Judge rules Apple conspired to raise prices on e-books

http://www.reuters.com/article/2013/07/10/us-apple-ebooks-idUSBRE9690GE20130710

by sigzero • 13 years ago

197 150 13 years ago

reuters.com

pinaceae• 13 years ago

Amazon 1 : Consumers 0

and another great ruling. let's wait for that monopoly around ebooks to fully develop until it's too late.

PauliaCred• 13 years ago

Just like the monopoly Apple developed around digital music...

stephenr2• 13 years ago

oh yeah, and they've totally destroyed all competition in that market too.. http://en.wikipedia.org/wiki/Comparison_of_online_music_stor...

Amazon sells ebooks for the sake of selling ebooks - to make a profit. Apple sells music as a tie-in for its hardware offerings - it has no reason to "squeeze out" competitors in this space.

JimmaDaRustla10• 13 years ago

Amazon found a way to compete before anyone else did, so that makes it excusable for illegally orchestrated price fixing to attack their legal approach?

Sorry, but this isn't the "Think Different" approach the customers deserve.

rimantas• 13 years ago

I am not sure "sell at the prices below the cost to drive out competition" is not some new way.

baddox5• 13 years ago

so that makes it excusable for illegally orchestrated price fixing to attack their legal approach?

No, the fact that the laws which make it illegal are ridiculous is what makes it excusable.

Kylekramer3• 13 years ago

This angle of "why prosecute Apple when Amazon has the monopoly" is just lazy. Monopolies, which Amazon does not even have and is unlikely to gain, aren't illegal. Conspiring to raise prices is illegal. Amazon just has the potential to abuse consumers (maybe, possibly, in the future) due to their entirely legal success. Apple already did abuse consumers.

DannoHung• 13 years ago

Give me a call back when Amazon removes the drm from their file formats and I'll give a flying fuck about what's legal or not.

baddox5• 13 years ago

Monopolies, which Amazon does not even have and is unlikely to gain, aren't illegal.

Except for all the mergers and acquisitions that are stopped by the government because the government feels the result would be too monopolistic.

MatthewPhillips2• 13 years ago

This is a cynical view point. Do we really have to choose between monopoly and collusion?

fpgeek11• 13 years ago

Amazon's customer service (especially with respect to books) second-to-none, by a large margin. Consumers are doing far better than zero.

And I wouldn't hold my breath waiting for that ebook monopoly. Even if Microsoft/B&N and Apple both decide to bow out (not at all likely they both care too much about content for mobile devices to do that), Amazon still would have Google and Kobo/buy.com/Rakuten (aka "the Amazon of Japan") to contend with both of which are more than capable of fighting a price war.

josefresco2• 13 years ago

Yes let's totally raise prices now to protect us from Amazon whom may or may not raise prices in the future.

esolyt• 13 years ago

Irrelevant. If they do, that would be another trial.

Pxtl• 13 years ago

Amazon has built its empire on undercutting the competition in price. If there was a real competition in prices, Amazon's e-book offerings would stomp the paper publishers and Apple alike.

No matter what, price-fixing or not, Amazon can do just fine. The only way they don't completely win is if they're forced to keep prices on e-books high and at identical level to dead tree ware and the glitzier Apple brand. And that's just what happened, thanks to collusion between Apple and the publishers.

k-mcgrady• 13 years ago

Could someone explain how they came to this judgement? It doesn't make any sense to me. For example:

>"The U.S. Department of Justice said this conspiracy was designed to undercut online retailer Amazon.com Inc's (AMZN.O) dominance of the fast-growing e-books market."

How can they undercut Amazon's dominance by charging more?? It might make them look better to publishers but not consumers. From my perspective Apple looked at the market (Amazon), realised their pricing wasn't sustainable, and agreed to a more sustainable model with publishers. I could understand the problem if Apple tried to raise prices and had a monopoly on ebooks but the fact consumers could just download the Kindle app to an iOS device and get the lower prices (and Apple was new to the market) rules out that argument.

