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Apple Found Guilty of Collusion in Price Fixing

by on10 July 2013 1239 times
14621rotten apple

As expected US District Judge Denise Cote found that Apple did collude with five publishers to fix eBook prices in 2010. Although it appeared to come as a shock to some it was something that many analysts saw as inevitable. Apple faced a mountain of evidence that showed Apple acting to push the new “agency” model and then establish price guides for new books. These caps on eBook prices (along with the most favored nation clause) are what allowed Hachette, HarperCollins, Macmillan, Penguin and Simon & Schuster to move away from the $9.99 that Amazon was setting to $12.99 and $14.99.

Despite the fact that all five publishers settled with the US DoJ and then went on to settle the multiple state suits Apple decided to fight with the claim of no wrong doing. They tried to stand on the fact that their agreements were individual and only good business practices. Sadly they ended up being hurt by internal emails and conversations (including a few draft emails from Steve Jobs). These were the lynchpin in the case against them. Even before the actual trial got underway Judge Cote had already warned Apple that the evidence was against them. Apple’s reluctance to settle was an effort to protect their business model (which typically calls for price caps and MFN agreements). If Apple lost or was forced to admit guilt as part of a settlement then these practices would be put at risk. In the EU Apple did settle, but were allowed to avoid admitting wrongdoing.

Unfortunately, for Apple, things were different in the US. Simply put the evidence of price fixing and collusion were too clear to be explained away by Apple’s lawyers. Judge Cote wrote: “The plaintiffs have shown that the publisher defendants conspired with each other to eliminate retail price competition in order to raise e-book prices, and that Apple played a central role in facilitating and executing that conspiracy”. It was clear to her that Apple’s Steve Jobs and Eddy Cue were very aware of what they were doing and were using the publishers’ desire to move away from Amazon’s pricing structure to change the eBook market in their favor. It was a critical component of their strategy for iBooks. Apple saw no value in entering the market if they were not going to make money and be able to control the market. Judge Cote summed this up quite nicely saying; “Without Apple's orchestration of this conspiracy, it would not have succeeded as it did in the Spring of 2010.”

Apple still has to deal with the multitude of state cases that were filed against them and now that they have been found guilty of violating Anti-Trust laws at the federal level they will face a rough battle there. The finding will also have other impacts on Apple including loss of investor/consumer confidence and also potential lawsuits from other providers (music, video etc). We would not be surprised to see a number of new complaints open up against Apple considering that they admitted in court that what they did with iBooks is their standard practice. Apple could face a rough next few months…

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Last modified on 10 July 2013
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