Apple Faces Uphill Fight in Ebook Price-Fixing Trial

By Wayne Rash  |  Posted 2013-06-04

Apple Faces Uphill Fight in Ebook Price-Fixing Trial

Apple appears to be fighting an uphill battle against the U.S. Department of Justice in a price-fixing case stemming from the introduction of the iPad in competition with a variety of e-readers.

The DOJ's complaint against Apple and several book publishers alleges that Apple and the book publishers wanted higher profit and conspired to raise prices at the expense of ebook buyers and over the objections of online retailers such as Amazon.  

Apple is already on record as calling the government's case "bizarre." But Apple quickly settled when the European Union brought its own price-fixing charges. In the trial being held in the U.S. District Court for the Southern District of New York, the judge in the case, Denise Cote, has already told Apple that she expects the DOJ to prevail, but allowed Apple to present its case.

A significant portion of the government's case against Apple is drawn from the company's own email conversations, obtained by the DOJ in an e-discovery operation. The DOJ included many of the emails in a slide show that it presented as part  of its opening trial statement on June 3.

Some of the emails include warnings to find ways to hide activities from the government, including a warning from executives at one publisher to "double-delete" the email in which the book companies conspired to withhold ebooks from publication as a way to raise prices.

Worse, Apple's late founder and CEO Steve Jobs seems to have admitted that he had conspired with publishers to raise prices, adding that this is what the publishers wanted anyway. During the period of time in which the alleged price-fixing occurred, book publishers were complaining among themselves that Amazon's normal $9.99 prices for ebooks was too low, but had been unable to find a way to overcome that. Apple was the vehicle that the publishers used to accomplish a price increase by insisting on a model for selling books that let publishers set the retail prices.

For its part, Apple is trying to get the DOJ evidence thrown out by claiming that Steve Jobs is unable to respond and that the government needs someone to "sponsor" each piece of evidence that the government wants to use. However, it's worth noting that Jobs' death is not relevant to the trial since it is Apple that's on trial, and not Jobs. Because Jobs was an employee of the corporation, the company is the responsible party.

Apple is also suffering from a few other legal disadvantages that make its battle harder than it might otherwise be. In addition to having already settled with the European Union, which was partnering with the U.S. in the antitrust case, Apple's co-defendants have also settled with the U.S.

Apple Faces Uphill Fight in Ebook Price-Fixing Trial

This means that not only won't Apple won't get any help from them, but the company will have to sit quietly while its alleged co-conspirators testify for the government.

The government's case appears to be very strong, and Apple's efforts to have the evidence thrown out because of Jobs' death seem doomed to fail. This means that Apple will have to proceed on the merits of its case, which is claiming that the whole price-fixing scheme to raise ebook prices by approximately $3 to $5 was all the publishers' idea and that Apple had nothing to do with it.

Unfortunately, it seems clear from the evidence that the government is presenting that Apple had contact with the publishers and did discuss pricing. In addition, it's clear that Apple discussed Amazon's pricing with the publishers, and it's clear that Jobs himself was in communication with those publishers about pricing. What Apple isn't talking about is that antitrust law is very clear on what constitutes illegal price-fixing, and all it takes is the discussion of prices among the parties involved.

It seems likely that Apple is willing to bear the expense of the trial and even a long, drawn-out appeal process in hopes that it can outlast the government and get a better deal on potential penalties and fines than if it quickly came to terms with the Justice Department without a trial.

After all, the company has billions in cash lying around doing nothing but earning interest and dividends. But it's also worth noting that many of the defendants in big antitrust cases, and especially in price-fixing cases, are also large corporations. But Apple's stubbornness is still surprising, given that the history of price-fixing litigation shows that the government almost always wins.

There are reasons the government wins, the biggest of which is that the DOJ doesn't go to trial unless it's virtually certain that it will win. Other price-fixing cases usually go to a negotiated settlement. In this case, the judge has already urged Apple to settle, and she has said that she believes the government will prevail. Apple is pinning its hopes on some tenuous ideas that run contrary to the law and the practice of the courts.

Apple has made a number of statements about the government's case that seem to speak more toward the company's arrogance than about legal realities. This is no surprise since arrogance has been Apple's hallmark for years.

Unfortunately, such arrogance is not going to convince the Justice Department or the court that Apple is innocent. The DOJ quite simply eats arrogance for lunch. Apple can spend a lot of money, complain loudly and make outrageous statements, and proclaim its innocence. But the communications of its executives are all that the court needs.

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