7/10/13

A U.S. court says Apple colluded to fix e-books prices

Though Apple says it will appeal, the ruling could benefit Amazon.

Paul Demery , Managing Editor, B2B E-commerce

A federal judge ruled today that Apple Inc. colluded with six major book publishers in 2010 to fix prices of e-books above the $9.99 prevailing price charged at the time by Amazon.com Inc.

Although the ruling could affect how Apple proceeds with sales of e-books and other digital media, one immediate outcome is that it reinforces Amazon’s position as the leading e-books seller, says Sucharita Mulpuru, vice president and principal analyst for e-business and channel strategies at Forrester Research Inc.  By ruling that Apple was wrong to work with publishers to set prices under an “agency” model, through which the prices consumers pay were set by publishers instead of by Amazon and other retailers, the court underscored Amazon’s freedom to continue setting prices as low as it wants.  “This cements Amazon’s continued dominance in the space” as the low-price leader, she says.

In the case, “United States v. Apple Inc., et al.,” U.S. District Court Judge Denise Cote found that the U.S. Department of Justice showed that Apple and the publishers “conspired with each other to eliminate retail price competition in order to raise book prices, and that Apple played a central role in facilitating and executing that conspiracy. Without Apple’s orchestration of this conspiracy, it would not have succeeded as it did in the spring of 2010.”

Apple denies that it conspired to fix e-book prices and plans to appeal, a spokesman says.

But Judge Cote, sitting in U.S. District Court for the Southern District of New York, said there was “very little dispute about many of the most material facts in this case.” Before Apple began to meet with the publishers named in the case, it knew that they “wanted to raise e-book prices, in particular above the $9.99 prevailing price charged by Amazon,” Judge Cote says in her ruling.  The judge set no penalties or damages in her ruling, but noted that a forthcoming court action will determine damages.  

The Justice Department filed the lawsuit in April 2012, charging that Apple colluded on e-books pricing with five publishers: Hachette Book Group Inc., HarperCollins Publishers LLC, Simon & Schuster, Penguin Group (USA) Inc., and Holtzbrinck Publishers LLC. Holtzbrinck operates under the Macmillan name.

The lawsuit charged that Apple and the publishers set up an agency model of setting prices, under which the publishers instead of the retailer set pricing, which included new prices of $12.99 and $14.99 for many books that had been sold by Amazon for $9.99. The five publishers have all since settled with the Justice Department.

Topics:

agency model, Amazon, antitrust, Apple, book publishers, Denise Cote, digital content, e-book pricing, e-books, e-commerce, Hachette, HarperCollins, Holtzbrinck, Macmillan, Pengui, Simon & Schuster, Sucharita Mulpuru, Top 500

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