U.S.A. v. Apple: DOJ wants to force Apple to revamp e-book practices

“The Justice Department and 33 state attorneys general want to force Apple to sign contracts with publishers that don’t prevent Apple or other e-book stores from competing on price,” The Associated Press reports. “They want Apple to tear up its contracts with five e-book publishers and sign new ones that aren’t likely to increase prices.”

“The regulators would also like to see links between Apple and other ebook providers, such as Barnes & Noble and Amazon, to make it easier for consumers to compare prices,” Zack Whittaker reports for ZDNet. “Among the other measures, the DOJ suggests that Apple could be monitored by an external unit, paid for by Apple, to oversee the company’s internal antitrust compliance policies.”

“Despite Apple’s continued claims that it ‘did not conspire to fix ebook pricing,’ the Justice Department said it was a ‘victory for millions’ of ebook readers,” Whittaker reports. “Apple said it will appeal the decision.”

Whittaker reports, “A hearing to discuss remedies will be held on August 9. Another trial is yet to be scheduled on damages.”

Read more in the full article here.

MacDailyNews Take: There is no evidence that Apple conspired to fix ebook pricing and the U.S. DOJ is plainly inept.

Related articles:
U.S.A. v. Apple: Cupertino could get smacked with $500 million bill in ebook case – July 25, 2013
U.S.A. v. Apple verdict could end the book as we know it – July 11, 2013
U.S. DOJ unwittingly causes further consolidation, strengthens Amazon’s domination of ebook industry – July 11, 2013
Where’s the proof that Apple conspired with publishers on ebook pricing? – July 10, 2013
U.S.A. v. Apple ruling could allow U.S. government to monitor, interfere with future Apple negotiations – July 10, 2013
Judge Denise Cote likely wrote most of her U.S.A. v. Apple ebooks case decision before the trial – July 10, 2013
U.S.A. v. Apple: NY judge rules Apple colluded to fix ebook prices, led illegal conspiracy, violated U.S. antitrust laws – July 10, 2013

35 Comments

  1. Obama knows best. He went to college, though you can’t prove it by the transcripts. Affirmative action admission. He got accepted at Columbia and Harvard to fill the requirement for incredible bores with huge ears.

  2. Take it all the way to the Supreme Court. If apple still lose then they show do as amazon do. Sell at or below cost and drive amazon out of business.

  3. Help me understand, because I must be missing something that most of the rest of you aren’t.
    Apple negotiated contracts with various publishers that allowed Apple to sell ebooks for the same price as any other ebook seller, but still keep 30% of the list price, regardless of the selling price. So if Amazon sold an ebook with an MSRP of $20 for $9.99, Apple could also sell that ebook for $9.99, but could keep 30% of $20, or $6, on the sale, instead of 30% of the actual selling price. This essentially forced the publishers to move to an agency model so that they controlled the selling price instead of the retailers, as otherwise their income would likely drop considerably.
    No one other than the DOJ and Amazon apparently think anything is wrong with type of agreement.
    I seem to recall lots of people complaining about Microsoft’s agreements with various PC manufacturers, where Microsoft was paid a license fee for every PC sold, not just every PC with Windows installed sold. Something about how that was unfair competition, since the manufacturers essentially had to pay for a Windows license for every PC, whether or not they actually installed Windows on the PC.
    So does everyone now think that Microsoft’s agreements with manufacturers was okay?
    If Apple is just supplying the framework for selling content, and they have a nice, simple program of taking 30% of the selling price to cover the cost of infrastructure, etc., that’s one thing. But Apple, in this case, wanted to also control pricing of content, but still take 30% of MSRP.
    Surely I can’t be the only person seeing a problem with this?
    What am I missing here?

    1. @shiva105: You said, “This essentially forced the publishers to move to an agency model so that THEY controlled the selling price instead of the retailers” followed by, “Apple, in this case, wanted to also control pricing of content.”

      Which is it, shiva105? Once you figure that out, your dilemma should be resolved. Here’s a hint to get you started: Your first statement is correct, your second statement is not.

      1. Let me try rephrasing this-
        Unless the publishers switched to an agency model where they control the pricing, Apple wanted the ability to set the selling price, but maintain their 30% of list fee to the publisher. Here’s an example, had the agencies not moved to an agency model:
        Bestseller book has a list price of $24.99. Apple wanted to be paid 30% of $24.99, or $7.50, for every copy sold via iTMS, leaving $17.49 for the publisher. If Amazon sells the same book for $9.99, Apple wanted the ability to also sell the book for $9.99, but still retain $7.50, leaving only $2.49 for the publisher. In other Apple, Apple wanted to be paid the same, regardless of what the final selling price was. The assumption is that Amazon paid more than $9.99 for the book, and was willing to eat the loss in other to sell other products. Apple wanted to compete on price, but not have to worry about any losses.

    2. Yes, you, the DOJ and the judge are missing something.

      It’s good business practice in negotiation with suppliers to arrive at an arrangement that you, as a distributer, will not be charged more for the products you distribute than your competitors. That’s the essence of the negotiations conducted by Apple with publishers for distribution of ebooks.

