U.S.A. v. Apple: NY judge rules Apple colluded to fix ebook prices, led illegal conspiracy, violated U.S. antitrust laws

“In a stern rebuke to Apple Inc.’s electronic-books sales strategy, a federal judge found the company colluded with five major U.S. publishers to artificially drive up the prices of e-books in the months ahead of its entering the market in 2010,” Chad Bray and Joe Palazzolo report for The Wall Street Journal.

“During the three-week civil antitrust trial, the Justice Department argued that Apple agreed with the publishers in January 2010 to allow them to set a higher price for best sellers and new releases in response to the publishers’ ‘Amazon problem’: a $9.99 price point for those books on Amazon.com Inc.,” Bray and Palazzolo report. “Prices for e-book best sellers rose to $12.99 and $14.99 as a result, the government claimed in its lawsuit.”

“‘The plaintiffs have shown that the publisher defendants conspired with each other to eliminate retail price competition in order to raise e-book prices, and that Apple played a central role in facilitating and executing that conspiracy,’ U.S. District Judge Denise Cote said in a 160-page ruling. ‘Without Apple’s orchestration of this conspiracy, it would not have succeeded as it did in the Spring of 2010,'” Bray and Palazzolo report. “Because Apple was found liable for violating U.S. antitrust laws, a hearing will now take place in a separate lawsuit brought by state attorneys general, who are seeking to recover damages on behalf of consumers who paid higher prices for e-books.”

Read more in the full article here.

Peter klafka reports for AllThingsD, “Apple spokesman Tom Neumayr says the company will appeal. Here’s his comment: ‘Apple did not conspire to fix ebook pricing and we will continue to fight against these false accusations. When we introduced the iBookstore in 2010, we gave customers more choice, injecting much needed innovation and competition into the market, breaking Amazon’s monopolistic grip on the publishing industry. We’ve done nothing wrong and we will appeal the judge’s decision.'”

Read more in the full article here.

MacDailyNews Take: Since the judge made her “decision” before the trial even began, we’d expect nothing less but for Apple to take this to the next level and, if necessary, beyond.

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    1. Heh. This will just piss Apple off. Which is actually good for us. Having a very powerful company like Apple on the side of the people is…hmmm.

      As for how to deal with Amazon (who may be whooping for joy at the moment, quite stupidly, i might add)…all Apple has to do is develop a subscription model payment to compete with the Amazon Prime streaming model.

      Right now Amazon is competing with Netflix on subscription streaming, but imagine if Apple entered that market space with all those credit card accounts linked up to iTunes for $9.99 a month or so.

      Retail revenge dish. Best served with whipped cream.

    2. So it’s OK for Amazon to sell ebooks below cost to secure its dominance of the ebook market. But it is not OK for Apple and the booksellers to use standard market-based pricing techniques where supply and demand rules. Total BS.

      1. I made a few comments here about how I thought that Apple fought hard but lost, and could lose again based on the letter of the law. But now I’m conflicted.
        It turns out that the judge Denise Cote also ruled on an Apple case in 1997, in which she ruled Apple violated federal antitrust by ending the Mac OS licensing program. Shouldn’t she have recused herself from the case?

      2. Through the trial it was proven that Amazon used the same or even harsher tactics and “most favourable” clauses, and it had a monopoly, and yet the judge totally ignored that saying that now Apple is on the trial, not Amazon.

        I suppose this judge and some DOJ staff will secure major positions in lobbying and legal firms that were financed by Amazon all those years. Apple spent literally order of magnitude less to bribe lobby DOJ and now is made to pay for that.

        This trial is a shame for USA’s legal system.

    1. Unfortunately, there are fools in all professions and at all levels.

      The judge who rendered this decision is a fool. Consider my comment as a strong rebuke of her judgement.

  1. Not one iota of evidence to support this conclusion.

    Big money jas decided that since Apple is independently destroying all parasitic business models and refusing to share it’s earned fortune and leadership, it’s time to unite and knock it off it’s perch.

    Apple’s loyal fanfare and support from it’s unwavering fans will not buckle or die.

