Apple Found To Violate Antitrust Law For Ebooks
Judge rules Apple conspired to raise prices on e-books
Reuters – 2 hours 34 minutes ago
By Nate Raymond and Jonathan Stempel
NEW YORK (Reuters) - In a sweeping rejection of Apple
Inc's strategy for selling electronic books on the Internet, a federal judge
ruled that the company conspired with five major publishers to raise the retail
prices of e-books.
U.S. District Judge Denise Cote in Manhattan found
"compelling evidence" that Apple violated federal antitrust law by
playing a "central role" in a conspiracy with the publishers to
eliminate retail price competition and raise e-book prices.
The decision could expose Apple to substantial damages.
It is a victory for the U.S. Department of Justice and the 33 U.S. states and
territories that brought the civil antitrust case.
Apple was accused of pursuing the conspiracy to undercut
online retailer Amazon.com Inc's e-book dominance, causing some prices to rise
to $12.99 or $14.99 from the $9.99 that Amazon charged. Amazon once held a 90
percent market share.
"Apple chose to join forces with the publisher
defendants to raise e-book prices and equipped them with the means to do
so," Cote said in a 159-page decision. "Without Apple's orchestration
of this conspiracy, it would not have succeeded as it did."
Wednesday's decision was not a total surprise, given that
Cote indicated before the 2-1/2 week non-jury trial began on June 3 that
Apple's defenses might fail. Cote ordered a trial to set damages.
"This result is a victory for millions of consumers
who choose to read books electronically," Bill Baer, head of the Justice
Department's antitrust division, said in a statement. "This decision by
the court is a critical step in undoing the harm caused by Apple's illegal actions."
APPLE PLANS TO APPEAL
In a statement, Apple maintained that the plaintiffs'
allegations are false and said it will appeal Cote's decision.
"Apple did not conspire to fix e-book pricing,"
Apple spokesman Tom Neumayr said. "When we introduced the iBookstore in 2010,
we gave customers more choice, injecting much needed innovation and competition
into the market, breaking Amazon's monopolistic grip on the publishing
industry. We've done nothing wrong."
Last year, Apple settled a separate antitrust case over
e-book pricing with the European Commission, without admitting wrongdoing.
The alleged collusion began in late 2009 and continued
into early 2010, in connection with the Silicon Valley giant's launch of its
popular iPad tablet.
Only Apple went to trial, while the publishers agreed to
pay more than $166 million combined to benefit consumers.
The publishers included Lagardere SCA's Hachette Book
Group Inc, News Corp's HarperCollins Publishers LLC, Pearson Plc's Penguin
Group (USA) Inc, CBS Corp's Simon & Schuster Inc and Verlagsgruppe Georg
von Holtzbrinck GmbH's Macmillan.
Baer said Cote's decision, together with the publishers'
settlements, have helped consumers by reducing prices of e-books.
In morning trading, Apple shares were down 30 cents at
$422.05 on the Nasdaq.
Steve Berman, a partner at Hagens Berman Sobol Shapiro
pursuing consumer class-action litigation against Apple, called Cote's decision
"a very big deal."
"It exposes Apple to hundreds of millions of dollars
in damages, which is what we'll ask for," Berman said.
STEVE JOBS
Amazon's strategy involved buying e-books at wholesale
and then selling them at below cost, in an effort to promote its Kindle reading
device.
Apple, in contrast, entered into so-called "agency
agreements" in which publishers were able to set higher prices and pay
commissions to the Cupertino, California-based company.
The federal government said this arrangement pushed
Amazon into a similar model, and resulted in prices of e-books from the five
publishers increasing by 18 percent.
Evidence in the case included emails from Apple's late
co-founder Steve Jobs to News Corp executive James Murdoch that the government
said reflected Jobs' desire to boost prices and "create a real mainstream
e-books market at $12.99 and $14.99."
Such evidence hurt Apple's case, Cote said. "Apple's
efforts to explain away Jobs's remarks have been futile," she said.
Apple had argued that it never conspired with the
publishers to raise e-book prices, or even understood that publishers might
have been talking among themselves about higher prices in advance of the iPad
launch.
"There is no such thing as a conspiracy by
telepathy," Apple's lawyer Orin Snyder said in closing arguments on June
20.
Cote also rejected Apple's argument that it would be
unfair to single out the company when Amazon and Google Inc, among others,
entered similar agency agreements with publishers.
The decision allows the plaintiffs to seek injunctive
relief to prevent further pricing conspiracies.
At trial, the Justice Department said it wanted to block
Apple from using the agency business model for two years.
The department also said it wants to stop Apple over a
five-year period from entering contracts that insure it will offer the lowest
retail prices.
The case is U.S. v. Apple Inc et al, U.S. District Court,
Southern District of New York, No. 12-02826.
(Reporting by Nate Raymond and Jonathan Stempel in New
York; Additional reporting by Alistair Barr; Editing by Gerald E. McCormick and
John Wallace)
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