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Apple found guilty of e-book price hike conspiracy

A US Federal Judge ruled that Apple colluded with publishers to raise e-book prices violating antitrust laws.

By Contributor / July 10, 2013

A woman holds up an iPad with the iTunes U app after a news conference introducing a digital textbook service in New York. A federal judge ruled that the company conspired with five major publishers to raise the retail prices of e-books.

Shannon Stapleton/ Reuters/ File

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A US District judge found Apple guilty of conspiring to raise e-book prices in violation of antitrust laws. In a Wednesday statement, Judge District Cote writes that Apple is liable for “facilitating and encouraging” price fixing with five major publishing companies, rejecting Apple’s argument that it never intended to conspire with publishers. 

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Apple was accused of raising the price of e-books to $12.99 and $14.99 in agreements with five publishing companies – Hachette, HarperCollins, Simon & Schuster, Macmillan, and Penguin – with the launch of the iBookstore in 2010. 

At that time, Amazon.com held 90 percent of the e-book market, and sold books, which it purchased wholesale from publishers, at a flat-rate of $9.99 per book. Apple proposed paying publishers a more lucrative commission fee based on the number of books sold, and proposed setting up an agency model that allowed publishers to direct book prices. The publishers would agree to offer certain books exclusively through Apple at a higher price, a model which would undercut the appeal of Amazon.com's flat-rate pricing.   

“Apple was an essential member of the charged conspiracy and was fully complicit in the scheme to raise e-book prices,” even though the publishers were also culpable, writes Judge Cote. 

Though they admitted no wrongdoing, the five publishing companies accused of colluding with Apple all settled and agreed to issue approximately $175 million in consumer credits to customers. 

“From the consumer’s perspective…the arrival of the iBookstore brought less price competition and higher prices,” according to the US District Court ruling. 

Apple has denied that the company was involved in crafting a horizontal price-fixing scheme and plans to appeal the case. 

“We gave customers more choice, injecting much needed innovation and competition into the market, breaking Amazon’s monopolistic grip on the publishing industry,” according to a statement released by Apple after the US District Court’s decision came out.  

But it isn’t clear what exactly Apple can contest – the case was pretty straightforward, Harry First, a law professor at New York University, told the Monitor. 

“Apple beat itself at its own game;” the case might have convinced Amazon that it can charge higher book prices, says Mr. First.

The real significance of the case is the precedent it sets: the decision acts as a warning against price collusion for other companies, First explains.

Should Apple lose its appeal, the state attorneys general will be allowed to sue Apple for financial compensation on behalf of consumers who have been overcharged as a result of Apple’s violation of the antitrust laws. This could expose Apple to significant damages. 

Wednesday’s ruling is “like a Christmas gift for the publishing industry,” Andrew Albanese, a senior writer at Publisher’s Weekly, told the Monitor. The publishers have already settled with the government and agreed to pay the consumers in credits, which can be spent only on books. If Apple loses its appeal, Mr. Albanese foresees the company reimbursing consumers with credits to be used for the purchase of books, which could translate into money back in the publishers’ pockets. According to the official website for the state attorneys general e-book settlements, for each e-book purchased from from April 1, 2010 through May 21, 2012, customers will be compensated $1.32 for New York Times bestsellers and $0.30 for non-bestsellers.  

Additionally, the agency model is still in place, allowing publishing companies greater control over pricing, Albanese says. “Amazon remains one of the main games in town,” he says, but this trial shook up the e-book industry, and gave the publishers more clout in the price negotiation process. 

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