Apple found guilty of ebook price fixing

A federal court in New York has come down hard on Apple in a closely watched case over ebook pricing. In a ruling issued Tuesday morning, US District Judge Denise Cote ruled that the company “brilliantly” organized a conspiracy to raise prices and thwart competition.

In a 160-page ruling, Cote points to phone calls, emails and the words of Apple founder Steve Jobs to conclude that the company orchestrated an illegal “scheme” in which five major publishers changed their pricing practices. The court said that the prime target of the conspiracy was Amazon, whose Kindle tablet competes with Apple’s iPad, and whose pricing practices infuriated publishers.



  • Moeskido

    Remarkable.

  • gjgustav

    How does raising prices thwart competition?

    Also, I’d love to see the author’s take on a sale, now and in a few months after this is settled.

    • http://www.appleoutsider.de/ AppleOutsider.de – Sebastian P

      Read up on “oligopoly”.

    • http://www.tumblr.com/blog/his-divine-shadow His Shadow

      Not so much the raising prices, but the deals that were struck under the agency model. The barrier to entry was the fact that no new entrant into the space could offer the same product at a lower price because the publishers agreed to set the same price for all distributors, then signed off on deals that enforced price parity.

      Microsoft suffered a similar fate. It wasn’t so much the onerous terms under which the PC makers had to agree to comply with to get the bulk Windows license deals. It was the fact that Microsoft used it’s monopoly on the desktop to disseminate free versions of software for which other software companies had to charge money. The barrier to entry was that Netscape was competing with free.

  • http://tewha.net/ Steven Fisher

    Well, I should refrain from saying too much since I certainly haven’t followed the case as closely as I could have, but… on the surface, this seems utterly insane.

    • Moeskido

      It is. It ignores how companies like Amazon and Wal*Mart have used their buying power to reduce retail prices down to the point where they’ve driven an enormous amount of competition out of business. Which sounds great for consumers until you think about what happens when Amazon finally eliminates all competition for things you need to buy… or when you notice that all the jobs in your hometown have disappeared.

      • Colin Mattson

        That’s especially salient in areas with Amazon distribution centers. Except where there’s absolutely no way to wriggle out of it, Amazon proclaims themselves immune from nexus, leaving them with the unmatched ability to sell below cost and without sales tax to the consumer’s door within an hour.

        So not only are they shuttering local competitors, but they’ve eliminated a substantial income stream for the states and cities they’re in. And classily, in some states they’ve purportedly pulled this stunt while using tax credits or other taxpayer-funded spiffs to build their damn warehouses.

        • Moeskido

          Warehouses where, if I recall, seasonal workers are treated like feedlot cattle.

      • http://www.johncblandii.com John C. Bland II

        Bit of an interesting comparison there. Apple didn’t let their platform/product speak for itself to control price. They forced the hand of publishers by denying an app in the store and threatening to not allow them in iBooks purposefully for the sake of hitting Amazon in the throat.

        Having the best price in town/online and forcing competitors to match you is just business.

        Disclaimer: This is not a reprieve for other businesses as I’m sure they all have had a moment of strong arming someone.

        As Steven Fisher said, I haven’t followed the case too closely either.

        • Moeskido

          The free market isn’t free; it’s a bully pulpit. Capitalism works best when the biggest and most powerful assholes are prevented from boiling oceans and salting the earth.

      • Sigivald

        You might want to reflect on your economics education if you think total-monopoly is … even possible.

        Long before you get that far you run into insoluble, unavoidable price-calculation problems that make it impossible to increase the size of the “monopoly”, and essentially subsidize competition by making the proto-monopolist uncompetitive.

        (This assumes a free market, not one where the State imposes a monopoly, but that’s also not the Amazon case.)

        • Moeskido

          Thanks for the lecture, but we don’t ever need to reach “total monopoly” (which I didn’t claim would happen, thank you) for one or two players to marginalize everyone else, including consumers.

          We’re heading towards that with wireless carriers and beer distributor/manufacturers, to name two. Once that sort of thing happens, the big guys in any sector can effectively game regulators, then raise prices or reduce the value of goods/services at will.

          For example, Verizon doesn’t really need to built out FIOS in most areas any more, as long as they can neglect their decaying, existing infrastructure while still selling services through it at premium prices that don’t reflect how their outlays for development have long since been amortized by tax breaks and subsidies. Their lobbyists provide a great ROI, don’t you think?

          Publishing is a different kind of cesspool, one in which the old-school traditional players have long practiced their own variety of gamesmanship.

          The free market isn’t free.

  • catfashionshow

    This was not a criminal case– therefore, Apple was not “guilty,” they were “liable.”

  • lucascott

    And Apple has already filed an appeal, which was expected given the Judge’s pre trial comments which reeked of her already deciding in favor of the DOJ before hearing any evidence. Looking at her comments it can be read as her cherry picking bits and pieces to support her judgement against Apple rather than judging based on all the information.

    • dreyfus2

      *** Sorry, this was not meant as a reply to lucascott, but to the article itself. No idea how I achieved that :-) ***

      As much as I support Apple… But if you make the biggest publishers sign agency model contracts containing a “most favored nation” clause, which forbids them to offer their goods for less elsewhere… Then you did effectively fix prices. If that involved all parties being in one backdoor room wearing trench coats and spooks, or if it has been simply achieved by preparing the required contracts, does not change much about it.

      Yes. Amazon is destroying competitors left and right, their dealing with employees is sometimes shameful AND they did have a de facto monopoly before Apple appeared… But it is not up to Apple to practice self-administered justice. And curing a monopoly with price fixing is not really curing.

