Appeals court says Apple is liable for e-book price-fixing

Apple lost a price-fixing case, fought the charges, but found no help in higher court.

Megan Geuss – Jun 30, 2015 5:20 pm | 124

The Second Court of Appeals has affirmed (PDF) that Apple is liable for engaging in e-book price-fixing, holding up the 2013 judgment of a district court that ruled in favor of the Department of Justice (DoJ) and 33 states.

The DoJ sued Apple as well as publishers Penguin, HarperCollins, Hachette, Simon & Schuster, and Macmillan back in 2012. The publishers agreed to settle for $164 million. Apple fought the charges and lost, and it appealed the decision in February 2014.

When it appealed last year, Apple argued that at the time of its entry into the e-book business, Amazon was its only real competitor, and Amazon was selling e-books for $9.99, which Apple said was well below a competitive range. Instead, Apple said that it worked with publishers to hit a price point that would help Apple be profitable enough to enter the e-book market.

The appeals court disagreed with Apple’s logic, however, stating that Apple violated the Sherman Antitrust Act. “We conclude that the district court’s decision that Apple orchestrated a horizontal conspiracy among the Publisher Defendants to raise e-book prices is amply supported and well‐reasoned,” Circuit Judge Debra Ann Livingston wrote in the court’s majority opinion.

Apple has been taken to task by consumer advocates who say that Apple not only moved to an “agency model” in trying to launch the iBookstore, but it persuaded publishers to pressure other retailers to adopt the same business model. In the opinion published today, Livingston wrote that most publishers sold e-books wholesale at around $12 each, but Amazon sold those books at a loss to maintain dominance in the market. In order to get into the market, Eddie Cue and other Apple executives at first considered going to the major book publishers and asking for a $3 discount on wholesale books but found problems with that set up. Instead, Apple let publishers set their own price for books and made a fixed percentage of every sale. “In essence, the retailer receives a commission for distributing the publisher’s e-books,” Livingston wrote.

“But at this point Apple was not content to open its iBookstore offering prices higher than the competition,” Livingston continued. “Thus, rather than simply agreeing to price caps above $9.99 price point, Apple created a second requirement: publishers must switch all of their other e-book retailers— including Amazon—to an agency pricing model. The result would be that Apple would not need to compete with Amazon on price and publishers would be able to eliminate Amazon’s $9.99 pricing.”

In a statement, the DoJ wrote that it was pleased with the court’s decision. “The decision confirms that it is unlawful for a company to knowingly participate in a price-fixing conspiracy, whatever its specific role in the conspiracy or reason for joining it. Because Apple and the defendant publishers sought to eliminate price competition in the sale of e-books, consumers were forced to pay higher prices for many e-book titles.”

Ars has contacted Apple but has not received a response.