Apple is headed to the Supreme Court over e-book antitrust case?

“The two competing theories of law that ran through Apple’s e-book antitrust case run right through the middle the appellate court ruling issued today,” Philip Elmer-DeWitt reports for Fortune. “Apple lost the appeal, as it lost the original case. But it was a split decision, 2-1, along the same legal fault lines.”

“And from the harsh language in both the majority decision and the dissent, it sounds like the three judges had a helluva fight,” P.E.D. reports. “The Supreme Court may be the only court that can settle this.”

“Apple declined to tip its hand, but having fought the case this far, the company doesn’t seem inclined to give up now,” P.E.D. reports. “This is the statement it released to Fortune: ‘Apple did not conspire to fix e-book pricing, and this ruling does nothing to change the facts. We are disappointed the Court does not recognize the innovation and choice the iBooks Store brought for consumers. While we want to put this behind us, the case is about principles and values. We know we did nothing wrong back in 2010 and are assessing next steps.'”

Read more in the full article here.

MacDailyNews Take: The lack of evidence to support the idea that Apple conspired with publishers is appalling. Apple should appeal to the Supreme Court. Of course, the current U.S. Supreme Court is like a box of chocolates, so…

SEE ALSO:
In pretrial view, judge says leaning toward U.S. DOJ over Apple in e-books case – May 24, 2013
Lawyers have complained for years that Judge Denise Cote pre-judges cases before she enters the courtroom – August 14, 2013

Apple loses appeal in e-book price-fixing case – June 30, 2015
George Priest: Apple should win its e-book appeal – December 15, 2014
Obama’s DOJ brings in its big guns to Apple e-book appeal – December 11, 2014
U.S. Federal Puppet Denise Cote says she’s troubled by Apple $450 million e-books settlement deal – July 24, 2014
U.S. Federal Puppet Denise Cote: Apple cannot escape U.S. states’ e-book antitrust cases – April 15, 2014
U.S. Federal Puppet Denise Cote: ‘Apple’s reaction to the existence of a monitorship underscores the wisdom of its imposition’ – January 16, 2014
Judge Denise Cote denies Apple request block her friend as ‘antitrust compliance monitor’ – January 13, 2014
Antitrust monitor Bromwich rebuts Apple accusations of ‘unconstitutional’ investigation – December 31, 2013
Apple seeks to freeze its U.S. e-books ‘antitrust monitor’ – December 15, 2013
The persecution of Apple: Is the U.S. government’s ebook investigation out of control? – December 10, 2013
Apple’s Star Chamber: An abusive judge and her prosecutor friend besiege the tech maker – December 5, 2013
Apple takes aim not just at court-ordered e-books monitor, but also at U.S. District Judge Denise Cote herself – December 2, 2013
U.S.A. v. Apple: Judge Denise Cote assigns DOJ monitor in Apple ebook price-fixing case – October 17, 2013
U.S.A. v. Apple: Judge issues injunction against Apple in ebooks antitrust case; largely in line with what DOJ wanted – September 6, 2013
U.S.A. v. Apple: Judge Denise Cote says Apple needs third-party supervision after ‘blatant’ ebook price fixing – August 28, 2013

28 Comments

    1. All of you guys are wrong and misunderstand the facts and the law…

      I am in this industry. I know the players and I have a network. I’m in this. We work with large publishers and self-publishers daily and we know the law, the policies, the practices, the sentiments of the various players, etc.

