After losing e-books case, has Apple lost its 'bite'?

The Supreme Court declined to hear Apple's challenge to a court ruling that it conspired to fix prices on e-books sold in its online store.

Kimberly White/Reuters/File
Apple chief executive Steve Jobs introduces some of the publishing houses that will license iBooks during the launch of Apple's new tablet iPad computing device in San Francisco on Jan. 27, 2010. On Monday, the Supreme Court declined to hear Apple's challenge against an appeals court's ruling that the company was engaged in a conspiracy to fix e-book prices to compete with Amazon. The online marketplace just announced its second physical bookstore in San Diego.

A long-running legal dispute over whether Apple and five publishers had conspired to raise the price of e-books has likely reached its conclusion, with the Supreme Court declining to hear Apple’s challenge to an appellate court’s ruling on Monday.

The high court’s decision leaves in place a ruling by the 2nd Circuit Court of Appeals last June that found the tech giant played a “central role” in the scheme and required Apple to pay $450 million as part of a settlement.

In a 2-to-1 ruling, the appeals court found that in trying to challenge Amazon’s entrenched dominance of the e-book market, Apple had colluded with the publishers to increase book prices in violation of federal anti-trust laws.

When it asked the Supreme Court to take up the case, Apple said the 2nd Circuit’s decision went against the high court’s existing precedent on the subject and would “chill innovation and risk-taking."

The Justice Department applauded the court’s decision not to hear the case.

“Apple’s liability for knowingly conspiring with book publishers to raise the prices of e-books is settled once and for all,” Bill Baer, head of the US Justice Department's antitrust division, told Reuters.

In some cases, the Justice Department said the company’s plan had caused e-book prices to rise to $12.99 or $14.99 from the $9.99 typically charged by Amazon.

The two companies have long been in a quiet rivalry, particularly over sales of their own products. In October, Amazon banned all sales of Apple TVs and Google’s Chromecast from its site. The effort, made ostensibly because of compatibility issues, was seen by many analysts as a naked attempt to drum up sales for its own Fire TV.

The high court’s decision comes as Amazon is set to open its second physical bookstore this summer at a mall in San Diego.  It would be located opposite an Apple store and next to a Tesla store in the upscale Westfield UTC mall, reports the San Diego Union Tribune.

Earlier this year, rumors circulated that the online marketplace eventually planned to open as many as 400 stores nationwide. But Amazon appears to have no immediate plans for such a rapid expansion in physical stores, beyond the bookstores in San Diego and Seattle.

An Amazon spokeswoman told the Union-Tribune that it was currently hiring store managers and associates for the San Diego store. The Seattle store, which has approximately 5,500 square feet of retail space, sells a limited selection of Amazon’s best-reviewed books.

Much like other online stores that have expanded into limited retail stores, it also serves as a showroom for products sold primarily online, such as the Kindle e-book reader, Fire TV streaming box, Fire tablets, and Echo personal assistant.

Companies and individual entrepreneurs are increasingly moving into selling tech products in limited retail spaces. This month, a store that exclusively sells drones opened in Brooklyn, N.Y. In Palo Alto, Calif., buyers from nearby Silicon Valley can now test-drive products such as Internet of Things devices developed by small companies and compare prices instantly in-store.

It’s an experience the store’s owners say aims to mimic the dynamics of online shopping, such as limited time “flash sale” discounts, while allowing consumers to buy a product from any outlet they choose.

It’s hard to say whether Amazon’s slow expansion into physical retail or the loss of the e-books case could have an impact on Apple’s fortunes.

Apple’s earnings in the first quarter of 2016 beat the estimates of Wall Street analysts, but sales of its flagship iPhones were down. Last month, Apple chief Tim Cook described the company’s fortunes as “a lot of great things happening in a turbulent environment.”

It also appears that the words of Steve Jobs, the company’s co-founder and longtime chief executive came back to haunt the company. When she ruled against Apple in 2013, 2nd Circuit Judge Denise Cote cited a statement Mr. Jobs had made before his death in 2011 regarding the company’s plans for its iBookstore.

Apple and the publishers – who previously settled with the Justice Department – had agreed on a scheme where the tech giant would get a 30 percent commission in exchange for publishers being able to set prices for the books sold on the company’s store. That’s a tactic known as “agency pricing” that prevents discounts.

“I can live with this, as long as they move Amazon to the agent model too for new releases,” Mr. Jobs wrote to Eddy Cue, Apple’s senior vice president for Internet software and services. “If they don’t, I’m not sure we can be competitive.”

The other five publishers eventually settled separately with the Justice Department.

But in her ruling in 2013, Judge Cote wrote that “Apple has struggled mightily to reinterpret Jobs’s statements in a way that will eliminate their bite.”

“Its efforts have proven fruitless,” she added.

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