    1. I concur completely with your point, breeze!

      However . . .

      it’s = IT IS

      You’re so very facile with the English language, this error should not remain in your arsenal of communication.

    1. It’s hard but worth a harder try. But I think this is a very very unfair judgement.

      Apple still needs to work up harder on its iBooks store… I’ll try to close my wallet against Amazon as long as I can from now on.

    2. use Rakuten ot BBY. BBY will match online prices. Once when they couldn’t match they gave me a “discount to make up most of the difference and I was able to pick up the order at the local store.

  2. It was not a conspiracy, it was right out in the open. Steve explained his reasons for saving the publishing industry and why higher prices were reasonable. A lot of ppl feel it’s just electronic bits so why pay more? That’s the real issue — what really are the costs of publishing electronically. Also remember discussions that the prices would shake down soon after epublishing became more established. Never saw it as collusion or conspiracy but wrangling to set a new standard so epublishing could actually happen. By now it is popular and a cost analysis would be interesting. Apple also provides a way for ppl to self-publish which is a revolutionary boon.

      1. It really has little to do with Apples lawyers, the real issue here is lobbying. For a very long time Apple spent very little on lobbying and thus did not funnel much money to washington and politicians. What we are seeing now is nothing short of a shakedown, if Apple had been giving more money to lobbyist and thus politicians this lawsuit would never have happend in the first place. After all the judge made the verdict known almost before the trial started.

        1. I radically disagree.

          Yes, lobbying and political issues are in play here.

          However, Apple’s legal team is bordering on incompetent.

          The VERY FIRST THING Apple’s legal team should have attacked is the whole, totally improper, use by everyone — including the judge, the prosecutors and the press — of the label “Most Favored Nation” clause. It was NOT a MFN clause. It was, and is, a “Best Customer” clause.

          A MFN clause — if it had been used, which it was not — would have been very damning. The whole concept of a single company demanding a MFN clause smacks of Apple requiring all the publisher give Apple special status.

          A BC clause is just the opposite — from a legal point of view. A BC clause is reactive. It only requires action if others (not Apple) does something.

          The fact that Apple’s legal team wouldn’t (or maybe couldn’t — maybe they’re not bright enough to know or articulate the difference!) address this in any filing or during the trial just shows how incompetent Apple’s legal team really is.

          Not only should Apple fire the entire legal team (including in house lawyers), they should demand all their fees back due to gross incompetence of all lawyers involved.

            1. Says the guy who hasn’t read the submitted documents in which it is most clearly a BC clause and NOT a MFN clause.

              Do YOU even know the difference?

              Do you even know that the wording of a MFN clause requires the parties to do something independent of what any other parties do? Do you even know that a BC clause is only invoked if *other* parties get better pricing/terms?

            2. Shadowself:

              The guy who hasn’t read the 160 page decision report. The redneck who oversimplifies EVERYTHING. The hopeless fanboy. There are number of reasons why the judgement was what it was.

              Read the report and shut the fuck up.

          1. Simon & Schuster’s Carol Reidy had records of Apple saying it “cannot tolerate a market where the product is sold significantly more cheaply elsewhere.” And some of the most damning statements, Cote said, came all the way from the top of Apple.

            In one statement, Jobs told James Murdoch that Amazon’s $9.99 sales were “eroding the value perception” of its products, and that Apple would be trying higher price points. This was confirmed at launch. “Jobs’s purchase of an e-book for $14.99 at the Launch, and his explanation to a reporter that day that Amazon’s $9.99 price for the same book would be irrelevant because soon all prices will “be the same” is further evidence that Apple understood and intended that Amazon’s ability to set retail prices would soon be eliminated.”

            1. This has NOTHING to do with Amazon. Stop deflecting the issue away from Apple. This is about Apple and its conspiracy to inflate prices with industry. And about collusion. If Apple was so pure and good they would have sued Amazon or got the DOJ to sue or whatever to break this “illegal” selling practice you charge Amazon with.

              But it’s not clear at all that Amazon did anything illegal. All they did was dominate a market with competitive prices. In fact, you’re such a fucking idiot that you don’t even know that Amazon doesn’t LOSE ANY MONEY on a publisher’s catalogue. There’s clauses in there about that. They *may” sell a book at a loss, but overall they make money and are contractually bound to not lose money in aggregate over a publisher’s catalogue.

