Apple Guilty in Ebook Price-Fixing Conspiracy

By Jeffrey Burt  |  Posted 2013-07-10

Apple Guilty in Ebook Price-Fixing Conspiracy

Apple conspired with five publishers to fix the prices of ebooks when the technology giant entered the Amazon-dominated market in 2010, according to a federal judge.

U.S. District Court Judge Denise Cote's July 10 ruling came after a three-week trial in June, during which federal prosecutors argued that Apple played a central role in a conspiracy with the publishers to drive up the prices of ebooks beyond the $9.99 set by Amazon, the dominant ebook seller at the time.

Cote said the federal government and several states that acted as plaintiffs in the case were entitled to injunctive relief. The date for a trial to determine damages will be set later.

In her 160-page ruling, the judge rejected claims by Apple's attorneys that the consumer tech giant should not be held responsible for any price fixing that the publishers may have done, and that Apple executives were unaware that the publishers—after meeting with Apple regarding ebooks and the company's upcoming iPad tablet—threatened to withhold books from Amazon.

"Without Apple's orchestration of this conspiracy, it would not have succeeded as it did in the Spring of 2010," Cote wrote. "Apple and the Publisher Defendants shared one overarching interest—that there be no price competition at the retail level. Apple did not want to compete with Amazon (or any other ebook retailer) on price; and the Publisher Defendants wanted to end Amazon's $9.99 pricing and increase significantly the prevailing price point for ebooks. With a full appreciation of each other's interests, Apple and the Publisher Defendants agreed to work together to eliminate retail price competition in the ebook market and raise the price of ebooks above $9.99."

The judge noted that publishers had been grating on Amazon's $9.99 pricing for many top best sellers and had been pushing the online retail giant to increase prices. Amazon officials pushed back against the pressure, and publishers feared retaliation if they threaten to withhold books from Amazon, which had begun selling ebooks in 2007 with the introduction of its Kindle e-reader.

However, Apple's desire to announce an iBookstore at the same time it unveiled the iPad in January 2010 changed the dynamic. According to Cote, Apple executives approached the publishers and worked with them to find a way to increase the price of ebooks from $9.99 to $12.99 to $14.99. They also helped change the model used for selling ebooks, moving away from a wholesale model—where the retailer sets the price—to an agency model, where the publisher sets the price and the retailer gets a percentage cut on the books sold.

After entering the deal with Apple, the booksellers moved all of their retailers to an agency model.

"Apple seized the moment and brilliantly played its hand," Cote wrote. "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 … Apple garnered the signatures it needed to introduce the iBookstore at the Launch. … Apple not only willingly joined the conspiracy, but also forcefully facilitated it."

Apple has yet to comment on the decision.


Apple Guilty in Ebook Price-Fixing Conspiracy

The five publishers charged in the case—Hachette Book Group, Macmillan, HarperCollins, Penguin Group and Simon & Schuster—all reached settlements with the federal government and the states involved. However, Apple officials decided to go to trial.

Evidence in the trial painted an aggressive Apple whose executives first met with the publishers in mid-December 2009 and negotiated hard with the book companies to come up with a way to drive up ebook prices. Apple wanted to use the 2010 launch of the iPad as the vehicle for announcing its iBookstore, and wanted the online store to be well-stocked. They also wanted to ensure price parity, so that Apple wouldn't need to compete with Amazon prices.

By 2009, Amazon sold 90 percent of all ebooks, giving it considerable sway on pricing in a market that Apple officials felt could grow to $1 billion by 2010. Just over a month after the first meeting with publishers, Apple had all its agreements with them in place. In speaking with a reporter at the launch event for the iPad, then-Apple CEO Steve Jobs—who had bought an ebook for $14.99 to show the audience how easy it was—said that book prices at Apple and Amazon would be the same.

"Publishers are actually withholding their books from Amazon because they are not happy," he told the reporter, according to the evidence.

The judge noted that Jobs' statement was among a large amount of evidence regarding Apple's role in the push to increase ebook prices.

"Working against its own internal deadline, Apple achieved for this industry in a matter of weeks what the Publisher Defendants had been unable to accomplish for months before Apple became their partner," Cote said.


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