      1. It simply is not the case that this case is about Amazon. This is specifically about Apple and their actions. It does not in any fashion absolve Apple from wrongdoing if another company does wrong. That is just a distraction. Apple is the Defendant, not Amazon. If Amazon has done wrong, people or the DOJ could sue.
      2. In this case, it was found that Amazon did not really lose money on most eBooks. Go read the case materials. It’s specifically covered.
      3. Amazon never had 90% of the eBook market. If you’re talking just in the USA, then it may have been something like in the 70s or low 80s in terms of percentage. Worldwide it’s nowhere close. There’s lots of other book/eBookstores in other countries that dominate those areas. And you are the same people who gloated and bragged when Apple had 70% of the tablet marketshare. Or close to 80% of the MP3 player marketshare and locked people into iTunes with their music not being readily transferred to other devices. You’re a bunch of inconsistent, misguided hypocrites. Amazon has had a strong position in the publishing industry because they earned it. They built a platform and a store and a eReader with WhisperNet and put eBooks and self-publishing on the map. They practically invented self-publishing and have changed the industry for the better. They did this long before Apple or Kobo came around.

      Ready for the rest?

      This came out in the trial and the publishers revealed and stated that Amazon does not, in fact, lose money on the sale of eBooks. As consumers, if you think Amazon is losing money on a sale, all the better because you just think you’re getting a better deal. All Amazon does by selling cheaper is cut into their own margins. Amazon does NOT pay $13.99 for eBook bestsellers and sell them at $9.99. The price Amazon gets these books for is confidential and under the wholesale model.

      There may have been up to 36 instances where Amazon undercut a price on eBooks. The courts, rightfully, stated that this was such a fraction a percent of the total eBooks for sale to be irrelevant. But Amazon selling for low prices or even having loss leaders is also not something that’s illegal.

      The courts were clear in their decision. This case is not about the particulars of an agency model vs. a wholesale model, or an MFN clause itself. This case is not about Amazon. It’s about Apple and the world’s largest publishers. It is about a simple matter: Did Apple collude with industry to inflate eBook prices and eliminate competition. The evidence in the case is quite overwhelming that Apple did in fact do this. Just because the publishers didn’t like companies like Amazon making razor thin margins on their eBooks… and that Amazon had a sizeable chunk of the market in the US… this is not an excuse for them all to collude together, with another company as the ring leader, to stamp out any of this competition and completely inflate and flatline eBook prices.

      “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.

      First, it is no defense to participation in an illegal price fixing conspiracy to suggest that others did it too. Second, focusing on the precise terms of agency agreements and the extent to which they may have been similar is far too narrow a focus. The issue is not whether an entity executed an agency agreement or used an MFN, but whether it conspired to raise prices. Apple has pointed to NO EVIDENCE that either Amazon or Google desired either to eliminate retail price competition or to raise retail prices. Quite the contrary. Amazon was ADAMANT in its support of retail price COMPETITION and lower prices. It did not relinquish its control over retail pricing easily.

      The totality of the evidence leads inextricably to the finding that Apple chose to join forces with the Publisher Defendants to raise e-book prices and equipped them with the means to do so.”

      This came out in the trial: Cue told Cook, in writing, it’s “over for everyone” once Random House signs. Meaning Apple would become a monopoly that they hoped in the eBook industry like they were with MP3 players and music. And that they’d be eliminating competition.

      Cue actually blocked Random Houses iPad Apps to squeeze them into signing on. After they signed on, he attributed this success, in part, to blocking their Apps.

      With Apple around, innovative technologies and business models in this industry would struggle to see the light of day. Because Apple’s contract made it virtually impossible for any publisher to do anything but sell under an agency model everywhere else and locked them into a host of other draconian clauses.

      Amazon simply innovated before Apple and the rest of the guys. Apple came late and tried to break Amazon’s dominance through illegal business practices. Amazon never, ever tried to control publishers on other retail channels. Apple did. And they very far to do it.

      One way to look at it is, you get the most powerful people in a room, one side benefits more than the other… but at the same time they both benefit… and after their meeting is concluded, the industry in which they’re in suffers because the net result is the elimination of competition and the inflation of prices.

