U.S. takes Apple to trial over e-books price-fixing

ipad technology
The ubiquitous iPad.
Credit: Getty Images

Apple Inc. goes to trial Monday over allegations by federal and state authorities that it conspired with publishers to raise the price of e-books.

The trial pits the maker of the popular iPad and iPhone against the U.S. Justice Department in a case that tests how Internet retailers interact with content providers.

“This case will effectively set the rules for Internet commerce,” said David Balto, a former policy director for the U.S. Federal Trade Commission.

The Justice Department filed its case against Apple and five of the six largest U.S. book publishers in April 2012. The lawsuit accused them of conspiring to increase e-book prices and break Amazon.com Inc’s hold on pricing.

Apple is going to trial alone after the five publishers agreed to eliminate prohibitions on wholesale discounts and to pay a collective $164 million to benefit consumers.

The five publishers were Pearson Plc’s Penguin Group, News Corp’s HarperCollins Publishers Inc, CBS Corp’s Simon & Schuster Inc, Hachette Book Group Inc and MacMillan.

The U.S. government is not seeking damages but instead an order blocking Apple from engaging in similar conduct. However, if Apple is found liable, it could still face damages in a separate trial by the state attorneys general and consumers pursuing class actions.

‘DIRECT EVIDENCE’

Based on a comment by the presiding judge at the final hearing before the trial, Apple may face an uphill battle.

“I believe that the government will be able to show at trial direct evidence that Apple knowingly participated in and facilitated a conspiracy to raise prices of e-books,” U.S. District Judge Denise Cote, who is hearing the case without a jury, said on May 23.

While those comments suggested Apple might be smart to seek a settlement, Chief Executive Tim Cook said in an interview Tuesday with All Things Digital that Apple was “not going to sign something that says we did something we didn’t do.”

Apple may be calculating that future damages claims by states and class actions make it worth going to trial, said John Lopatka, a law professor at Pennsylvania State University.

“Apple might think, ‘We may lose at the trial level, but we may well convince an appellate court the trial judge mischaracterized the evidence,” Lopatka said.

‘MARKET IN TURMOIL’

Neither side disputes that in 2009 publishers were concerned about low prices for e-books resulting from the dominance of Amazon.com, which launched its Kindle e-reader in 2007.

As it prepared to launch its iPad and was looking into opening an electronic bookstore, Apple has said it was entering a “market in turmoil,” with growing tension between the publishers and Amazon.

Amazon, which declined comment, was selling 90 percent of all e-books in 2009. It was buying books wholesale and at times selling them at a loss, pricing them at $9.99, with the goal of promoting its Kindle.

The Justice Department contends that Apple’s entry into the market provided publishers with a means to get together to increase prices.

At the suggestion of Hachette and HarperCollins, the government says Apple began considering an agency model in which publishers set the price and Apple took a fixed percentage.

Former Apple CEO Steve Jobs, who died in 2011, told his biographer that, “we told the publishers, ‘We’ll go to the agency model, where you set the price, and we get our 30 percent, and yes, the customer pays a little more, but that’s what you want anyway.’”

The Justice Department said Apple provided assurances to publishers their rivals would join.

Apple says that it was unaware of efforts by the publishers to conspire before it entered the marketplace, and said when it did, it act independently.

It also contends that in the wake of its introduction of the iBookstore, prices have fallen rather than risen from $7.97 on average to $7.34.

BIGGER ISSUE

For the Justice Department, many of its goals have been accomplished, thanks to the settlements with publishers, which lifted restrictions on discounting and promotions by e-book retailers. Those deals have already lowered prices for consumers, the department says.

But the government may be aiming at a bigger issue, said Geoffrey Manne, a law professor at Lewis & Clark Law School.

Among other things, the government lawsuit seeks to declare that certain provisions in the agreements between Apple and the publishers are unenforceable.

These provisions, known as most-favored-nation clauses, provided that if other e-bookstores sold the books at cheaper prices, then Apple could reduce its prices. The government has said this provided an incentive for the publishers to raise prices at other retailers.

Similar types of most-favored nation clauses have been central in other content industries such as music and television where content providers have a role in setting the price. They have also become a discussion point in certain antitrust communities, Manne said, and a government win could “send a pretty strong message” about their use.

“If the government wins this case, it would be because the court for some reason determines that most-favored-nation clauses are more harmful to competition than helpful,” he said.

The case is United States v. Apple Inc et al, U.S. District Court, Southern District of New York, No. 12-02826.

 



News
Entertainment
Sports
Lifestyle
Local

Gunther from 'Friends' talks Central Perk

We spoke with Gunther (James Michael Tyler) at the preview for new pop-up Central Perk, based on the cafe in "Friends."

Local

Central Perk opens in SoHo

Central Perk, of "Friends" fame, is giving out free coffee in SoHo through Oct. 18.

National

Beer sponsor Anheuser-Busch reproaches NFL over domestic abuse

Anheuser-Busch chastised the NFL for its handling of domestic violence cases, making it the first major advertiser to put pressure on the league.

Local

Sen. Krueger dishes on prospect of legal marijuana…

New Yorkers may see the legalization of recreational marijuana use as early as 2015 if State Senator Liz Krueger (D) gets her way. The Marijuana Regulation and Taxation Act will…

Music

FREEMAN makes Freeman a free man from Ween

For nearly 30 years, Aaron Freeman was known endearingly to his listeners as Gene Ween. But with "FREEMAN," he makes it clear that he's gone somewhere else.

Television

'Outlander' recap: Season 1, Episode 6: 'The Garrison…

Whipping, punching, kicking and a marriage contract. "Outlander" is not for the faint of heart this week with "The Garrison Commander."

The Word

The Word: Hey girl, it's a girl for…

It's a girl for Ryan Gosling and Eva Mendes, who reportedly welcomed a daughter last Friday, according to Us Weekly. The super-private couple managed to…

Television

TV watch list, Tuesday, Sept. 16: 'New Girl,'…

Check out the season premiere of "New Girl," as Jess competes with Jessica Biel for a guy's attentions.

MLB

5 top contenders for NL Rookie of the…

The outing rekindled award talk for deGrom, who appears to hold the top spot for NL Rookie of the Year honors. Metro breaks down a few other contenders.

College

College football Top 25 poll (AP rankings)

College football Top 25 poll (AP rankings)

NFL

Tom Coughlin says Giants 'beat themselves' against Cardinals

Head coach Tom Coughlin, who had a day to cool off and reflect, still sounded like he had a gnawing feeling in his gut.

NFL

Marty Mornhinweg accepts blame for Jets timeout fiasco

Jets fans looking for a scapegoat for Sunday’s timeout fiasco found a willing party on Monday: Marty Mornhinweg.

Style

Rachel Zoe: New York Fashion Week Spring 15

Rachel Zoe goes 'Glam bohemia' for Spring.

Food

Where to find SweeTango apples

Introduced in 2009, SweeTango — a hybrid of Honeycrisp and Zestar — is a sweet apple with plenty of crunch.

Style

London Fashion Week recap

London Fashion week gets in on the action with politics, heritage and summertime living.

Food

Padma Lakshmi's recipe for green mango curry

Padma Lakshmi shares her recipe for green mango curry in UNICEF's new book, "UNICHEF."