              And selling loss leaders isn’t illegal at all. Most retailers do it.

              And I’ve never heard or seen Amazon lose 1 dime on the sale of an eBook. That’s just the media and consumer perception. And as long as you think they lose money, the more you think you’re getting a better deal and the more it works for Amazon.

              Idiots like you should be illegal, because you’ll believe any bullshit and convince yourself of something that simply isn’t true.

          2. Come on…Apple’s lawyers weren’t too bad. The problem is that the whole thing was rigged from the beginning. The judge was leaning towards the government before the trial….


      2. What a bunch of malarkey. Reading the case reports, it is obvious that Apple’s lawyers did an excellent job rebuking the DOJ’s case, to the extent that the judge even commented that Apple may have changed her mind.

        This is the problem with lawsuits and its also why so many settle — you never know how the judge/jury is going to rule. I frankly can’t believe she ruled this way.

        1. Apple made a good case, but it was never a slam dunk for Apple.

          The publishers used to sell books to retailers for half the list price (ie $12.50 for a $25.00 book) allowing the retailer to make a profit from the book. They offer Amazon the same deal for ebooks at a list price of $20 and Amazon decides to forgo profit and sell at $9.99. When the publishers freak out they begin to charge Amazon more, yet Amazon takes a loss and keeps the price at $9.99. This freaks the publishers out even more. Along comes Apple who offer to let the publishers choose the price. They push Apple to get the price level they want and Apple pushes them to all sign at the same time.

          The net result is that the publishers get what they want, Apple gets what they want, and the consumers pay slightly more for ebooks (equivalent to the amount Amazon was losing per book). At its core, what Amazon was doing was really the anti-competitive practice, trying to starve out competition. But Apple’s deal with the publishers did make customers pay more. The anti-trust laws were designed to protect customers and it’s hard to make a great case when all your other accomplices plead guilty.

      3. This has been true as far back as the drafting of the original licensing agreement between Apple and Microsoft with regard to Apple System software source code and its use in “Windows 1.0 and subsequent versions”. This stupid phrasing allowed Microsoft to use Apple System source code in Windows versions 2.x and 3.x.x. Then Apple’s legal team let the entire lawsuit devolve into a “look and feel” lawsuit.

        Apple has not had a truly clear cut victory since the Franklin Computer lawsuit days over 30 years ago. (Franklin Computer, for those who don’t know, did a pure, nearly exact, knock off of the Apple ][. Apple filed suit to stop the sale of that computer and won all all counts and got that computer completely killed.)

        Apple legal keeps screwing up time and time and time again. Even when Apple is 100% in the right Apple’s legal team cannot get a clear, unmitigated victory. When the waters are the least bit muddy (think: one gram of dirt in one million gallons of water) Apple often loses or wins a marginal victory at best and usually an unenforceable victory if one at all.

    1. Apple svp for legal Sewell has so much free time he joined the Board of Vail Resorts (a ski resort company).

      According to CNET : “The move is noteworthy given a long period (under Jobs ) during which Apple’s core executives kept off the boards of other companies”.

      remember Forstall (whom so many people hate) said he spent weekends for years working overtime for apple.

      it’s weird that legal has so much free time when for example Apple had to pay 60 million for the iPad name in China , a name which they thought they owned because legal didn’t realize that Taiwan and China were separate countries….

      During this period too Sewell got the massive 150,000 share bonus like the other SVPs.

      1. The iPad incident in China was nothing more than an opportunistic shakedown of Apple by China to get money to cover a Chinese company’s bankruptcy debts to other Chinese companies. Apple was losing that one no matter what it did.

        1. when apple bought the name from Proview Taiwan they thought that it also covered the name for China. This was before the launch of the iPad.

          when they wanted to sell iPad in China after the launch Proview told them that the license didn’t cover mainland China and they had to buy the name AGAIN from Proview China. It was too late then as iPad was big seller everywhere else and Proview knew they had Apple by the balls.