      We’re not the most powerful, and we’re not in that room. We’re in the industry and this negatively affects us. With an eBookstore, we too are trying to sign on publishers. The way Apple had it, we COULD NOT, in anyway, realize our innovative business model with publishers because of how much legal crap is involved to dance around Apple’s contract. Did Apple see us coming? No. Did the publishers? No. But they got into bed with Apple and that is the problem: signing with Apple severely limited what these publishers could do with other retailers. This right here is a real live example of how shitty this is in the real world and the crux of the case that the DOJ was going after.

      Amazon never had contracts that limited, to such a large extent, what publishers could do outside their store. Apple “severely punished financially” publishers whose books weren’t being sold under the agency model elsewhere. This is a quote directly from the trial and formed part of the contract. This is the problem in that Apple was effectively forcing the agency model on the industry because they didn’t want to compete with the wholesale model.

      What you’ve said… is what some others have said… but just because one company has a major, dominant position in a market is no excuse to break the law yourself to break that dominance. Amazon earned its placed in the book industry because they innovated first.

      “Quotes from court case: The Plaintiffs have shown through compelling evidence that Apple violated Section 1 of the Sherman Act by conspiring with the Publisher Defendants to eliminate retail price competition and to raise e-book prices. There is overwhelming evidence that the Publisher Defendants joined with each other in a horizontal price-fixing conspiracy. Through that conspiracy, the Publisher Defendants raised the prices of many of their New Releases and NYT Bestsellers above the $9.99 price at which they had previously been sold through Amazon. They also raised the prices of many of their backlist e-books. The Plaintiffs have also shown that Apple was a knowing and active member of that conspiracy. Apple not only willingly joined the conspiracy, but also forcefully facilitated it.

      The Plaintiffs do not argue, and this Court has not found, that the agency model for distribution of content, or any one of the clauses included in the Agreements, or any of the identified negotiation tactics is inherently illegal. Indeed, entirely lawful contracts may include an MFN, price caps, or pricing tiers. Lawful distribution arrangements between suppliers and distributors certainly include agency arrangements. It is also not illegal for a company to adopt a form “click-through” contract, negotiate with all suppliers at the same time, or share certain information with them. Indeed, as Apple indicates, many common business practices have been found necessary for the efficient distribution of goods and services. See Monsanto, 465 U.S. at 763-64. That does not, however, make it lawful for a company to use those business practices to effect an unreasonable restraint of trade. And here, the evidence taken as a whole paints quite a different picture — a
      clear portrait of a conscious commitment to cross a line and engage in illegal behavior with the Publisher Defendants to eliminate retail price competition in order to raise retail prices.

      Apple also argues that it is particularly unfair to find that it engaged in illegal conduct since Amazon and Google, among others, used similar negotiating tactics and included nearly identical terms, including MFNs, when they subsequently executed their own agency agreements with the Publishers. There are several reasons that this is not a persuasive argument.

      First, it is no defense to participation in an illegal price fixing conspiracy to suggest that others did it too. Second, focusing on the precise terms of agency agreements and the extent to which they may have been similar is far too narrow a focus. The issue is not whether an entity executed an agency agreement or used an MFN, but whether it conspired to raise prices. Apple has pointed to no evidence that either Amazon or Google desired either to eliminate retail price competition or to raise retail prices. Quite the contrary. Amazon was adamant in its support of retail price competition and lower prices. It did not relinquish its control over retail pricing easily. As Penguin’s Shanks described at trial, when Penguin demanded that Amazon yield its discretion over retail pricing, Amazon “yelled and screamed and threatened. It was a very unpleasant meeting.”

      For its part, Google had been negotiating wholesale distribution agreements with Publishers and only switched to agency agreements at their insistence. Amazon was so hopeful that the Publisher Defendants would relent and revert to a wholesale model once they saw how much money they were losing with the agency model that it added a “model-parity” clause in its agreements.

      In sum, Apple’s independent business reasons for creating an e-bookstore and for adopting an agency model to do so have not created any ambiguity in the evidentiary record that should require hesitation before finding Apple liable. The totality of the evidence leads inextricably to the finding that Apple chose to join forces with the Publisher Defendants to raise e-book prices and equipped them with the means to do so.

