The problems for Apple started in 2012 when the Department of Justice filed an antitrust complaint against Apple and six major book publishers regarding an ebook price-fixing conspiracy. The complaint stated in 2010 the iBookstore was introduced and an agency price modeling point was used for the online ebook store, which coerced and conspired fixed-pricing.
Publishers were tired of Amazon’s dominance in the market place, where return on investment margins were slim, many losing money in the process. They approached Apple to promote and grab a lionshare of the market, by raising the price of books. Books sold on average for $9.99 on Amazon were found on iBookstore for $3 to $4 more. In addition to Apple bumping these price points, they demanded the publishers put the same price tag on every other ebook store.
Judge Denise Cote delivered her ruling earlier this week, “Apple played a central role in facilitating and executing that conspiracy. Apple seized the moment and brilliantly played its hand. Through the vehicle of the Apple agency agreements, the prices in the nascent e-book industry shifted upward, in some cases 50 percent or more for an individual title.” A decision Apple is now appealing, as they claim no wrong-doing and deny any aspect of a conspiracy.
Shortly after the decision, Apple’s spokesman Tom Nuemayr stated, “Apple did not conspire to fix e-book pricing and we will continue to fight against these false accusations.” The case has been intriguing from start to finish.
Throughout the trial, Apple’s Senior Vice President took the stand and denied that Apple had forced any publishers to increase the price. He referred to the case as “bizarre” and called the evidence presented by the DOJ “ambiguous at best.” This of course came after each publishing partner quietly reached out of court settlements with the courts. Only Apple was left to defend itself against the price-fixing allegations.
Out of the six publishers, Penguin Group and HarperCollins didn’t want to agree to Apple’s price caps, but Apple reportedly, strong-armed the decisions and the publishing firms relented. In doing so, publishers were able to turn around and demand from Amazon a switch from ‘name your price’ to the agency pricing model. Had Amazon disagreed, publishers threatened to remove their ebooks from their catalog.
Amazon switched the platform to the agency modeling after threats from publishers forced them to do so. In a positive move for Amazon, the lawsuit states publishers and ebook stores will have to end the agency pricing model for two years.
The basis of the appeal by Apple is still unknown, as is the settlement to consumers due to the price-fixing. Apple states they will continue their fight to the 2nd Circuit Court of Appeals.
The electronics leader states they did not conspire or coerce publishers to raise prices. Apple maintains they offered an alternative for publishers exhausted with Amazon’s wholesale pricing, and allowed flexibility to publishers to set their own prices.
Judge Cote disagreed and suggested the DOJ does have sufficient evidence to diminish the appeal process. “The question in this case has always been a narrow one: whether Apple participated in a price-fixing scheme in violation of this country’s antitrust laws,” Cote wrote. “Apple is liable here for facilitating and encouraging the Publisher Defendants’ collective, illegal restraint of trade.”
Apple will review the decision for now and regroup to appeal the conspiracy decision handed down by the court. In addition, their attorneys are questioning the way Judge Cote offered a biased view before the case began. Either way, the next year will be an interesting one to watch for Apple and the ebook markets.