      It’s not anti-competitive, it doesn’t have Apple fixing prices, and it ultimately leads to lower prices for consumers as in the long run it drives prices down rather than up.

      I’m an avid reader. I was an early Kindle adopter. I’ve bought a lot of ebooks from Amazon. But as time goes on, I’m buying new and recent publications from Apple. I prefer the iBook environment.

      Amazon still is one up over Apple in marketing, though. I’m constantly being blitzed by emails recommending ebooks that I might like, based on my previous purchases, and similar recommendations whenever I log onto the Amazon site. Many of those recommendations are on target, so I’ve come to appreciate them. Apple needs to start “Genius” recommendations for iBooks, in a similar manner.

      1. But I’m under the impression that Apple does *not* purchase the content to resell- they simply provide a market for the content producers to sell their wares, and take a 30% cut of the selling price. From what I understand, Apple wanted to reserve the right to sell for the same price as any other seller, but to retain 30% of the list price versus 30% of the selling price.
        In essence, Amazon sells at a loss, and Apple wanted the ability to sell at the same price as any other reseller, but not base their take on the selling price. In other words, Apple wanted to keep 30% of list, but be able to sell for below list if any other retailer did. Leaving the content producer to eat the difference.

        1. Think about what you said, and what I said above. 🙂

          In the real world, Amazon can’t continue to sell at a loss, so their attempt to distort the market and dominate ebook sales won’t work. They can’t make up the difference in Kindle sales, long term.

          Would you prefer that Amazon have succeeded in dominating the market for ebooks? Do you think that the impact on the publishing industry and on consumers would be desirable? Once dominant, would Amazon be likely to sell at a loss?

          If not for Apple’s entry into the ebook marketplace, Amazon’s scheme might well have succeeded. The result would have been faster disruption of the market for printed books and more and more poorly edited publications, as the standards of publication were lowered by price disruption, and/or price gouging later by Amazon.

          I think DOJ’s litigation was misguided and hope Apple ultimately wins out.

          1. The problem is, the litigation isn’t about Amazon. The litigation is about Apple essentially coercing publishers to move to an agency model or risk selling at a loss through Apple while Apple continues to make it’s typical markup. Either way things worked out, Apple would be making their 30% cut, while any publishers that did not go to an agency model stood to lose money on each sale via Apple.

            For Amazon, I don’t know what they happened to pay the publishers for each book. I’m assuming that they did not have a percentage model like Apple does. Do I think Amazon dominating the market is a good thing? Not really. But the bottom line is that companies colluding to fix prices is a violation of US anti-trust law. Amazon, regardless of what anyone thinks of them, is not colluding with the publishers or other retailers to fix prices. They could quite well be abusing monopoly power, but even if they are, that does not allow competitors to also violate the law. I think the judge hit on something with her statement:

            “This trial has not been the occasion to decide whether Amazon’s choice to sell NYT Bestsellers or other New Releases as loss leaders was an unfair trade practice or in any other way a violation of law. If it [were], however, the remedy for illegal conduct is a complaint lodged with the proper law enforcement offices or a civil suit or both. Another company’s alleged violation of antitrust laws is not an excuse for engaging in your own violations of law. Nor is suspicion that that may be occurring a defense to the claims litigated at this trial.”

            1. No, the problem is that Apple neither coerced publishers, nor conspired to fix prices, nor did the marketplace see increased cost to consumers. The DOJ interpretation was a twisted one and the litigation a travesty.

              Your interpretation of Apple’s situation in attempting to enter the ebook market when the leading seller was pricing ebooks below cost is that they should have seen their recourse as governmental intervention, hoping that would happen before Amazon had achieved an unchallengeable monopoly.

              Nonsense! Instead, Apple negotiated distribution contracts based on terms that would not only let Apple enter that marketplace, but also open it to other potential competitors to Amazon. This achieved fairness and competitiveness in a previously unfair and noncompetive marketplace.

            2. Ah, so if you feel a competitor is breaking the law, it’s okay for you to do so as well. Got it.
              Did Apple convincing all of those publishers to move to an agency model lower prices for consumers? No. It arguably may have had some sort of long term benefit to competition, but I’ve yet to see any numbers that show Amazon’s discounting of NYT bestsellers had wiped out the competitors. If Amazon at some future point raised prices, other suppliers would step up to compete. Amazon would have to keep selling at a loss to maintain any perceived dominance.

              They in essence told the publishers “I will take 30% of your list price, but want the ability to sell for as low as any competitor, meaning you may lose money if a competitor sells at a loss.”

              As far as competition is concerned, Apple’s own executives claim that they had about 20% of the market shortly after launching the store, figures show that Barnes & Nobles had about 25%, and Amazon had about 65%. I’m sure all of those are rounded up a tad since there are other providers out there. So where exactly is the lack of competitiveness again?

              All this being said, I have to agree that the DOJ’s proposed solution is *way* out of line.

            3. Np, I don’t accept the proposition that, if a competitor is breaking the law, that justifies breaking the law.

              Nor do I accept the proposition that Apple’s negotiations with ebook publishers was unlawful. 🙂

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