JimmaDaRustla10• 13 years ago

Apple (Jobs) were bullying publishers into contracts and abandon Amazon.

The best part is how Apple decided that the Publisher sets the price, and Apple gets 30% regardless of profit margin. Apple also stated that they were able to price match anyone who undersold them, and they STILL get 30%, pushing losses onto the Publisher. At least with Amazon, they ate the loss due to their price fixing.

Edit: Fixed last paragraph

darkchasma• 13 years ago

Exactly how would Apple bully a Publisher? Jobs went and pulled down the CEO's pants?

smackfu10• 13 years ago

The bullying by Apple of publishers was generally about fixing the price caps lower than the publishers wanted ($12.99 for NY Times bestsellers rather than $14.99.)

Apple didn't have to bully the publishers in general, because this deal was a big win for them.

dragonwriter7• 13 years ago

Apple (Jobs) were bullying publishers into contracts and abandon Amazon.

Not really. He was certainly encouraging them, but both the charges and the findings here are that the publishers themselves were actively colluding and looking for pretty much exactly what Apple offered before Apple offered it. The conspiracy didn't start with Apple, it was just that Apple's active, enthusiastic involvement was necessary for it to move forward.

MatthewPhillips2• 13 years ago

Consumers couldn't get a lower price from Amazon (or others) because the colluding parties had an agreement to set the prices for all retailers. That's the crux of the case.

uptown• 13 years ago

How does this differ from something like RayBan sunglasses which cost the same everywhere ... the MSRP?

kryptiskt• 13 years ago

From my perspective Apple looked at the market (Amazon), realised their pricing wasn't sustainable, and agreed to a more sustainable model with publishers.

Working something out with all the big publishers is pretty much the definition of an illegal cartel.

hga4• 13 years ago

On of my favorite Adam Smith quotes is apropos (http://en.wikiquote.org/wiki/Adam_Smith#Book_I):

"People of the same trade seldom meet together, even for merriment and diversion, but the conversation ends in a conspiracy against the public, or in some contrivance to raise prices."

This is classic, slam dunk antitrust, no need to spin elaborate economic theories, just prove to the court's satisfaction that consumers were harmed by an overt conspiracy to raise prices.

smackfu10• 13 years ago

Relevant part of the decision:

A chief stumbling block to raising e-book prices was the Publishers’ fear that Amazon would retaliate against any Publisher who pressured it to raise prices. Each of them could also expect to lose substantial sales if they unilaterally raised the prices of their own e-books and none of their competitors followed suit. This is where Apple’s participation in the conspiracy proved essential. It assured each Publisher Defendant that it would only move forward if a critical mass of the major publishing houses agreed to its agency terms. It promised each Publisher Defendant that it was getting identical terms in its Agreement in every material way. ... Without the collective action that Apple nurtured, it is unlikely any individual Publisher would have succeeded in unilaterally imposing an agency relationship on Amazon.

dak12• 13 years ago

It sounds like the stumbling block was a horizontal monopoly in retail held (or nearly held)[1] by Amazon.

You can argue whether or not Amazon is participating in predatory pricing now, but should Amazon end up raising prices (not entirely obvious that will happen)[2][3], then this case could end up being pointed to in the future as a lost opportunity to let the market correct itself.

[1] http://paidcontent.org/2013/07/09/barnes-noble-throws-out-it...

[2] http://www.csmonitor.com/Business/Saving-Money/2013/0518/Wil...

[3] http://www.nytimes.com/2013/07/05/business/as-competition-wa...

andrewhillman• 13 years ago

Under the law, you cannot discuss prices with ANYONE you are competing against. Once you do this, regardless of your reasoning, you are in violation of anti trust laws.

dragonwriter7• 13 years ago

How can they undercut Amazon's dominance by charging more?? It might make them look better to publishers but not consumers.

