U.S. Supreme Court rejects Apple appeal over $450 million e-book case

“The Supreme Court has rejected an appeal from Apple Inc. and left in place a ruling that the company conspired with publishers to raise electronic book prices when it sought to challenge Amazon.com’s dominance of the market,” The Associated Press reports.

“The justices’ order on Monday lets stand an appeals court ruling that found Cupertino, California-based Apple violated antitrust laws in 2010,” AP reports. “The 2-1 ruling by the New York-based appeals court sustained a trial judge’s finding that Apple orchestrated an illegal conspiracy to raise prices. A dissenting judge called Apple’s actions legal, ‘gloves-off competition.'”

“Apple Inc. must pay $450 million to end an antitrust suit after the U.S. Supreme Court refused to question a finding that the company orchestrated a scheme to raise the prices for electronic books,” Greg Stohr reports for Bloomberg. “The accord calls for Apple to pay $400 million to e-book consumers, $20 million to the states, and $30 million in legal fees.”

“At the Supreme Court, Apple argued that its actions enhanced competition by providing consumers with a new e-book platform. The company said overall e-book prices have fallen in the years since the introduction of iBookstore [sic],” Stohr reports. “‘Following Apple’s entry, output increased, overall prices decreased, and a major new retailer began to compete in a market formerly dominated by a single firm,’ the company said in its appeal.”

Read more in the full article here.

MacDailyNews Take: Travesty. Justice was not served in this case.

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

Why Apple took its ebook antitrust battle to the U.S. Supreme Court – October 30, 2015
Apple asks U.S. Supreme Court to toss e-books antitrust decision – October 29, 2015
U.S. federal puppet Denise Cote says Apple e-books antitrust monitor’s term to end – October 13, 2015
U.S. DOJ says Apple e-books antitrust monitor no longer necessary – October 13, 2015
Apple is its ‘own worst enemy,’ U.S. antitrust monitor Bromwich claims – October 6, 2015
WSJ: U.S. Supreme Court should strike down the risible antitrust campaign against Apple – July 1, 2015
Apple is headed to the Supreme Court over e-book antitrust case? – June 30, 2015
Apple loses appeal in e-book price-fixing case – June 30, 2015

[Thanks to MacDailyNews Readers “Fred Mertz” and “JES42” for the heads up.]

39 Comments

    1. The issue you miss is that the U.S. does not have a “justice system”. It has not had one for many decades.

      The U.S. has a “legal system”. This system rarely has anything to do with “justice”. It all depends upon how the judges and justices interpret the law. The SCOTUS does not rule on whether the prior rulings are just or not. It takes cases where they believe the law (or the U.S. Constitution) is not applied in a way consistent they interpret the law or the U.S. Constitution.

      Apple likely did not convincingly show the SCOTUS that the prior rulings were inconsistent with standing law, the U.S. Constitution or recognized interpretations thereof.

      1. This is precisely the point: the prior court rulings were _not_ inconsistent with standing law. BUT THE STANDING LAW IS NEVERTHELESS INADEQUATE TO FAIRLY ADDRESS THE FUNDAMENTAL ISSUES RAISED.

        Years ago, it was perfectly legal to be racist or to discriminate: standing law did not preclude it. This is why the laws had to change.

        But not recognizing the underlying legal issues to be clarified, the Supreme Court has failed the USA and its citizens and institutions.

        I wonder how much pressure the administration and the so-called “Justice Dept” put on the decision?

        1. The issue the SCOTUS would address — if they thought it necessary — would be whether the laws being applied were applied correctly according to current legal precedent and according to the SCOTUS interpretation of the U.S. Constitution. They very, very rarely address whether the law is adequate or not. For the SCOTUS the questions are “Does the ruling follow the law and the U.S. Constitution?” and “Was the law applied consistent with precedent with regard to that law?” It is extremely rare that anything else matters.

          This was the extreme failure of Apple’s legal team. They completely — from the very beginning — failed to show that the anti trust laws do not apply in this case. They allowed the DOJ to form the mindset of the courts (at all levels) around statements that were misleading, technically irrelevant, or outright false. Apple’s legal team should have corrected each and every one of these errors. Instead they tried to get the courts to listen to a “we did nothing wrong and were only trying to help consumers” pitch.

          Even the vast majority of the media (even the tech media) gets it wrong. There are multiple articles out there today that state flatly that the ruling was correct based upon the facts of the case. Apple’s lawyers (and PR team to a lesser extent) should have corrected this. It would seem they didn’t even try!

          Apple’s legal team could have gone at it as an incorrect — in the extreme — application of law. Apple’s team could have shown that it did not violate the law. Apple’s team could have shown that the DOJ’s framing of the case was incorrect at its most basic levels. Apple’s team failed miserably on all counts and at all stages of this case.

