On Wednesday, a Manhattan federal judge ruled that Apple Inc. broke antitrust law by eliminating price competition. U.S. District Judge Denise Cote found that Apple was central in the conspiracy, involving five other book publishers, to raise e-book prices.
Apple conspired with the largest book publishers to institute an “agency model” that enabled the publishers, rather than the retailers, to set e-book prices.
The U.S.’s largest book publishers: Hachette, HarperCollins, Macmillan, Penguin and Simon & Schuster, were involved with Apple in the price hike scam that sought to erode Amazon.com’s sales, which held 90 percent of the market, reports Reuters. Behind the scam was Apple vice president of Internet software and services Eddy Cue and the late Steve Jobs. The goal in mind was to develop this plan to increase sales revenue to 30 percent.
In the 160-page verdict, Judge Cote outlines, point by point, the conspiracy that began in January 2010. Cote notes that “[Steve] Jobs acknowledged his understanding that the Publisher Defendants would . . . wrest control of pricing from Amazon and raise e-book prices, and that Apple would not have to face any competition from Amazon on price.”
The “Publisher Defendants” also engaged in an act called “windowing.” Windowing is when the publishers would delay new releases on certain distribution platforms, in this case Amazon, to avoid being undercut on different formats, like hardcovers. The verdict indicates that Apple was aware of the windowing practice and fought the publishers to avoid being windowed, claiming the practice “alienated customers and led to piracy.” What Apple either didn’t realize or chose to ignore, was that windowing would restrain competition from rivals of its iBook platform.
Some publishers remained staunch in their oppostion to the conspiracy. Though the five giant publishing houses were on board, Apple was unable to enlist the allegiance of the largest, Random House. Cue did have Random House in his crosshairs, however. Before being turned down, Cue communicated to Apple CEO Tim Cook that “when we get Random House, it will be over for everyone.”
Despite what Judge Cote pointed out as “overwhelming evidence” that condemned Apple of breaking the law, the company insists that it performed no wrongdoing and plans to appeal the case. “Apple did not conspire to fix ebook pricing and we will fight against these false allegations,” said Apple spokesperson Tom Neumayr. “We’ve done nothing wrong and we will appeal the judge’s decision.”
Other legal experts stand to disagree with Apple’s claim of innocence. Peter Mougey, securities litigationattorney with Levin, Papantonio, Thomas, Mitchell, Rafferty & Proctor, P.A., said that “with the evidence presented, it appears that Apple and these publishers engaged in illegal practices that violate antitrust laws and betray the loyal ebook consumers who believe they are purchasing the product at a fair price established by market price. Cote’s opinion was well-reasoned and on-target.”
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