Supreme Court Leaves Apple On The Hook For $450 Million In E-Book Refunds

Image courtesy of (Jeff Kubina)

Nearly three years after Apple was found liable for conspiring with book publishers to fix prices on the e-book market — and nine months after losing again at the appeals court level — the electronics giant has failed to convince the U.S. Supreme Court to hear its case one final time, meaning Apple is now on the hook for $450 million to e-book buyers.

Early this morning, the Supreme Court denied, without comment, Apple’s petition to have its appeal of the 2013 verdict heard.

This case goes back to the days before Apple launched the iPad and was prepping to become a player in the e-book market, which was then — as it still is — dominated by Amazon.

At the time, Amazon purchased e-books rights at a wholesale rate and then determined on its own where it would set the retail price. Publishers did not like this model because they felt that Amazon was willing to lose money on e-books in order to get customers buying other things on the site. Likewise, Amazon’s competitors didn’t have vast warehouses on non-book products to make up for thin profits on e-books.

So Apple colluded with the nation’s largest book publishers to establish what’s known as the “agency model,” wherein the publishers determine the retail price with Amazon, Apple, et al, getting a set percentage of that price.

This effectively allowed publishers to determine the price that customers paid. And since it is in publishers’ financial interest to sell the books for as much as consumers are willing to pay, pricing on many e-books actually went up, even as iPads and new tablets and phones made the products more desirable.

Additionally, Apple’s deal with the publishers granted it a “most-favored nation” status, meaning that if the publishers lowered prices for a competitor, it must also do so for Apple.

In 2012, the U.S. Dept. of Justice brought an antitrust case against Apple and the publishers. The book folks all eventually settled, resulting in a reversion to the old pricing model and refunds for consumers who overpaid.

Apple chose to go to trial in 2013, but was unable to convince the court that its actions were actually in the best interest of consumers and competition.

It didn’t help that emails from Apple executives, including company co-founder Steve Jobs, demonstrated that the ultimate 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 an executive at the parent company of publisher of HarperCollins.

After finding Apple liable, the court subsequently slammed the company with $450 million in damages.

In June 2015, Apple lost its appeal before the Second U.S. Circuit Court of Appeals in Manhattan, with the appeals panel majority saying that the district court “correctly decided that Apple orchestrated a conspiracy among the publishers to raise e-book prices,” and that the conspiracy “unreasonably restrained trade” in violation of federal antitrust law.

“Apple understood that its proposed contracts were attractive to the publisher defendants only if they collectively shifted their relationships with Amazon to an agency model — which Apple knew would result in consumers facing higher e-book prices,” wrote the appeals court in 2015.

Want more consumer news? Visit our parent organization, Consumer Reports, for the latest on scams, recalls, and other consumer issues.