Judge rules Apple did fix e-book prices

A federal judge in America has ruled that Apple conspired to raise the retail prices of e-books, suggesting that Apple's chief negotiator Eddie Cue was not "credible" as a witness. A further trial for damages will now ensue, though Apple has said it would appeal the decision.

In a three-week trial, the Department of Justice in the US had been seeking to prove that Apple colluded with major publishers HarperCollins, Simon & Schuster, Penguin and Macmillan to fix the price of e-books, which Apple had denied.

The verdict, delivered today (10th) by District Judge Denise Cote in Manhattan, was a victory for the US government and various states, which the judge said were entitled to injunctive relief. The verdict read: "The Plaintiffs have shown that the Publisher Defendants conspired with each other to eliminate retail price competition in order to raise e-book prices, and that Apple played a central role in facilitating and executing that conspiracy.Without Apple’s orchestration of this conspiracy, it would not have succeeded as it did in the Spring of 2010."

Judge Cote continued: “There is, at the end of the day, very little dispute about many of the most material facts in this case. Before Apple even met with the first Publisher Defendant in mid-December 2009, it knew that the 'Big Six' of United States publishing – the Publisher Defendants and Random House…wanted to raise e-book prices, in particular above the $9.99 prevailing price charged by Amazon for many e-book versions of New York Times bestselling books and other newly released hardcover books. Apple also knew that Publisher Defendants were already acting collectively to place pressure on Amazon to abandon its pricing strategy. At their very first meetings in mid-December 2009, the Publishers conveyed to Apple their abhorrence of Amazon’s pricing, and Apple assured the Publishers it was willing to work with them to raise those prices, suggesting prices such as $12.99 and $14.99.”

Cote said that over the course of negotiations in December 2009 and January 2010, Apple and the publishers “educated one another about their other priorities.” She said Apple would only announce its new iBookstore when it launched on iPad in January 2010 if it had agreements in place with publishers by that date, so it could be sure of making a profit.

“For their part, if the Publisher Defendants were going to take control of e-book pricing and move the price point above $9.99, they needed to act collectively; any other course would leave an individual Publisher vulnerable to retaliation from Amazon,” Cote said. She added that “Apple seized the moment and brilliantly played its hand. 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 27th.” The agency agreements which were then formed also included a Most-Favored-Nation clause (“MFN”), Cote said, which imposed a severe financial penalty upon publishers if they did not force Amazon and other retailers to change their business models. Cote said that Apple told the publishers; “There is no one outside of us that can do this for you. If we miss this opportunity, it will likely never come again.”

The agency agreement resulted in e-book prices shifting upwards, “in some cases 50% or more for an individual title,” Cote found. She said: “Virtually overnight, Apple got an attractive, additional feature for its iPad and a guaranteed new revenue stream, and the Publisher Defendants removed Amazon’s ability to price their e-books at $9.99.”

And she concluded: "Apple is liable here for facilitating and encouraging the Publisher Defendants’ collective, illegal restraint of trade.  Through their conspiracy they forced Amazon (and other resellers) to relinquish retail pricing authority and then they raised retail e-book prices. Those higher prices were not the result of regular market forces but of a scheme in which Apple was a full participant."

Assistant attorney general Bill Baer said in a statement that Judge Cote's ruling "is a victory for millions of consumers who choose to read books electronically." He added: "Companies cannot ignore the antitrust laws when they believe it is in their economic self-interest to do so. This decision by the court is a critical step in undoing the harm caused by Apple’s illegal actions."

Apple spokesperson Tom Neumayr said in a statement: "Apple did not conspire to fix e-book pricing and we will continue to fight against these false accusations . . . 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."