      I do not agree with qualifying that as a “conspiracy” though. None was required. Apple was just offering the publishers something they always wanted, and a justification for changing their contracts with Amazon. In many other jurisdictions the price fixing part would hit them, too. I have seen no proof for a conspiracy.

      • http://www.johncblandii.com John C. Bland II

        Wow, well said.

      • Sigivald

        “Apple was just offering the publishers something they always wanted, and a justification for changing their contracts with Amazon.”

        Yup.

        Publishers are jerks, like everyone else involved. (Including Apple.)

        (“Price Fixing” is bad!

        And yet … every publisher “fixes” its own prices for the books it has exclusive rights to – all the important ones – and nobody gets upset about that.

        I mean, if you want to read The New Book By Author X, you have one choice: Pay what the publisher demands (or find a used copy, but someone had to pay full price).

        Why that completely non-competitive structure is not a problem, but two publishers (or six) deciding to publish all their “new hot books” at price N is, has never been clear.)

  • http://instagram.com/real_jason_ip Jason Ip

    Yes, Apple fanboys, price fixing is illegal; pretty cut and dry case here. Not sure how “brilliantly” organized this whole conspiracy is now in hindsight of a guilty verdict. What is brilliant on Apple’s part is how they manage to copy everything from Android and brain wash the masses

    • rattyuk

      The whole case was based on the video of Steve Jobs taking with Walt Mossberg Cote ignored everything in the actual case and just went with that one thing.

      • http://www.johncblandii.com John C. Bland II

        So the numerous emails, testimony, etc had nothing to do w/ it?

    • http://www.tumblr.com/blog/his-divine-shadow His Shadow

      If there has been any “brilliant” brainwashing in the area of mobile computing, it’s been the dissemination of the idea that a mobile OS that was just another lame Blackberry clone (before Apple showed the world the future in 2007) can ever be considered a first mover. I’ll bet you think the iPad wasn’t a big deal because shitty Windows XP tablets limped along for years.

      Your mobile phone, if it’s a touchscreen phone, looks, acts and works the way it does because of Apple. That widgets and gee gaws have been added to iOS since 2007 doesn’t change the fact that Android actually is like Microsoft’s Windows in one regard: the Android UI was lifted wholesale from Apple. Now then newly minted Android acolytes are furiously inventing a past where Apple copied from Android.

  • dvdphn

    Seems just like another case of Apple and their great timing, (entering a field/market, with something everybody wants, but instead of iPads vs netbooks, it’s agency model vs wholesale), but this time, there’s a controversy.

    From what I followed through third party explanations/snippets, Amazon didn’t have to adapt an agency model, nor did e-book pricing needed to be increased to >=$12.99. Just like iTunes with 99¢ songs and $9.99 albums, it’s just a price that Apple suggested, since they see that $9.99 e-book prices weren’t sustainable.

    Amazon could have kept their wholesale model, but there’d be a “delay” window for new/popular books, (can’t recall specific term they used, at the moment); hardcopy would come out first, but e-book will come later. It’s obviously better for customers to be able to purchase an e-book version when the hardback version comes out too, (analogy of all online movie services having to wait until a set period after the DVD copy of a movie gets released).

    If Amazon stuck with wholesale, Apple would have a bigger chunk of marketshare, since some people would be flocking to buy the e-book right away through iBookstore for a few dollars more, than wait for Amazon’s $9.99 version.

    Then there’s the pricing. It was pointed out that Apple could have chosen to sell e-books at the $9.99 price if they were forced to. Publishers would have had to sell their books to Apple at a rate to allow to have its 30% slice of the pie, (the math should work out to $6.99 per book). Publishers didn’t like this because that’s not a viable price point.

    So, it seems like the entire publishing industry was looking at a way out of wholesale model with Amazon, since they weren’t seeing positive results with it, and was very likely to offer that ultimatum with Amazon anyway, (go with agency model, or face the “delay” release of new titles that comes with current wholesale model).

    I am not a lawyer, so I’m unfamiliar with what crime is committed, but one can also argue that increasing e-book prices can be a type of inflation as well. If prices of flour went up, I wouldn’t expect a bakery to keep their original pricing.

    And Apple is only doing what it found to be a successful model with iTunes and music/album pricing, so it would be safe to assume that they’d suggest a similar system for e-books.

    • http://www.johncblandii.com John C. Bland II

      From what I gathered it isn’t that Amazon could have stayed at $9.99. Apple forced the publishers into an agreement with a clause stating they could not sell their books for a lower price than the one in the iBooks Store.

      That’s the problem.

      [Again, from what I gather. I'm still not well versed in this case.]

      • http://tewha.net/ Steven Fisher

        My understanding was that this was discussed amongst Apple people but not presented because Apple realized they didn’t need that condition to make money.

        The case on Apple assumes they reverted their thinking without a paper trail, and explained the change to publishers in phone calls under two minutes.

        That’s pretty damn weak.

        I mean, you can’t prove there was no conspiracy here. But I think you’re below pretty much any burden of proof not requiring foil hats to prove there was one.

        • http://www.johncblandii.com John C. Bland II

          Yeah, it’s a fine line but here’s the part from the ruling about the Most-Favorable-Nation:

          “The agreements also included a price parity provision, or Most-Favored-Nation clause (“MFN”), which not only protected Apple by guaranteeing it could match the lowest retail price listed on any competitor’s e-bookstore, but also imposed a severe financial penalty upon the Publisher Defendants if they did not force Amazon and other retailers similarly to change their business models and cede control over e-book pricing to the Publishers. As Apple made clear to 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.””

          http://assets.sbnation.com/assets/2899787/show_temp.pdf

          • Page 47 explains the MFN creation