Right. Which is why it took an illegal horizontal price-fixing scheme with notional competitors (the publishers) conspiring to raise prices to do that. Apple was a member of the conspiracy who sought to profit from it, but really the principal wrongdoing here was the conspiracy among the publishers.

Apple looks like they were singled out because they were the only one that went to trial, but that's just because they were the only participant in the conspiracy that didn't settle with the Justice Department prior to trial; the involved publishers were all charged along with Apple.

I could understand the problem if Apple tried to raise prices and had a monopoly on ebooks

How about if many of the biggest publishers, together controlling significant market power in the ebook market, got together and conspired to raise prices, with Apple as willing and necessary co-conspirator (since they needed a retailer with a platform with instant mass reach so that they could have a credible threat of jointly abandoning Amazon if Amazon didn't match the terms they got from the new retailer.)

Because that's what was charged, and that was what the judge found the evidence supported. Its not about what Apple did on their own.

aroch• 13 years ago

What I find highly annoying about this trial is Judge Cote had already formed her opinion prior to trial... in a statement to reporters she essentially said she thought Apple was guilty before hearing any evidence.

This is, essentially, a sham trial in which the USG was always going to win.

dchest• 13 years ago

Discussed here https://news.ycombinator.com/item?id=5775291

nknighthb• 13 years ago

in a statement to reporters she essentially said she thought Apple was guilty before hearing any evidence

Are you talking about this[1]? The statement wasn't to reporters. It was a tentative in-court statement in response to an inquiry by one of the lawyers. Hardly the basis for a serious accusation of misconduct against a federal judge.

[1] http://www.reuters.com/article/2013/05/23/us-usa-apple-ebook...

300bps• 13 years ago

This happens all the time in court cases. When I sued a home builder for fraud, after reading the pleas and within 20 minutes of being in court the judge said to the Defendant, "Look. I'm finding 300bps to be a credible witness. I have another case I have to go to now. There's a room over there, I suggest you settle with him." They ended up settling with me.

In Apple's case, every conspirator involved except Apple settled with the government. Apple are the only ones that chose to go to court. The "tentative view" that Judge Cote formed by reading the pleadings was a way to tell the Defendant: you sure seem guilty based on the evidence you and the government provided. If you want to save yourself some money, I suggest settling.

Sometimes cases are so clear cut that it is just not right for it to proceed to a full trial. That's where things like tentative views and Summary Judgments come in.

jmduke2• 13 years ago

in a statement to reporters she essentially said she thought Apple was guilty before hearing any evidence.

The judge had received a preponderance of evidence both in pre-trial and related rulings before making that statement. Pre-trial opinions are specifically designed to inform the two parties of the judge's current temperament.

smackfu10• 13 years ago

A trial by judge is very different than a trial by jury. In a jury trial, the only evidence that exists is the evidence that is presented in open court. Making a decision before the courtroom phase of the trial would be irresponsible.

But in a non-jury trial, the judge studies all the evidence independently, and the courtroom phase is just supplemental. You don't need someone to testify to the facts in their report if you can just read the report, right? The courtroom phase is also quite expensive, which is why a judge would indicate that based on the evidence she had seen, it probably wasn't worth doing it. To save everyone the effort.

rayiner• 13 years ago

It wasn't a statement to reporters, it was a statement in a preliminary hearing. It was basically the judge telling the parties: "look, this is where I think it's going to go" so the parties could use that information in settlement talks and possibly avoid the expense of a trial.

See: http://tech.fortune.cnn.com/2013/05/24/apple-ebooks-antitrus....

"Asked during a preliminary hearing Thursday to share her thoughts about the Department of Justice's case against Apple (AAPL) in the long-awaited e-book antitrust trial, U.S. District Judge Denise Cote said this, according to Reuters..."