      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.”

      Now, you have to understand. We have in writing Steve Jobs saying, AFTER they had the publishers going and getting them to sign, he scaled up his pressure and dropped the following bomb: He said Apple wouldn’t enter the eBook market if the industry didn’t move over to agency. He didn’t think they could compete at higher prices with folks like Amazon selling for less.

      The courts uncovered a very solid timeline of events from everyone involved… like a clock. After the publishers signed with Apple, they immediately went to Amazon and gave them the ultimatum. I believe it was HarperCollins who Amazon retaliated against by removing their buy buttons from their books within 24 hours after they gave Amazon the agency model ultimatum.

      Here, you can see why Apple’s labeled the ring leader. They put in these “punishment” clauses to make sure that, after the contract was signed, everyone would play along. Those who tried to “screw” the group by undercutting (selling under say a wholesale model somewhere else), would be punished. It was all or nothing. They all wanted assurances that each publisher would play along or the deal was off. This is how Apple facilitated and lead this illegal operation. All of this came out as hard evidence clear as day in court.

      1. The issue is that that Amazon is wrong, and it was proven in the trial. The only excuse DOJ had back then is saying that it is “Apple on the trial, not Amazon”, but Amazon trial has never followed.

        And no wonder, since DOJ and Amazon’s lobbying firm, as well as Amazon itself all have revolving door relationships.

      2. Dftr: Your post is almost as lengthy as the court of appeal’s opinion – which at 117 pages is unusually long (and that doesn’t count the two page concurrence nor the 38 page dissent). And the first seven or so pages are spent doing nothing but bashing the dissent – again, very unusual. You may be an insider, but I suspect you’re not a lawyer. Nor a good reader – the court states Amazon had a 90% share of the market (in contrast to your 70 or 80% “knowledge”); it also said that Amazon was selling some books at less than it paid for them. That’s called losing money, again in contrast to your statement that Amazon didn’t lose money on any books. There may be other errors in your post – I concede I haven’t read it all, nor have I read all 160-ish pages from the court.

        As someone who works in the legal field (though not in the anti-trust area), I don’t know enough about these aspects of the law. But I note the writer of the main opinion has doubts whether the “per se” rule is applicable to new forms of business such as e-books, and struggles to find other grounds to uphold the district court (hence the 117 pages). The writer of the concurrence has sympathy for both Apple and the publishers, but thinks they went about fixing the Amazon problem the wrong way,saying the per-se rule does apply whether you like it or not. And the dissent cited numerous Supreme Court cases holding that the per se rule did not apply in very similar circumstances.

        The court of appeal cited numerous facts which it said proved Apple’s guilt, and you cite some of them. But facts can be viewed in various ways, depending on what you want to prove. Sort of like statistics.

        But, three out of four judges now think Apple and the publishers broke the law. I doubt SCOTUS will take the case because they have no interest in protecting Apple’s interests, no matter whether the law was correctly applied or not. That’s the court of appeal’s job, and it has spoken. There is no conflict between this case and other similar cases, where SCOTUS is being called on to make a rule. Now, if the DOJ were to prosecute Amazon and the court found it also broke anti-trust rules, we’d have an interesting quandary. But I suspect Apple will have to suck this one up.

        And, for the record, I don’t subscribe in the slightest to the view that the DOJ is doing all it can to harm Apple. I leave that to the far right conspiracy theorists who post here.

        1. Lemons:

          Amazon’s 90% markeshare was an issue and contested and dealt with. I already stated that it’s also not the case they had a 90% marketshare worldwide. Apple’s iBookstore was launched in multiple countries. Regardless, Amazon worked for their dominant position in the United States and some other places and they deserve it. The same thing you said when Apple dominated the MP3 market.

          You clearly have not read my post. The courts addressed the “losing money thing”.

          You state there are errors in my post etc., but cite nothing. Please, let’s cut the bullshit.