          Most legal experts say Apple legal did a NOVICE mistake by NOT CHECKING WHETHER THEY ACTUALLY LEGALLY HAD THE MAINLAND CHINESE RIGHTS (lawyers in China commenting in blogs and newspapers were laughing at it ; i.e at apple’s waving Taiwan rights as ok for China ) . How can any legal dept whose company is doing billions of dollars of sales in China (second largest sales after USA) think that Taiwan rights = China rights?
          Yeah Proview scammed them but isn’t it the JOB of the legal dept to CHECK and prevent scams (imagine a Canadian company telling a foreign firm that Canadian rights = USA rights and when they buy the rights they are covered for giant market USA and the company lawyers swallowed it?)

          Please note that 60 million is huge, Amazon worldwide only made 80 million profit during the Christmas quarter . So apple paid for a NAME near the entire profits of a massive corporation.

          perhaps all the apple lawyers were busy skiing at Vail ?

  3. “MacDailyNews Take:
    Since the judge made her “decision” pre-trial, we’d expect nothing less but for Apple to take this to the next level, if necessary, and beyond.”

    It is beyond some people to believe that a company or person is beyond doing bad. This view, belief even, is so prevalent in today’s society that it lowers the bar on how wrong, bad or unethical is defined.

    1. Except that the DOJ never proved their case.

      Now, if you had complained about MDN’s take in the sense that the judge actually never overstepped her bounds by offering a pretrial opinion … that would be something. But instead, you’re just a troll.

      1. “The decision by U.S. District Judge Denise Cote in Manhattan is a victory for the government and various states, which the judge said are entitled to injunctive relief.”

        “Only Apple went to trial, while the publishers—Lagardere SCA’s Hachette Book Group and Macmillan, News Corp.’s HarperCollins Publishers, Pearson’s Penguin Group (USA), and CBS’s Simon & Schuster—settled with the U.S. government and the states.”

        “In a statement to CNBC later, Apple said it will appeal the ruling.”

      2. doc:

        You say the DOJ never proved anything.

        Yet, there’s a 160 page report on the decision. Have you read that? No, you haven’t. You’re a fanboy talking out his ass.

          1. Would you like it better if Apple wrote the decision. What if everyone got to write their decision? How objective would that be?

            Thank god for the DOJ and government regulation or else companies would be running amuck. You’re simply out of touch with reality. An immature fanboy who has no basis in reality.

            This is the real world. Apple is corrupt, and so are many other companies. There are protections in place to protect YOU from this stuff. But you’re such an idiot that it’s pointless.

            1. “The agreements also included a price parity provision, or Most-Favored_nation clause, 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.”

              This and much more in the report. Read it and finally shut the fuck up. The evidence for collusion is overwhelming. Apple is a greedy pig.

    2. Except that once Apple received guarantees that they could match prices with anyone, any time, there was no reason why they needed to collude with anyone on anything. As Eddie Cue said, at that point the whole argument about agency model or wholesale model was then a moot point.

  4. So it’s ok for Amazon to establish a monopoly by selling below cost?.

    Good to know they can drive all the other ebook sellers out of business, kill off all brick and mortar bookstores then dictate their terms to the now cowed publishers.

    Good job DOJ and Judge Cote!

    1. The problem with your argument is that it is not illegal to sell something below cost (not today anyway, but that is another issue), mainly because antitrust laws seek to prevent harm to CONSUMERS in the form of reduced choice or higher prices. It is not illegal to have a monopoly, only to abuse it.

      Besides, how is your Amazon scenario any different to what Apple has done to the “cowed” music publishers with iTunes?

      1. critic2:

        You’re absolutely right.

        Amazon has nothing to do with this fanboys. Stop deflecting things onto other companies. This is about Apple.

        They conspired with publishers to raise eBook prices. That’s not good for consumers.

        You people are hopeless. Like a cult. You refuse to believe anything bad about Apple. You’re so stupid that you make excuses for paying more for books.

        One sucker fanboy after another, lining Apple’s pockets.

        1. Ass, meet hole in the ground. I know you don’t know the difference.

          Amazon was selling books at below cost to wipe out the competition. That is illegal. Something had to be done. Apple and the publishers fixed the problem.

