Apple Fighting Ebook Price-Fixing Charges: 10 Issues in the Case

 
 
By Don Reisinger  |  Posted 2013-06-03
 
 
 

Apple Fighting Ebook Price-Fixing Charges: 10 Issues in the Case


Apple is defending itself against charges that it engaged in a price-fixing scheme with book publishers to effectively limit competition in the ebook market and become a dominant force in the sale of digital books across mobile platforms.

The antitrust trial started June 3 in U.S. District Court in Manhattan with opening statements from Apple and U.S. Justice Department lawyers.

Several book publishers were included in the original lawsuit the Department of Justice brought against Apple. A large number of them have simply settled with the government rather than spend cash on a costly trial. Apple, though, has held out, saying that it did nothing wrong, and would like its day in court to prove that. Whether Apple will be able to make that case effectively and win its judgment against the Department of Justice remains to be seen.

But what should members of the ebook-buying public know about the case? Here are some of the issues.

1. Apple has little help from publishers

When this kerfuffle started, Apple was named in the lawsuit along with several prominent book publishers, including Penguin, Simon & Schuster and others. However, those companies have all settled the case, leaving Apple to defend the case on its own. After all, if they're already out of it, why would they want to help the iPhone maker?

2. Steve Jobs didn't help matters

Steve Jobs might have been the chief reason Apple is in such trouble right now. When Jobs (who passed away in 2011) was running Apple, he sent an email to a book publisher discussing setting prices. He told the author of his biography that he held discussions with book publishers about the so-called "agency model, where [publishers] set the price, and we get our 30 percent, and yes, the customer pays a little more, but that's what you want anyway." That's not good for Apple.

3. The judge doesn't seem too confident in Apple's defense

Judge Denise Cote, who's presiding over the case, doesn't seem all that confident in Apple's defense. In fact, in a pretrial brief, she wrote that she believes the U.S. government "will be able to show at trial direct evidence that Apple knowingly participated in and facilitated a conspiracy to raise prices of ebooks."

4. Amazon was previously selling ebooks for less

The issue at play is the aforementioned agency model. Under that model, booksellers must sell titles at a price set by publishers. Prior to its establishment, Amazon was the top ebook seller in the market because it set its own prices. Publishers would then get a piece of whatever it brought in. Apple and the publishers allegedly changed that to generate more revenue.

Apple Fighting Ebook Price-Fixing Charges: 10 Issues in the Case


5. Amazon was the target of that alleged scheme

Although Apple hasn't said so, it's believed that the company and the publishers were deeply concerned with Amazon's dominance in the ebooks market, leading to their working together. Amazon, in other words, was the target of the scheme. And Apple and the publishers wanted nothing more than to end Amazon's dominance in ebooks.

6. Apple has the cash to battle for a while

There's a good chance that the Apple ebooks lawsuit will go on for quite some time.

Apple has said time and again that it believes it's innocent, and if it happens to lose this case, it will undoubtedly appeal to a higher court. It will likely keep appealing even if it loses in the first round. Why? It has the cash to pay for a long, drawn-out case. Why wouldn't it use it?

7. Apple hasn't really proven its side yet

There appears to be a sense in the marketplace that Apple, based on comments made by Jobs and others, was truly to blame for the issue. However, it's worth noting that Apple has yet to publicly defend itself. There might be much more to this case that the public doesn't know, and now Apple has its chance to present its side of the story.

8. The fines could be huge

When the book publishers settled with the government and state attorneys general around the U.S., they paid a relatively paltry sum of cash to get out of the suit. For Apple, though, the fines and penalties related to the lawsuit could be huge. Apple is taking a big, costly risk by going to court.

9. The judge has asked Apple to settle

If the case were up to Judge Cote, it would have never gotten this far. In a pretrial statement on the case, Judge Cote asked that Apple settle the case rather than bring it to a trial. She indicated that it would be in the best interests of all parties—including Apple and the court—to settle and be done with the case. Apple declined.

10. Apple might have been placating publishers

It's hard to say what motivated Apple to get involved in pricing with ebooks, but based on Steve Jobs' correspondence, it might have had more to do with placating publishers than actually generating a boatload of cash for itself. The publishers were scared of Amazon, it seems, and Apple wanted to play a part in ebook sales. In order to do that, it had to play ball with publishers. And it appears it might have played ball.

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