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The Apple ebook price-fixing suit: What it all means

Dan Moren | June 5, 2013
What you need to know about the case against Apple brought by the DOJ antitrust division.

However, all five of the publishers eventually settled with the Department of Justice. As part of that settlement, the publishers are restricted from setting their own prices for books—that right reverts to the retailer. They are also unable to discuss pricing with each other for a period of five years, and cannot prevent retailers from discounting ebooks for a period of two years; in addition, any joint ebook ventures between the publishers requires the approval of the Department of Justice. (The publishers have also settled in a separate action brought against them and Apple by the attorneys general of 33 states.)

Apple, for its part, has strenuously maintained that it did nothing illegal. In court filings last year, the company denied charges that it fixed prices or conspired with publishers, and argued that its entry into the ebook market actually served to increase competition, by breaking an effective monopoly by Amazon, which had long been offering ebooks at a $9.99 price point.

That claim, however, will face challenges from the DOJ, which, among other evidence, is producing an email from late Apple CEO Steve Jobs to James Murdoch of News Corporation, which owns HarperCollins, in which Jobs urges the publisher could "throw in with Apple and see if we can all make a go of this to create a real mainstream ebooks market at $12.99 and $14.99." While the full context of the email may make it less of a smoking gun than the DOJ hopes, combined with other evidence—such as a filing that suggests that Apple blocked an app from Random House after the publisher refused to accept Apple's ebook terms—it may prove to be damaging.

When the dust clears
Should Apple eventually lose the trial, it will probably face strictures similar to those that the Justice Department has placed on the publishers—though Apple, as the alleged "ringmaster", may be on the hook for more significant punishment. And if the trial goes in the government's favor, Apple will also likely lose the class action suit from the states, opening it to monetary damages.

But Apple's not the only company who stands to be affected by the trial's outcome.

The elephant in the room is Amazon. While not directly involved in the case, Amazon certainly has an interest in seeing the government win its case. The company has made a killing selling books at $9.99, and its Kindle platform is still prominent in the ebook market, accounting for, by some estimates, 45 percent of ebooks sold.

Regardless of whether Apple wins or not, Amazon has already benefited from the publishers' settlements, since that deal has returned pricing control to the retailer, and essentially abolished the agency model promoted by Apple. But should Apple lose the trial, it would deal an even more significant blow to one of Amazon's biggest rivals.

 

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