is likely to be the toughest hurdle Apple would have to overcome.  Usually more players entering the market- especially major ones- result in more competition and lower prices to consumers.  Apple did make a 'bold entry' into the market as they claim- but their entry was harmful, not beneficial, to consumers.  Once the scheme was disrupted, ebook prices again started to fall and even more entrants have since entered the market indicating both that there is money to be made and no monopoly existed.

     

    Apples entry into the market, minus its fancy footwork, is indeed actually a good thing.

     

    Unfortunately the DOJ was a little overzealous and instead of just a fine applied a more intrusive penalty to Apple, but with their market clout I guess the fear was that books was just the start and they may have been looking to apply their ebook method to other markets as well.

     

    It has little chance of being picked up by the Supreme Court, but that is a good thing for Apple because if it were they would have little chance of success.

  • Reply 15 of 49
    snovasnova Posts: 1,281member
    Quote:
    Originally Posted by Frood View Post

     
    Quote:
    Originally Posted by sog35 View Post

     

    "Negotiations prior to the iBooks Store launch in 2010 led to publishers adopting an agency model, and Apple winning "most favored nation" status, such that e-book prices elsewhere could be no lower than its own."

     

    if true than Apple deserves to get fined.  Or am I wrong?  


     

    The scheme was pure Steve Jobs and quite brilliant.  Books were selling for $9.99   Apple would be *guaranteed* 30% of the take so they told publishers to raise prices to around $12.99  This really didn't help publishers all that much since Apple took such a big rake.  The key to the MFN was that now since the Apple price was $12.99, the price *had* to be raised to no lower then that at the competitions sites as well.  So Amazon and all others would have to be at a minumum of $12.99 as well.  The catch was that all those sites did not get the 30% guaranteed rake that Apple got so publishers would make a killing at all sites other than Apple. 

     


    no. I believe you are mistaken.  The most favored nation clause was about the SELLING price from Publisher to the RESELLER.  NOT the final price to the consumer.   It was about Apple paying the SAME lowest price to the publishers as anyone else.  That price was $9.99.  Which was LOWER than what the publishers were already charging Amazon.   They were charging Amazon $12.99 to buy the book from the publisher. Amazon was turning around and selling the book for $9.99 at a $3 loss.   Steve warned them that a $9.99 eBook market (i.e. final price to the consumer), that is not a "real" market. i.e. because Amazon is taking a loss.  Eventually Amazon will switch gears and expect to keep selling at $9.99, but will move from taking a $3 loss to a $3 profit. Forcing publisher to make a lot less later.

    This is why Steve says

     "2. Keep going with Amazon at $9.99. You will make a bit more money in the short term, but in the medium term Amazon will tell you they will be paying you 70% of $9.99. They have shareholders too. "

     

    most favor nations clauses does not prevent Amazon from continuing to sell books at a loss.

  • Reply 16 of 49

    One positive thing we all learned from Samsung is ... Appeal ... Appeal ... and ... Appeal!

    :smokey:

  • Reply 17 of 49
    snovasnova Posts: 1,281member
    Quote:
    Originally Posted by Disturbia View Post

     

    One positive thing we all learned from Samsung is ... Appeal ... Appeal ... and ... Appeal!

    :smokey:




    lol.. yup.  The US Justice system is a joke.... its like watching a soap opera. I'm wondering how far up the corruption goes.  So far I have been very pleased with the Supreme Court and Appeals Court. Lets see what happens. 

     

    btw, great signature.  I concur on all points. 

  • Reply 18 of 49
    snovasnova Posts: 1,281member

    Some of you may recall that the agency model blackouts agreements have expired now with most of the major publishers.  Looking at the best sellers (eBooks) on Amazon, I noticed that most now say "This price was set by the publisher".  Some priced below $9.99 and others above.  The prices are identical on the iBooks store.  I suspect the same in other eBook stores. Printed copies don't seem to have this type of agreement, just eBooks.

     

     I guess in the end publishers had enough of Amazon's antics and being dragged through the mud with the DoJ.  After some patience, looks like they finally got enough nerve to force the agency model upon Amazon for eBooks. DoJ fines and lawsuits behind them. Good to see the publisher's finally grew some. Too bad Apple got dragged into this mess.  

     

    So what do we got now.  Publisher's setting prices via agency model and Apple getting their 30% cut regardless of price?

    All the drama..fines.. headlines..... and in the end the result is the same.

  • Reply 19 of 49
    snova wrote: »
    no. I believe you are mistaken.  The most favored nation clause was about the SELLING price from Publisher to the RESELLER.  NOT the final price to the consumer.   It was about Apple paying the SAME lowest price to the publishers as anyone else.  That price was $9.99.  Which was LOWER than what the publishers were already charging Amazon.   They were charging Amazon $12.99 to buy the book from the publisher. Amazon was turning around and selling the book for $9.99 at a $3 loss.   Steve warned them that a $9.99 eBook market (i.e. final price to the consumer), that is not a "real" market. i.e. because Amazon is taking a loss.  Eventually Amazon will switch gears and expect to keep selling at $9.99, but will move from taking a $3 loss to a $3 profit. Forcing publisher to make a lot less later.
    This is why Steve says
     "2. Keep going with Amazon at $9.99. You will make a bit more money in the short term, but in the medium term Amazon will tell you they will be paying you 70% of $9.99. They have shareholders too. "

    most favor nations clauses does not prevent Amazon from continuing to sell books at a loss.

    No, you're wrong. The MFN was about the selling price to the consumer, due to the agency model. The agency model dictated that publishers set the price at the reseller's store front, and the MFN clause guaranteed that no one else could sell for less than Apple.

    That's why Apple lost this case, because they were guilty. It's why they lost the appeal, and it's why the Supreme Court will not hear the case. There's no grey area.
  • Reply 20 of 49
    snova wrote: »
    no. I believe you are mistaken.  The most favored nation clause was about the SELLING price from Publisher to the RESELLER.  NOT the final price to the consumer.   It was about Apple paying the SAME lowest price to the publishers as anyone else.  That price was $9.99.  Which was LOWER than what the publishers were already charging Amazon.   They were charging Amazon $12.99 to buy the book from the publisher. Amazon was turning around and selling the book for $9.99 at a $3 loss.   Steve warned them that a $9.99 eBook market (i.e. final price to the consumer), that is not a "real" market. i.e. because Amazon is taking a loss.  Eventually Amazon will switch gears and expect to keep selling at $9.99, but will move from taking a $3 loss to a $3 profit. Forcing publisher to make a lot less later.
    This is why Steve says
     "2. Keep going with Amazon at $9.99. You will make a bit more money in the short term, but in the medium term Amazon will tell you they will be paying you 70% of $9.99. They have shareholders too. "

    most favor nations clauses does not prevent Amazon from continuing to sell books at a loss.

    Yes, the MFN Clause DID prevent Amazon from selling ebooks at $9.99. It prevented them from setting their own prices, and forced them to sell no lower than the price Apple set. That is price fixing.
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