Tim Cook, Apple Inc. CEO may have to testify in the United States Department of Justice's (DOJ) case against Apple over e-book price fixing, if the government is granted its request. US District Judge Denise Cote will consider the request on March 13 says Reuters.
We've blogged on this before, but as a reminder, last April, the DOJ sued Apple and five publishing houses for collusion to fix the prices of e-books. This is a violation of anti-trust law and a successful case for the government would mean that Apple would be severely limited as to how it can conduct its business from now on. The five publishing houses, HarperCollins, Hachette, Simon & Schuster, Penguin, and – as of February – Macmillan, have all dropped out of the case, settling with the US government for fines and restrictions on their publishing practices. Only Apple is left, and according to court papers (and Reuters), "the Justice Department is not seeking monetary damages but a judicial decree that Apple violated antitrust law."
Apple has framed the lawsuit as an unfair attack on its business model. The company has said that the only way it could remain competitive in a market dominated by Amazon was to sign contracts with the publishing houses not allowing them to sell their books for less to another distributor (unless they let Apple cut prices, too). This allowed Apple to compete with Amazon as the company found its legs in the market.
Basically, Amazon can buy books from publishing houses at one price and sell them wholesale at whatever price they want. In this case, $9.99, which is actually operating at a loss for Amazon, but it allows them to get many more consumers. This steeply undercuts the physical book market, especially when e-book titles are released the same day as the physical book, but for less money.
Apple, and other publishers, reacted to that by adopting a different business model – selling their books for a little more and allowing the publishing houses to take a direct cut of the profit, instead of selling their books wholesale to the distributor and losing physical book sales. Apple is making the case that this model encourages competition and innovation in the e-book market, even though it is more expensive.
The DOJ says that Apple and the publishing houses met to decide prices, which is an enormous violation of anti-trust law in a supposedly competitive market.
It has been pointed out by the DOJ, among others, that the case is a part of a larger problem – the relevance of publishers. Brick-and-mortar distributors are losing their tenure as e-book popularity grows. With publishing houses facing an uncertain future, Apple's business model seemed likely to give them a larger profit, allowing them to stay in the game.
The effect of a ruling on the Apple case may overturn the market, depending on what the court decides.
Ben Frederick is a contributor to The Christian Science Monitor