In bench trials, where the judge is making the decision anyway, the judge does not sit as a tabula rasa absorbing the evidence until the very end of the trial. Like anybody would do, they read the materials in the pleadings and some of the evidence and form an initial opinion. It is not uncommon for them to share this opinion with the parties as the case progresses so that the parties can settle before things go any further.

antitrust• 13 years ago

RIP "The Nice Guy Company"

Google 2010 Apple 2013

jusben13694• 13 years ago

The idea that Steve Jobs ever spent a single day at Apple where he didn't play extremely hard to win is kind of funny. He just overstepped the line here.

ianstallings• 13 years ago

I don't like price rigging but reading the material around the case I don't think it was unfair of Apple to try and charge more with its partners through their own venue.

I'm gonna play armchair legal analyst here and say this is a smack down by the government because Apple didn't want to settle and pay the fine. Because they thought they were in the right. I tend to agree.

Let me clarify since people are already down voting because they disagree: What if Walmart told Hasbro that it could sell its GI Joe action figures for $5 more than K-Mart could? Then they went to negotiate an agreement to purchase as many as possible. Would it not be in Hasbro's best interest to sell as many as possible through Walmart? When K-Mart comes to negotiate it will have to make a justification for why it can't charge more, that's how markets work. K-Mart will either convince Hasbro to still sell the items for cheaper or it will have to renegotiate.

Now throw in the fact that these were not real-life items. There is no limitation on how many items each retailer can acquire. The number is infinite.

Does it really seem so terrible now? Try not to appeal to emotion when making the decision.

Kylekramer3• 13 years ago

The most favored nation clauses and the subsequent agency deals that were pushed on competing ebook sellers by the publishers make it clear it wasn't just Apple and partners working in their own venue to raise prices. It was a tactic to use the iPad's launch as a moment of uncertainty that would allow the publishers to raise prices across the entire industry.

Edit: To address your added analogy, I agree. Your proposed example does not seem terrible. It is also not at all close to what happened with Apple and the book publishers. It wasn't one company increasing prices successfully at one store and then shopping the new deal to other stores. It was nearly the entire industry swiftly pushing new deals designed to increase prices and break Amazon's position of power in the industry. The increased prices weren't due to the success of the prices in the iBookstore, but the legally binding clauses and assurances from Apple and the other publishers that they would present a united front. If Hasbro, Mattel, and every other major toy manufacturer raised prices to K-Mart at the same time due to suggestions from Walmart, I would object on intellectual and emotional levels. And I am sure the DoJ would too.

blinkingled• 13 years ago

From Walmart and Hasbro and their shareholder standpoint - not terrible at all. From consumer standpoint, terrible.

baddox5• 13 years ago

I don't like price rigging either, but then again, I also don't like sushi, yet I don't approve of the government using violence to restrict sushi restaurants. I just don't buy sushi.

lmartel• 13 years ago

This is textbook price fixing, which is illegal.

gamblor9564• 13 years ago

The modify your hypothetical so it fits the Apple facts:

Hasbro then threatens to withdraw all GI Joes from Kmart. KMart can no longer sell any GI Joes--even if acquired from third party resellers. Walmart knows this, and indeed suggested this negotiation strategy to Hasbro.

Of course, this has happened before. This is why the MSRP is now only a "suggested" price and why a retailer is free to sell at whatever price it chooses, however such price affects its own margins.

jljljl2• 13 years ago

"At trial, the Justice Department said it wanted to block Apple from using the agency business model for two years, and to stop the company from entering contracts that insure it will offer the lowest retail prices."

Does anyone know if this just applies to ebooks? Or might this ruling impact their ability to apply agency model and "most favored nation" contracts across all their content marketplaces?

fpgeek11• 13 years ago

That's one of the issues that's still up in the air. If this verdict holds up, Apple is going to have some sort of antitrust compliance program, but I don't think anyone has a handle on what that might look like yet.

skygazer5• 13 years ago

From the ruling, it appears Apple is in trouble for knowingly and actively providing a venue for conspiring publishers to conspire, which is illegal. Interestingly, the judge points out there's no evidence that Apple wanted to raise prices at all. But there wasn't anything inherently wrong with the agency model or MFN clauses, except in relation to the publishers intent to increase prices.

faddotio• 13 years ago

Commence with the cognitive dissonance!

skc• 13 years ago

Already happening.