          Apple will be penalized for years to come over this loss. Government agencies will very likely investigate the iTunes store, the App Store, Apple’s music business, Apple’s deals with phone carriers, and every other instance where Apple has a model what Apple either costs shares or has any variation of a commission model. And, while the numbers won’t be high, Apple will lose sales over this.

          Apple’s lawyers will still get paid handsomely for this loss (and all the prior losses related to this case). What better example do you need that this is in no way shape or form a case about justice.

        2. Your primary point may be valid but it is not the responsibility of the Judicial branch of government to determine whether standing law is or is not adequate. That is up to the Legislative branch and the people/groups lobbying it. The Judicial branch is responsible for only interpreting and enforcing the standing laws. If the Apple lawyers expected anything other than to verify that lower courts had applied their rulings according to standing law properly, they just set themselves up for disappointment.

    2. chefpastry:

      I will bet you $100 that you haven’t read even 1 page of the evidentiary record in this case.

      “Apple is innocent! The government sucks! We have no justice system! This is a great injustice!”

      -You haven’t read even 1 court document.
      -You don’t understand what actually happened in this case.
      -You can’t truly believe there is no justice system.

      Apple is guilty. I have been in the eBook industry for several years. I’ve read lots of the evidentiary record. Apple conspired to fix eBook prices with the Big Five and stamp out competition.

      Did you know that Eddie Cue blackmailed Penguin Books when Penguin initially refused to participate in Apple’s scheme? He blocked their Apps that they wanted to release on the App Store until they acquiesced.

      Apple rounded up all the big publishers, got them to join in with ONE ANOTHER to fix best seller and new release prices to be below a ceiling price, and to remove any ability for others to sell cheaper.

      None of you know how bad it was for the industry.

      Don’t come on here and start arguing either. Shut up and go read the evidentiary record.

      1. Well, I HAVE read a lot of the documents, transcripts, etc., and whether chef pastry did or not, he’s correct that this is a travesty of a judgment. It stood well understood interpretations of law on their head. This ruling REDUCED competition. This sets a very bad precedent as well.

      2. You speak with great authority, dswe. Pray tell us how great the situation was for the book publishing industry before Apple got involved when Google essentially controlled the ebook market. Was that better…or worse?

        1. Apple conspired by colluding with the biggest publishers in the world to fix eBook pricing and eliminate price competition.

          If Apple couldn’t fix the prices and eliminate price competition, they didn’t want to get into the eBook game.

          First, Apple wanted to squeeze out Amazon, and pushed to have the publishers effectively renege on their agreements with Amazon. Because of Apple’s price fixing and anti-competitive initiative, the publishers had to get out of their Amazon deals or else they wouldn’t be meeting their price ceiling agreement with Apple.

          The initiative also called for a move to the agency model from the wholesale model. This put the pricing power in favour of the publishers.

          What this did was eliminate the ability of Amazon to sell books for cheaper than Apple and constrained how the publishers were able to do business with anyone.

          The court case showed that eBook prices went up after Apple entered the scene.

          What the public like you doesn’t fully understand is how constraining it was for the industry.

          At the time, we were trying to develop and launch a Netflix style eBookstore. But that business model was out. None of the big publishers were in a position to try new models like this because it was against their agreements with Apple, both written and verbal.

          Only after Apple’s anti-competitive practices first got broken up did some new business models really spring to the scene. One example is Oyster. And they’ve done a good job.

          Had Apple not have been prosecuted, eBook prices would be higher; no new business models other than agency would really exist; and consumers would have less choice.

          Just because Amazon sells some books cheaper than others doesn’t mean it’s anti-competitive. They’re simply a competitive business with thin margins. If any of you idiots could go buy a nice new car right now for $5000, you would. And you would also buy “doorcrasher” loss leaders at a retail store.

          With the $5,000 car, when Apple comes out with their car for $30,000+, you’ll then say the guys selling for $5,000 are anti-competitive.

          In the case, it was proven that Amazon doesn’t lose any money on their books/eBooks. Only just a handful of them they did. Also, self-publishers sell 10 times more books on the Kindle Store than on the iBookstore. Finally, the price you set for a book for sale on Amazon is the price used to calculate your percentage royalties. If Amazon puts it on sale, you won’t lose any money: they will cut into their own profits.

          Amazon has done a lot for the publishing industry and put self-publishing on the map. They’ve been used as a smokescreen to distract away from Apple’s anti-competitive behavior.

          Apple simply wanted to enter a new established market and didn’t want to compete.

          They got less than what they deserved here and consumers are better off.