      3. The only quibble I have with your argument (and thanks for all the details not covered by the MM, and your perspective), but I’ve read other reports where Amazon did squeeze publishers and recently there’s been plenty of coverage about Amazon removing or delaying titles by publishers for not coming to terms on their ‘cut’ of sales.

        The end result of this blatant personal attack on Apple has been higher prices both on Amazon and iBooks.

        Thanks, DOJ, for looking out for “your people.”

      4. Thanks for an enlightening post.

        There’s plenty of math mentioned which can be analyzed.

        For both sides of the discussion, more parsing is possible. The text format of this page is not suitable for the analysis that is needed.

        That is to say, there are many good questions here –> and they are worth answering more precisely than I’ve seen.

      5. Now, you have to understand. We have in writing Steve Jobs saying, AFTER they had the publishers going and getting them to sign, he scaled up his pressure and dropped the following bomb: He said Apple wouldn’t enter the eBook market if the industry didn’t move over to agency. He didn’t think they could compete at higher prices with folks like Amazon selling for less.

        First of all, that was NOT after the publishers had signed. It was before. . . your timeline is screwed up completely.

        There is nothing illegal about noting that no one can compete against a predatory pricing scheme like Amazon’s. That is simply recognition of a fact of economics. It was not saying that Amazon was merely selling for less, but selling below COST. Amazon was NOT challenged to demonstrate that they were making money on e-books. No evidence was ever produced showing Amazon’s profits in e-Books, just a statement they made up their losses on the A-list and best-seller by selling B-list and other low margin e-books in volume at a profit. . . but provided absolutely no proof. The Justice Department made the unsupported claim they had “investigated Amazon” and found nothing illegal taking place. . . and also provided no evidence such an investigation ever took place and no public record of such an investigation has ever been found. The year this was claimed about Apple, Amazon posted major overall losses for their entire business.

      6. Dft.’s supposed quotations from the court case are merely citations from the government’s closing arguments, and are not part of the factual case. They are arguments. . . not evidentiary. Statements of what claim to have shown are not proofs of anything.

        Claiming that they had “The Plaintiffs have also shown that Apple was a knowing and active member of that conspiracy,” is based on no evidence at all. In fact, the publisher defendants had done their conspiring in the summer BEFORE Apple even decided they wanted to have an e-book store in September. The facts are that Apple merely offered to the publishers the exact same system they offered the publishers and designers of software for their App Store Agency model. . . which the publishers decided to adopt. There was NOTHING about it that was a ring-leader to any conspiracy position. Judge Cote was an idiot. . . and these two Appellate Justices are idiots as well, ignoring the clear guidelines established in clear language by the US Supreme Court to determine such.

        1. Swordmaker:

          You are wrong and deny facts.

          “First of all, that was NOT after the publishers had signed. It was before. . . your timeline is screwed up completely.”

          You are WRONG. What I wrote is correct.

          You claim that Amazon has predatory pricing and that they lost money on eBooks implying they lost money on the A-list and best-seller eBooks across the board making this up on other eBooks.

          You clearly have not read the corpus of materials about this case or you wouldn’t be making such broadsweeping and incorrect conclusions. For starters, there IS EVIDENCE THAT AMAZON DID NOT LOSE MONEY IN THE WAY YOU HAVE CONCLUDED. There’s viva voce evidence from publishers stating that Amazon didn’t lost money on most of their eBooks. Right, go run and look up viva voce evidence. Do everyone a favour and stick to being a fanboy and not a pretend lawyer or judge. It’s embarassing.

          The fact that you call Amazon’s pricing predatory clearly shows that you don’t know what the fuck you’re talking about.

          Amazon used the wholesale model. I am willing to bet $1000 that you’ve never actually read Amazon’s publisher agreements. There is nothing predatory about it anymore than any other retailer buying wholesale and selling at a profit or breakeven or loss.

