Apple was “ringmaster” in conspiracy to fix e-book prices, US says

Steve Jobs allegedly told publisher to “throw in with Apple” and raise prices.

Jon Brodkin – May 15, 2013 12:39 pm | 325

Credit: Apple

Apple was the “ringmaster” in a conspiracy to fix the prices of e-books at rates higher than those charged by Amazon, US officials said yesterday in court documents.

The Department of Justice (DOJ) filed suit last year against Apple and six e-book publishers: Hachette, HarperCollins, Macmillan, Penguin, Pearson, and Simon & Schuster. The trial is scheduled to begin June 3 in the US District Court for the Southern District of New York. Apple has denied being part of any conspiracy, but the government’s proposed conclusions of law (PDF) include an e-mail Steve Jobs sent to James Murdoch of HarperCollins’ owner News Corp., in which Jobs said HarperCollins should “[t]hrow in with Apple and see if we can all make a go of this to create a real mainstream e-books market at $12.99 and $14.99.”

The government also noted that Jobs “admitted to his biographer that Apple ‘told the publishers “We’ll go to the agency model, where you set the price, and we get our 30%, and yes, the customer pays a little more, but that is what you want anyway. But we also asked for a guarantee that if anybody else is selling the books cheaper than we are, then we can sell them at the lower price too.’”

The US says Apple and the publishers conspired to fix the prices of e-books above Amazon’s standard rate of $9.99, and that publishers attempted to “mov[e] Amazon off of its $9.99 pricing.” An e-mail from Random House VP Matt Shatz to Random House executive Madeline Mcintosh said Apple is “probably the only retailer in the world that offers us a last chance to shift the anchor away from $9.99 for any foreseeable future.”

The e-mail from Jobs to Murdoch proves that “Apple was not only aware of Publisher Defendants’ horizontal agreement, it joined the conspiracy with the intent of furthering that agreement’s success,” the US said. The US court document further states that “Because of its place ‘in the center as the ringmaster’ of a horizontal agreement among Publisher Defendants to fix the retail prices of e-books, Apple is liable per se under Section 1 of the Sherman Act.” Section 1 of the Sherman Act of 1890 prohibits conspiracies “in restraint of trade or commerce.”

Each of the publishers in the case signed agency agreements with Apple in January 2010 “on the explicit condition that other publishers agree to do the same,” the US said. This is evidence of an illegal agreement “to raise e-book prices and eliminate price competition among e-book retailers,” the government said.

The US asked the court to prevent Apple from “entering into any contracts that have the purpose or effect of prohibiting it or any other e-books retailer from discounting or promoting e-books to consumers.” The US also wants Apple to “permit other e-book retailers to sell e-books through their apps to Apple devices without having to pay an in-app commission.” In a further request, the government asked the court to require Apple to “log all conversations with any other e-book retailers” and notify the DOJ any time it receives an antitrust complaint.

In its own filing (PDF), Apple said the government cannot prove the existence of a conspiracy and that “Apple was neither involved in nor aware of the alleged conspiracy among the publishers.”

“Apple was motivated by its independent desire to enter and successfully compete in the e-books market,” the company said. “Apple decided to use the agency model to enter the e-book market. The agency model, coupled with price caps and an MFN, seemed a logical fit. The model satisfied Apple’s independent business goals: (1) a substantial amount of content available to customers, (2) at a lower price than its physical counterpart (via the price caps), and (3) competitive with the lowest price offered for the same e-book anywhere else in the market (via the MFN).”

MFN refers to “Most Favored Nation” contracts, which Apple gave up last year in a settlement with European Union regulators. The contracts required retailers to give Apple their best price whenever price changes happen.