      3. Actually I have, and clearly you have not. You are spouting crap about blackmail and such. Transcripts of depositions and public statements by the parties involved directly contradict some of your statements.

  1. While this case has been going on for a long time, and undoubtedly SCOTUS deliberations for a while on this, it is entirely too tempting to read into this the fact that perhaps the govt. is not so friendly to Apple since the iPhone encryption case.

    I still can’t forget what a guy I know, who has served in local govt, told me…he said that the govt came to Apple asking for help and Apple said no. Apply that on a personal scale. If you went to someone for help, and they refused…what would be your likely response when they came to you for help?

    So his insinuation was that when Apple needs the help of the govt, they might not be so inclined. It may not be fair…but it could be real life. So unfortunately now when I see Apple lose any case in any US court, I wonder if that iPhone case is making an impact?

    That doesn’t mean Apple should give in…Apple is doing the right thing, even for national security. But it is one more element in a complicated matter.

    1. The government is supposed to work for the people and with the people’s best interests in mind. To hear they expect quid pro quo it’s desheartening; it means they’re not for working for justice and fairness.

  2. No, justice was not served – only winner here was Amazon. The fact that $400M goes back to consumers is cool, but $100M of that is going to be spent trying to decide and find eligible consumers, only about $100M will actually ever be claimed by the consumers. $30M goes to fed lawyers, who apparently didn’t have any real criminals to go after and $20M will goes to states who will squander it on tax cuts to the wealthy. Oh what the hell — justice in America!

  3. oooh, Apple with be so…um…compelled to quadruple their encryption methodologies. I expect the four digit entry code on the iphone to go the way of the fishes on the next iphone upgrade.

  4. Why did apple have to “conspire” with publishers? Didn’t they just open the iBookStore on the same terms as the iTuns Store and the App Store? Apple takes 30% and publishers name their price? Why would the courts view the iBookStore differently from the iTunes store? Aren’t music publishers analogous to book publishers? What gives?

    1. RoaringMac-
      It’s not that simple. My understanding is that Apple demanded the ability to charge the same price as any other competitor (ie: Amazon), and pay the publishers 70% of that selling price. Meaning if Amazon were willing to sell for zero margin, or even at a loss, Apple would have the right to still make their 30% margin, and the publishers would be left with little revenue. So if a title wholesaled for $10, for example, Amazon paid $10,sold it for $10, and made no revenue on the sale. The publishers would make their $10. Apple wanted the ability to also sell for $10, keep their 30% (or $3,), and give the publishers $7. Meaning the publishers would suffer a loss on the sale for every product sold through Apple. The publishers also colluded to switch to an agency model, where they would have more control over the final retail price of their products. This is what initially brought the suit, as each publisher was making the same demands of Amazon, and sharing confidential information they had regarding their own negotiations with Amazon. Apple was involved in that they knew of this collusion, and actively participated in it, in order to help the publishers switch to an agency model, and thereby force Amazon to charge more for it’s sales of ebooks.

      1. There is nothing wrong with that or illegal. Apple did not orchestrate this. Apple was a late comer to the conspiracy that actually did exist. However, the true monopolist the government SHOULD have gone after under the price fixing laws was Amazon, who was using predatory pricing on the ebooks that comprised the vast majority of the profitable portion of the ebook market. They falsely argue that it was only on the best-sellers and A-list books where they forced prices to be $9.99, but that is where the money is. Amazon was selling them BELOW COST, which made it impossible for any new competitor to enter the ebook market, which was why they were selling them for such a low price. Competitors cannot break into a market when the monopolist can undercut any possible price the competitor can sell profitably. That is Amazon’s business model. They drive everyone else out of the markets they are interested in.

        1. If Apple and its lawyers had been on top of things, then it never would have made itself vulnerable to this lawsuit, whatever its merits.

          Apple should have taken this approach…same policy as iTunes (Apple’s 30% cut of sales price), except that the company is guaranteed no less than the wholesale price. The companies are happy because they get their wholesale price, and Apple is free to set whatever price it wants to set to compete with Amazon. Apple could try to sell at a profit, break even, or at a loss while matching prices with Amazon. Apple could afford to lose some money by matching Amazon’s best seller discounts (it would have cost a lot less than $450M, I am willing to bet), and Apple would have been in the driver’s seat. Apple could not have been sued for matching Amazon’s pricing policy in order to compete, and Apple had much deeper pockets to absorb the losses. Besides, Amazon’s whole (illegal) approach was to corner the ebook market and prevent entry by competition. Once Apple called their bluff and matched their pricing despite the losses, it would no longer have been of benefit to Amazon to continue the practice.

          That’s my opinion, anyway.

          1. That is NOT an agency model. That is a whole sale model in which the retailer sets prices. It is not and never has been Apple’s policy. Apple never buys inventory to sell in its app stores at wholesale prices.

