Apple, Inc. failed to defend itself from the Department of Justice’s antitrust lawsuit for allegedly conspiring with five publishers to set the prices of e-books. Judge Denise Cote announced her decision on July 10, and ordered a separate trial to determine damages. Full text of the opinion can be found here.
Judge Cote’s decision came as no surprise to those who had been following the case closely, as she had previously stated her belief that the government would be able to prove its case. The ruling could expose the tech giant to treble damage claims from the 33 state attorney generals who joined the case, but some commentators say that any financial penalty from the suit will be “pocket change” to Apple. Nonetheless, Apple has already released a statement confirming that the company will appeal Judge Cote’s decision.
Apple’s alleged role in the price-fixing conspiracy was as the distributional agent. The publishing companies, all of which have previously settled with DOJ, entered into contracts with Apple in which the publishers set the price of e-books, and Apple received a flat rate of 30% of each transaction. This model was a fundamental shift from the traditional wholesaler-retailer relationship. In the traditional model, the retailer controls the price the consumer pays rather than the wholesaler. Allowing the publishers, as wholesalers, to set the price of e-books drove the market for the e-books up by 18%, and forced Amazon, which had been selling e-books at very low prices in order to promote its Kindle device, to raise prices as well.
Apple strongly opposes Judge Cote’s findings, and the company has repeatedly pointed out that its contracts with the publishers helped to break the stranglehold that Amazon had on the e-book market. In this case, however, increased competition did not benefit the consumer as prices for e-books rose after Apple and the publishers reached their agreements. Moreover, comments made by late Apple CEO Steve Jobs hampered the company’s claim that its entrance into the market was to the benefit of the consumer. According to Judge Cote’s opinion, Jobs stated, “We told the publishers, ‘We’ll go to the agency model, where you set the price, and we get our 30 percent, and yes, the customer pays a little more, but that’s what you want anyway.’”
The decision is being hailed as a victory for consumers, with Assistant U.S. Attorney General Bill Baer stating that the court’s decision, coupled with the previous settlements with the five publishers, would result in a return to “retail price competition” and its concomitant benefit to consumers in the form of lower prices for e-books.