It's generally acceptable to describe Microsoft as a "convicted monopolist" (despite there not having been a criminal case). One wonders if people will also accept the labelling of Apple in such a manner when the dust finally settles.

mitchty• 13 years ago

What is this kind of reply, they've been convicted of monopoly behavior. Stop rooting for companies like they are a sports team.

Here, Apple: convicted monopolist. Done. That was easy. I own a mac mini, macbook pro, ipad, iphone5, 4s, etc.. and I'm a member of the developer program to demonstrate my bias and proclivity to the platform. Doesn't mean I'm pathologically tied to it (pathos in the debate sense).

dragonwriter7• 13 years ago

Well, since this case, while it was anti-trust, did not involve Apple having or illegally leveraging a monopoly (that is one kind of anti-trust violation, but not the kind here, which was Apple being a member of an illegal price-fixing conspiracy), Apple hasn't been found to be a monopolist at all, so that labelling would be inappropriate in a way which it was not for Microsoft.

mmuro• 13 years ago

Wow, I'm a little surprised at this considering the arguments Apple's legal team made.

Seemed pretty clear to me there was nothing that Apple did to force Amazon to raise their prices.

jvm• 13 years ago

An MFN provision will frequently appear in contracts between wholesalers and retailers and it ensures that the wholesaler will provide the retailer with the best wholesale price. But Apple adopted it in the agency model to require that the publishers adjust e-book prices in the iBookstore to match the lowest price offered by any other retailer — regardless of whether the publisher controlled the pricing in that retailer.

That last sentence means that publishers basically had to force Amazon onto the agency model, or else lose money selling on Apple's store. And their intention was clearly to force Amazon onto the agency model causing Amazon's consumer prices to increase.

morgante• 13 years ago

Yet another miscarriage of justice. The entire line of logic seems to have been that because Apple's actions led to increased prices it must be a conspiracy.

Amazon was, and is, the monopolist using classic monopolist tactics (lock-in, undercutting prices, etc.) to retain a monopoly. Of course once their monopoly was ensured they'd pivot to make a true profit if pesky Apple hadn't interfered: http://www.nytimes.com/2013/07/05/business/as-competition-wa...

I can't help but feel that this was driven by politics/optics (to your average person, of course lower prices is better).

fpgeek11• 13 years ago

Put Apple to the side for the moment and just look at the publishers. Did they conspire? I think it is obvious that they did.

At the time of the agency switch it was obvious something fishy was going on with the whole Amazon v MacMillan "buy button" battle. The DoJ's investigation uncovered plenty of evidence about what that was: a conspiracy among publishers to force Amazon to the agency model. And all the publishers settled before getting to trial, which certainly supports the strength of the DoJ's evidence and case.

Now consider a publisher conspiracy. The DoJ's argument against Apple is that they were the enforcer that made the publisher conspiracy possible. You may agree or disagree with the judge about whether or not the evidence supports that argument, but it is a serious, carefully-thought-out line of logic either way.

jasonlotito• 13 years ago

Amazon was, and is, the monopolist using classic monopolist tactics (lock-in, undercutting prices, etc.) to retain a monopoly.

1. Being a monopoly isn't illegal. You don't say this, but using the word monopolist makes it seem like you think that such a thing alone is criminal enough.

2. Lock-In? What part is the lock in? The fact that I can buy a Kindle and never purchase anything from Amazon? The fact that the DRM used for ebooks from Amazon are optional and decided by the publisher?

3. Undercutting prices? So?

dragonwriter7• 13 years ago

Yet another miscarriage of justice. The entire line of logic seems to have been that because Apple's actions led to increased prices it must be a conspiracy.