      2. The problem Shva105 was that Amazon was NOT paying $10 and selling for $10. They were paying $15 and selling for $10, losing $5 per sale, claiming to make it up on lesser demand books. . . but offering zero proof that people who bought best sellers as a loss leader were also buying ebooks such as “The Economics of the Upper Slavonic Peoples of the 11th Century in Relation to Grecian Culture” at full pricing, where they claimed they could make a huge profit. The fact is that people who buying John Grisham’s or Steven King’s thrillers, or Michael Connelly’s Court Room mysteries, are simply NOT going to be buying any of those kind of books. They are going to be buying more of the same A-List books, also being sold as loss leaders, or heavily discounted, below cost by the same authors! It is just the natural buying patterns of those fans. . . and the pricing found on Amazon.

        Your analysis of Apple’s offer to the publishers is totally wrong. Apple did not “collude” with the publishers as a group. Apple made the publishers an offer to sell their books on Apple’s standard model, the agency model. The owner of the inventory, the publishers would set their price, Apple would sell it for them taking a agency 30% fee. Simple. It works for Apps, it works for Music, it works for videos. The DOJ mistakenly concluded it couldn’t work for ebooks similarly and stuck its oar in because the TRUE monopolist, Amazon, filed a complaint because there was now a serious competitor. . . and the publishers had somewhere else they could sell their products without cutting their own throats!

        1. I had assumed Amazon’s loss leader for best sellers was a way for Amazon to invest in getting customers onto their tablets which do a few other things but is IMO primarily a convenient, affordable and direct portal to Amazon’s services and store.

          As with KingMel’s comment above I have to agree that if Apple’s policy was to allow prices to be set so that the publisher receives no less than the best wholesale price offered elsewhere Apple would be off the hook since there would be no ‘incentive’ for forcing other retail outlets into an Agency model to ‘make up’ the loss in margin.

      3. Collusion is defined as agreement between parties to achieve an illegal end, such as to harm free competition.

        If one uses the word ‘collusion’ it means the parties are prejudged as criminals.

        Apple and the book publishers were simply talking and agreeing on some obvious business issues. They will tell you honestly that they believed they were not colluding. The evidence is that they did not attempt to hide what they did. Parties involved in collusion usually know it, and go to great length to conceal their illegal agreements.

        Any student of Game Theory will tell you that Apple and the publishers could have reached the same decision without even talking to one another, if they understand basic strategic games and what was in their best interests.

        The publishers blew it by failing to see the pitfall of selling ebooks to Amazon as a “wholesaler” …since it gave Amazon the legal right to undercut the publishers’ prices for their only profitable titles. Apple, and Steve Jobs in particular, explained how the publishers could fix the mess they got themselves into. But the US Justice Dept decided this was “collusion” on the part of the Publishers and Apple, too.

        The outcome is that the US Supreme Court agreed with the Justice Dept that the publishers cannot revise what all agree was a bad business decision.

        Failure of the Supreme Court to recognize the need to update archaic US anti-trust law (and, in particular, the “per se rule” — which means if you can prove competitors talked among themselves and consumer prices went up, it is tantamount to prima facie evidence of conclusion).

        Folks, it is a sad day for American Justice, business, and free market competition.

  5. Regrettably, the sequence of events tells a powerful narrative that is difficult to defend. Apple’s legal counsel has less than stellar record when it comes to defending Apple in the court of law (and their PR has even lesser of a record defending them in the court of Public Oppinion…).

    E-books were $10 before Apple appeared on the market; then they shot up to $12, 15, 17… And that was clearly the consequence of an agreement between Apple and the publishers. And as a consequence, Amazon had to re-negotiate their deal with the publishers. So, the timeline shows an immediate consequence for the consumers of prices going up as a result of a “collusion” between Apple and the publishers.

    We all know this is very much a monopoly-busting event against Amazon, which successfully evened the playing field for the publishers and finally gave them a fairer share of the e-Book market pie (where Amazon was robbing them blind before), but all those things couldn’t be argued in court since it wasn’t Amazon who was on trial.

    The justice system functioned as designed. Regrettably, on occasion, that design doesn’t actually bring proper justice…

    1. Yes, I believe you have succinctly stated the case. It appears from the Bloomberg article that the court declined to hear Apple’s appeal. That’s not the same thing as finding the lower court ruled correctly, even though as a practical matter Apple ends up having to pay. Let’s put this stuff behind us.

  6. The solution here is simple. Buy, when you have a choice between Apple and Amazon, from Apple. Vote with your wallets. Forget about Prime membership and Alexa’s stunning abilities. Boycott the bad guys.

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