          The courts documents show that there were 36 instances of losses on eBooks, a fraction of eBook sales.

          In sworn statements, Amazon officials claimed the company’s $9.99 pricing was both sustainable and profitable. Most of the new releases Amazon sold at $9.99 were at break-even margins, [Amazon VP of Kindle Content David] Naggar testified.

          “One of the great things about attractive pricing on frontlist titles is that it often prompts customers to make immediate purchases from the backlist,” Naggar explained in his direct testimony. “You’re lying in bed, and it is 11 o’clock, and you’ve just finished a book that you loved and you’re not ready to go to sleep, you want to read some more. Given that you’re holding a bookstore in your hand with a Kindle, you’re likely to buy another book by that author, which generally means a backlist title, where the deep discounting was not in effect.”
          And those titles, he stressed, represented nothing more than “a classic loss-leading strategy” common to the book business—including with print books.

          Of the titles that Amazon had discounted, they simply serve as loss leaders, just like what other retailers do to get people in the store to buy other things. This is therefore not designed to drive competitors out of business but to get people buying more on their store.

          What Amazon does in this case is serves as a tool for Apple in their defence to try and distract away from their own actions and make them a scapegoat. But Amazon is not responsible for the illegal activity that Apple and the publishers engaged in.

          Apple and the publishers are guilty. Apple was found guilty in court and now on appeal.

          MAKING FINDINGS AND CONCLUSIONS BASED ON NO FACTS AND NO EVIDENCE IS AN ERROR IN LAW AS IS IRRATIONAL.

          You have no facts and no evidence to support your conclusions. NONE.

          Finally, Judge Cote addressed the predatory pricing:

          Second, the Complaint asserts that Amazon’s e-books business was “consistently profitable.” Moreover, to hold a competitor liable for predatory pricing under the Sherman Act, one must prove more than simply pricing “below an appropriate measure of . . . costs.” Brooke Group Ltd. v. Brown & Williamson Tobacco Corp., 509 U.S. 209, 222 (1993). There must also be a “dangerous probability” that the alleged predator will“recoup[] its investment in below-cost prices” in the future. Id. at 224. None of the comments demonstrate that either condition for predatory pricing by Amazon existed or will likely exist. Indeed, while the comments complain that Amazon’s $9.99 price for newly-released and bestselling e-books was“predatory,” none of them attempts to show that Amazon’s e-book prices as a whole were below its marginal costs. See Ne. Tel.Co. v. Am. Tel. & Tel. Co., 651 F.2d 76, 88 (2d Cir. 1981) (“[P]rices below reasonably anticipated marginal cost will be presumed predatory.”).

          When it comes to you stating that Amazon posted losses for their entire business, it makes me realize that there’s a good chance you’re an unemployed fanboy that knows nothing about economics.

  1. Let’s see if I have this right.

    Amazon was a monoply and was abusing the monopoly position by crushing competitors with predatory pricing.

    Apple certainly could have chosen to compete with Amazon at the $9.99 price point and lost money on every sale, trying to make the loss up in selling hardware, which was similar to the business model Amazon was following at the time. The probably success of that effort, however, might mean that Apple would have been destined to be a distant second place in the market.

    So instead they offered the publishers a different pricing option along with the most favored nation clause, which gave them an incentive to go with Apple, even though at the time they had zero market share. Now the publishers then acknowledged that they got together on their own and conspired to pressure Amazon to take the same terms or they wouldn’t sell through them any more. Apple was not involved and didn’t know about it.

    Apple is guilty of being the ringmaster, even though they were unaware of the publishers’ plans.

    How this might have turned out different for Apple if not all the publishers had agreed to do a bad thing. The ringmaster theory would have collapsed.

  2. this supreme court is so, so political. they take cases they should leave to the states and to lower court rulings and make decisions and even law based on personal political bias and feeling. the fact that there are so many 5-4 decisions is in itself a reason to doubt they function as described by the constitution

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