Apple Found Guilty Of eBooks Conspiracy

Apple has been dealt a damaging blow after a federal judge ruled that the iPad maker had conspired with five publishers to fix the prices of ebooks, when it entered the Amazon-dominated market in 2010.

US District Court Judge Denise Cote’s 10 July ruling came after a three-week trial in June, during which federal prosecutors argued that Apple played a central role in a conspiracy with the publishers to drive up the prices of ebooks beyond the $9.99 (£6.60) set by Amazon, the dominant ebook seller at the time.

Apple Orchestration

Cote said the federal government and several states that acted as plaintiffs in the case were entitled to injunctive relief. The date for a trial to determine damages will be set later.

In her 160-page ruling, the judge rejected claims by Apple’s attorneys that the consumer tech giant should not be held responsible for any price fixing that the publishers may have done, and that Apple executives were unaware that the publishers – after meeting with Apple regarding ebooks and the company’s upcoming iPad tablet – threatened to withhold books from Amazon.

“Without Apple’s orchestration of this conspiracy, it would not have succeeded as it did in the Spring of 2010,” Cote wrote. “Apple and the Publisher Defendants shared one overarching interest – that there be no price competition at the retail level. Apple did not want to compete with Amazon (or any other ebook retailer) on price; and the Publisher Defendants wanted to end Amazon’s $9.99 pricing and increase significantly the prevailing price point for ebooks. With a full appreciation of each other’s interests, Apple and the Publisher Defendants agreed to work together to eliminate retail price competition in the ebook market and raise the price of ebooks above $9.99.”

The judge noted that publishers had been grating on Amazon’s $9.99 pricing for many top best sellers and had been pushing the online retail giant to increase prices. Amazon officials pushed back against the pressure, and publishers feared retaliation if they threaten to withhold books from Amazon, which had begun selling ebooks in 2007 with the introduction of its Kindle e-reader.

Agency Model

However, Apple’s desire to announce an iBookstore at the same time it unveiled the iPad in January 2010 changed the dynamic. According to Cote, Apple executives approached the publishers and worked with them to find a way to increase the price of ebooks from $9.99 to $12.99 (£8.58) to $14.99 (£9.90). They also helped change the model used for selling ebooks, moving away from a wholesale model – where the retailer sets the price – to an agency model, where the publisher sets the price and the retailer gets a percentage cut on the books sold.

After entering the deal with Apple, the booksellers moved all of their retailers to an agency model.

“Apple seized the moment and brilliantly played its hand,” Cote wrote. “Taking advantage of the Publisher Defendants’ fear of and frustration over Amazon’s pricing, as well as the tight window of opportunity created by the impending launch of the iPad on 27 January … Apple garnered the signatures it needed to introduce the iBookstore at the Launch. … Apple not only willingly joined the conspiracy, but also forcefully facilitated it.”

Apple has yet to comment on the decision.