Apple iPad eBooks

Photograph by Johan Larsson

Apple has been found guilty of conspiring to raise ebook prices and has been ordered to face a trial on damages. With every involved publisher having previously settled with the Justice Department, this was perhaps a foregone conclusion, especially considering the presiding judge had noted pre-trial that Apple’s defense was likely to fail.

The decision by U.S. District Judge Denise Cote in Manhattan is a victory for the U.S. Department of Justice and 33 U.S. states that brought the antitrust case.

Cote said the plaintiffs presented “compelling evidence” that Apple violated the federal Sherman antitrust law by playing a “central role” in a conspiracy with five major publishers to eliminate retail price competition and raise e-book prices.

“Apple chose to join forces with the publisher defendants to raise e-book prices and equipped them with the means to do so,” the judge wrote in a 159-page decision. “Without Apple’s orchestration of this conspiracy, it would not have succeeded as it did.”

Judge Cote directly addressed the “well, what about Amazon?” question that has sprung from the lips of Apple’s defenders (both in court and out), as well as by several of the publishers. (Nevermind the fact that publishers are still paid in full while Amazon sells ebooks at a loss, at least for now.)

Apple’s argument that the debut of the iPad and its accompanying iBookstore would result inactual market competition was addressed thusly:

If Apple is alluding to the fact that Amazon’s Kindle bookstore was the dominant e-retailer for books in 2009, and that the arrival of the iBookstore created another e-retailer, that is true. But, as this Opinion explains, Apple demanded, as a precondition of its entry into the market, that it would not have to compete with Amazon on price. Thus, from the consumer’s perspective — a not unimportant perspective in the field of antitrust — the arrival of the iBookstore brought less price competition and higher prices.

As Cote states, competition in the marketplace isn’t served by uncompetitive practices. While publishers may have welcomed a competitor that would assist them in raising retail prices, the end result for consumers (the true beneficiaries of anti-trust laws) would be higher, more static prices.

Continuing on from this point, Cote addresses the insinuation that Amazon is engaging in unfair market practices, or Apple’s “two wrongs make a right” argument.

If Apple is suggesting that Amazon was engaging in illegal, monopolistic practices, and that Apple’s combination with the Publisher Defendants to deprive a monopolist of some of its market power is pro-competitive and healthy for our economy, it is wrong. This trial has not been the occasion to decide whether Amazon’s choice to sell NYT Bestsellers or other New Releases as loss leaders was an unfair trade practice or in any other way a violation of law. If it was, however, the remedy for illegal conduct is a complaint lodged with the proper law enforcement offices or a civil suit or both. Another company’s alleged violation of antitrust laws is not an excuse for engaging in your own violations of law. Nor is suspicion that that may be occurring a defense to the claims litigated at this trial.

In other words, you don’t fight a monopoly by fixing prices.

Of course, Apple is planning on appealing the decision.

Apple spokesperson Tom Neumayr has said the company, unsurprisingly, plans to appeal. “Apple did not conspire to fix ebook pricing and we will continue to fight against these false accusations,” he said in a statement to The Verge. “When we introduced the iBookstore in 2010, we gave customers more choice, injecting much needed innovation and competition into the market, breaking Amazon’s monopolistic grip on the publishing industry. We’ve done nothing wrong and we will appeal the judge’s decision.”

In the meantime, the settling publishers have already agreed to cease agency pricing for two years and are barred from setting up “most favored nation” agreements. This still allows for plenty of price flexibility and it has yet to show the downward trend the publishers declared “inevitable” as a result of the Justice Department’s actions. If the appeal fails, Apple will be faced with 33 states seeking fines as well as any damages awarded.

Written by Tim Cushing

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