Legal Issues

Apple's Price-Fixing Guilt Won't Change the E-Book Market


Apple Senior Vice President Craig Federighi introduces the new iBooks during a keynote address in San Francisco on June 10

Photograph by Eric Risberg/AP Photo

Apple Senior Vice President Craig Federighi introduces the new iBooks during a keynote address in San Francisco on June 10

Starting this spring, when the U.S. Justice Department took Apple to court over its role in the e-book market, the government painted a portrait of the tech company as a price-fixing ringleader dating back to the launch of the iPad. A federal judge ruled Wednesday that Apple (AAPL) had not only conspired with book publishers but acted as the central figure in the scheme. “Without Apple’s orchestration of this conspiracy, it would not have succeeded as it did in the Spring of 2010,” wrote Judge Denise Cote.

Sure, it sounds like a bombshell verdict—and both sides used the trial to argue about the urgency of the verdict to protect either consumers (the prosectors’ case) or free-market competition (Apple’s view). But the truth is that this ruling will likely have very little impact on the way e-books are sold.

In part, the limited reach of the verdict can be explained by the passage of time: The market changes at issue have already happened. All the publishers involved have settled with the government and agreed to change their practices accordingly. Any future plots by Apple would probably have to be conspiracies of one.

Judge Cote also made a point of saying that, taken alone, each aspect of Apple’s deal with publishers was not necessarily inappropriate. That includes the agency model in which publishers set the prices and resellers would take a commission, Apple’s simultaneous negotiations with competitors, and even the most-favored nation clause that guaranteed Apple’s price would be as low as its competitors. “What was wrongful was the use of those components to facilitate a conspiracy with the Publisher Defendants,” she wrote in the ruling, adding that her decision targeted only this specific instance and not wider industry practices.

In the end, the court case against Apple was really just about Apple, says Mike Shatzkin of the Idea Logical Company, which consults publishers about the transformation to digital books. “I don’t know that this changes anything in the marketplace,” he says. “Apple, as far as I know, is not being told not to change behavior. It is being told, you did wrong and you should pay.”

It may not even be that big of a deal to Apple. The publishers were forced to settle because the financial damages they could have been facing were too much even to consider. Obviously, Apple and its vast piles of money are on firmer ground. The chance of being exonerated in court was a valuable enough prize to risk the cost of damages, especially at a time when Apple has been facing unrelated accusations from a different branch of government over how much it pays in taxes and other alleged improprieties. Damages in the price-fixing case have yet to be announced, but it remains possible that the bigger financial downside would be tag-along lawsuits by state attorneys general. Apple said in a statement that it had “done nothing wrong and will appeal the judge’s decision.”

“This result is a victory for millions of consumers who choose to read books electronically,” said Assistant Attorney General Bill Baer in a statement. But the government has never succeeded in convincing many people that much harm has been done. “Not that Apple is innocent, to my mind the company did conspire to raise prices,” wrote James McQuivey, an analyst at Forrester, in an e-mail. “But the net effect was so modest—and the book buyers who spent a few more dollars per e-book were probably thrilled they weren’t spending even more dollars to get paper versions that they would have happily paid that extra.”

The real winner, to the extent there is one here, may be Amazon.com (AMZN). Over the course of the dispute, Apple and others have argued that the government was targeting the wrong folks; Amazon, with its stranglehold on the e-book market, represented the biggest threat to competition. Cote brushed aside this view in her ruling:

“This trial has not been the occasion to decide whether Amazon’s choice to sell NYT Bestsellers or other New Releases as loss leaders was an unfair trade practice or in any other way a violation of law. If it [were], however, the remedy for illegal conduct is a complaint lodged with the proper law enforcement offices or a civil suit or both. Another company’s alleged violation of antitrust laws is not an excuse for engaging in your own violations of law. Nor is suspicion that that may be occurring a defense to the claims litigated at this trial.”

Book publishers may not appreciate the advice to sue their largest customer. In any case, this particular attempt to unseat Amazon seems to have run its course—and the online retail giant remains on top of the e-book world.

Brustein is a writer for Businessweek.com in New York.

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  • AAPL
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