No, the line of logic was that because there was specific evidence of them conspiring with the Publishers, it was (to the standard required in civil cases, which is far from "must be") apparent that there was a conspiracy.

Amazon was, and is, the monopolist using classic monopolist tactics

Whether or not Amazon is a monopolist (or even illegaly leveraging a monopoly) might be relevant in an anti-trust trial of Amazon, but it really doesn't have any relevance to an alleged price-fixing conspiracy involving several of Amazon's suppliers and one of their competitors.

pico303• 13 years ago

The judge was absolutely correct to rule this way. Some people cry "miscarriage of justice", but you need to look back on what happened when the iPad and iBooks came out.

Amazon ruled the ereader/ebook marketplace, because it was the first company to offer both a reader and electronic books together, so you could order books right of the reader. A page from Apple's playbook, a la the iPod.

At the time, ebooks were sold like print books, where the retailer set the price. This is how most retail works, and let Amazon drastically discount their ebooks so they weren't taking any profit, just to move Kindles. The publisher had no say over the price of the book, so a Kindle owner could get ebooks cheaper than print (which, if you think about it, makes perfect sense). The publisher didn't make any less, so the only one paying the price was Amazon (and they took a hit on their stock for it, if I recall). The publishers were forced into this model by Amazon because there was no other resource for ebooks, and everybody loved their Kindles so to deny that market meant your competition would kill you if you didn't play along.

Apple came along with the iPad and that gave publishers an out. If you go back to that time and read the articles on this, Apple actively worked with publishers to change the model to one that was better for publishers and Apple, but worse for consumers. They created a new kind of contract that let the publisher set the price of the ebook, which is really unheard of in retail, except for maybe video game sales. At its heart, it's really an anti-competitive practice, though that may seem counterintuitive. Look at it this way: it's a great way to break into a marketplace controlled by a stronger competitor without really competing. You force your competitor to raise their prices and thus reduce the attractiveness of what they offer, and suddenly you have a share in the market without having to compete with better products or prices.

I also don't understand pro-Apple stance on this issue. I'm a huge fan of Apple products, but I was not a fan of this change in the ebook market. My guess is this opposition is coming from people that don't buy a lot of ebooks on either the iBook store or Amazon, or ever experienced the Kindle store prior to this change in the market. It used to be that ebooks on Amazon were priced around or less than the price of a paperback. Now they tend to cost the same or more than the hardbound edition. How is this a good thing for consumers? You now have publishers in control of the ebook market the same way they're in control of the video game market, through price fixing and predatory pricing models, and retailers have no say in the matter.

skygazer5• 13 years ago

Maybe I'm daft, but it doesn't add up to me. Perhaps you can point out the flaw in my thinking? Apple already had a marketplace, the App Store, that let sellers set their own prices — Apple just wanted their hefty 30%, regardless of consumer price. It seems that was and is acceptable to the law and the world at large. In fact, before iBooks, publishers were already selling their books as stand alone apps under this model. When Apple created iBooks, they continued this existing model in their newly created ebook marketplace — that seems entirely natural and unprovocative. It can't be that the agency model is only illegal for books.

It seems to me if an offense was committed, it was committed by publishers in renegotiating their Amazon contracts, in unison, towards the agency model. How is Apple implicated?

jmduke2• 13 years ago

I believe publishers were accused of committing an offense as well -- they all settled.

smackfu10• 13 years ago

Well, why did all the publisher renegotiate their contracts in unison? Because they were all working together with Apple. You aren't allowed to fix prices amongst competitors, and you also aren't allowed to help competitors to fix prices as a third-party.