          The publishers caved. Apple will not cave. The Supremos will fix this.

          1. “Amazon was selling books at below cost to wipe out the competition.”

            Prove it. Demonstrate it. Show it.

            I’ll save you the trouble. You can’t, because you’re a basement fanboy who sits on the Internet all day and reads BS written by the media, and other fanboys.

            You don’t work for Apple.
            You don’t work for Amazon.
            You’re not a lawyer.
            You have no experience in the publishing industry.
            You haven’t read any court documentation, or the 160 page decision report.

            Your comments are simply based off of a belief in a cult like thing that is Apple. You’re incredulous and irrational.

            Amazon *may* have sold some books at a loss as loss leaders, like most other retailers do. And it’s perfectly legal. I have never heard of or seen Amazon losing any money on even 1 eBook. Because we are talking about eBooks here, not printed books.

            All of this is why you’re basically confused and rambling.

      2. Selling below cost can be considered predatory pricing.

        In business and economics, predatory pricing is the practice of selling a product or service at a very low price, intending to drive competitors out of the market, or create barriers to entry for potential new competitors. If competitors or potential competitors cannot sustain equal or lower prices without losing money, they go out of business or choose not to enter the business. The predatory merchant then has fewer competitors or is even a de facto monopoly.

        In my opinion, Amazon’s selling below cost is clearly predatory pricing. Why our government chose to do nothing about it is the big question.

        1. I don’t know where the legal/illegal distinction is between selling below cost is, but I’m pretty sure adding more laws won’t help. If Amazon is prosecuted for selling for below cost, should Google be prosecuted for giving away Android for free, just because other mobile OS companies make a profit? Should Apple be allowed to give away FaceTime and iMessages, when competitors exist? The goal is not to legislate the market, but let it regulate itself for the benefit of the consumer. It’s a terribly messy and injust practice. But trying to legislate a level playing field would make it worse. Apple could well lose this case in appeal. Amazon could end up with a monopoly. Microsoft did. But eventually the product that best satisfies the customers needs will win out in the marketplace.

          1. FaceTime and iMessages aren’t comparable to book sales. There are many other free programs so giving them away wouldn’t be unfair competition.

            Yes, it is a difficult distinction between a company simply trying to compete a gain a foothold in a competitive market and a company who is trying to drive out all other competitors. However, there is a point where it becomes fairly obvious that is what happens. Like when a company gets to 90% market share yet is still selling below cost. Worse still is thinking that said company would continue selling below cost once they had driven out all competition. What seems to be a win for the consumer will in the long term become a loss.

            There is a reason we have regulations to protect the consumer. Yes, they can be onerous. Yes, they sometimes can go too far. But companies have proven time and time again that without some regulation they will screw the consumer and the marketplace.

            As for Google and Android, yes, there has been occasional talk of other companies suing them for giving Android away. However, in Google’s case, it is not so simple. They don’t make money on Android itself, but rather from the customers who use Android phones, so they cab argue that they aren’t simply giving it away.

            1. Yeah, FaceTime and iMessages were a stretch, but I wanted to point out the futility in trying to evoke fairness through the legal proceedings.

              I actually agree with you and think that we should go after the most aggriecious examples of uncompetitive business practices like Amazons in ebooks, but it gets hard to draw the line. So many tech companies nowadays try to commoditize the service or product they don’t compete in to protect the product or service they do compete

              This outcome is a disservice to real competition in the ebook market, which is a shame, but not necessarily a sham, as so many here assert.

              I don’t personally think that Apple acted malevolent here, and actually approve both them and the publishers trying to protect the perceived value of an author’s work. But Apple put a lot of pressure on the publishers to take the deal, and when all the publishers settled rather than stand trial, it certainly didn’t help Apple defend their stance of innocence.

            2. Can’t argue with you on any of this.

              I personally have a hard time understanding today’s verdict after following the trial reasonably closely, but obviously the decision wasn’t up to me. The biggest problem I have as pointed out by others was the judge went in to this trial already thinking Apple was guilty. That alone will likely be grounds to overturn this verdict.

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