Apple’s Appeal Of E-Book Price-Fixing Verdict May Hinge On Court’s View Of Amazon

While all of its alleged co-conspirators have settled and begun the process of atoning for the price-fixing sins they have not legally admitted to committing, and even though it was found guilty of its part in the arrangement in 2013, Apple is still fighting to clear its name. Today, the electronics company once again squared off against federal prosecutors, trying to make the claim that Apple was actually trying to help break up Amazon’s monopoly on e-book pricing.

If you’re coming late to this story, in 2012 Apple, along with the nation’s largest book publishing companies, was sued by the Dept. of Justice for allegedly conspiring to fix prices on the e-book market.

What no one disputes is that when Apple was launching the iPad in 2010 and looking to carve out a chunk of the e-book business, it approached the publishers with the idea of changing from the typical pricing model — wherein the publisher charges a wholesale price and the retailer marks it up accordingly — to a so-called agency model, in which the publisher sets the retail price and the retailer gets a percentage.

E-mails from Apple executives, including company co-founder and figurehead Steve Jobs, were used against the iPhone maker in court to demonstrate that the goal of agency pricing was to increase what people paid for e-books.

“Throw in with Apple and see if we can all make a go of this to create a real mainstream e-books market at $12.99 and $14.99,” wrote Jobs in one message to News Corp, the parent company of HarperCollins.

And with the publishers now determining the retail prices, e-books from major publishing houses generally became more expensive.

In its appearance before the Second U.S. Circuit Court of Appeals this morning, Apple argued that it was just attempting to crack Amazon’s stranglehold on the e-book market. At the time, the e-tail giant controlled upwards of 90% of e-book sales.

And Apple may have found a sympathetic ear on the appeals panel, with one judge saying that the so-called collusion between Apple and the publishers is more “like all the mice getting together to put a bell on the cat.”

The Justice Dept. said it was aware at the time that Amazon exercised immense control in the burgeoning e-book market, but because Amazon was charging a shopper-friendly average of $9.99 for a standard title — less than the price of a trade paperback in many cases — its near-monopoly on the product was not harming consumers.

Where the two sides differ greatly is the impact that agency pricing had on the industry. Apple contends that the District Court judge ignored the positive impact, claiming that overall e-book pricing dropped.

But the DOJ and other critics of agency pricing claim that this averages in all e-books, many of which are priced low because they are released by smaller publishers and authors looking to establish themselves and build an audience.

Apple tried to make a similar case during the trial, but the testimony of one Apple exec backfired and all but sealed the deal in the government’s favor by claiming that agency pricing both led to higher prices and protected consumers from higher prices.

The outcome of Apple’s appeal — on which more than $400 million in fines and refunds hangs in the balance — may come down to whether or not the court believes that Apple’s intentions were to improve pricing for consumers or to fix prices and harm the competition.


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