commandar• 13 years ago

There was one other important aspect to the agency model that Apple established with the publishers — it included a most-favored-nation (MFN) clause. An MFN provision will frequently appear in contracts between wholesalers and retailers and it ensures that the wholesaler will provide the retailer with the best wholesale price. But Apple adopted it in the agency model to require that the publishers adjust e-book prices in the iBookstore to match the lowest price offered by any other retailer — regardless of whether the publisher controlled the pricing in that retailer.
This meant that the iBookstore would always have the e-book at the cheapest price. It also meant that if a retailer was offering the book for a cheaper price, the publisher would have to lower the retail price to match it. If that meant the price was below what it cost to produce, the publisher would take the loss, not Apple — they would still get their 30% cut.
The traditional purpose of MFNs are used to protect a retailer’s ability to compete, ensuring that they aren’t disadvantaged by the wholesaler giving their competitors a better deal. The DOJ contends that the way this MFN works, it was designed to “protect Apple from having to compete on price at all, while still maintaining Apple’s 30 percent margin.” Those are strong words, but there is certainly a kernel of truth to that.

http://www.macstories.net/stories/understanding-the-agency-m...

dragonwriter7• 13 years ago

It can't be that the agency model is only illegal for books.

The agency model wasn't the illegal thing, it was just the one part of the mechanism of the used for the illegal price fixing conspiracy.

It seems to me if an offense was committed, it was committed by publishers in renegotiating their Amazon contracts, in unison, towards the agency model.

The publishers were, indeed, charged with conspiring in the price fixing scheme. All of the charged publishers settled with the DoJ rather than going to trial. Apple wasn't singled out, it just seemed that way because they were the only defendant left when the trial started.

How is Apple implicated?

Apple is implicated as a member of the publishers' horizontal price-fixing conspiracy who sought to advance, encourage, and profit from that conspiracy.

eridius• 13 years ago

Speaking as someone who used to buy a bunch of books on Amazon, and now buy them on iBooks, I don't understand the "bad for consumer" angle. I don't tend to buy bestsellers, so maybe I'm not hurt as much by the higher prices for that category, but I do still see $12.99 prices on new books. However, and this is something that everybody seems to be ignoring, I'd much rather pay $12.99 for a new book than not be able to buy the book at all because the publisher is holding it back to promote hardcover sales (i.e. "windowing"). Also, what hardcovers are you buying that cost $12.99 or $14.99? I just looked up Amazon's prices for a book that came out 3 months ago that I pre-ordered (Blood of Dragons by Robin Hobb). I paid $12.99 for it in iBooks. Amazon's selling the hardcover for $20.86. I am much happier to pay $12.99 to read it in iBooks than to pay over $20 for a physical copy. And I wouldn't be surprised if the only reason I could do this at all is the anti-windowing agreement. In fact, another recent book by the same author, The Willful Princess and the Piebald Prince, is not even available in eBook format (I don't know who published that book but they must not be subject to the anti-windowing agreement). I'd love to read it, but I'm not paying $28.05 for Hardcover.

It's also worth pointing out that the publishers didn't change their prices. Amazon artificially lowered what the consumer was paying, but the publisher still got their $12.99 (or whatever they charged). It would not surprise me in the least if Amazon's long-term plan was to stop discounting books once they cemented their hold over the market.

smackfu10• 13 years ago

I don't tend to buy bestsellers, so maybe I'm not hurt as much by the higher prices for that category, but I do still see $12.99 prices on new books.

Interesting reason for the $12.99 books: the ones I see are from Random House and are being sold under the agency model still. You can tell because it says "price set by publisher". Random House was not part of the price fixing suit.

And yeah, generally speaking, this whole case was about bestsellers. No one cares about downlist stuff, they care about hurting the value of their NY Times bestselling hardcovers.

justizin• 13 years ago

If you read the Steve Jobs mails, it's clear that Apple was trying to create a sustainable marketplace, while Amazon was, as you oddly imply at the end of your thought, controlling the marketplace by artificially setting prices lower than the cost. Of COURSE they would stop doing this after some time. This practice kept small players out of the game and while Apple could afford to play along, they knew it was a foolish game.

It's a dangerous precedent that a new player bringing new customers to a market, refusing to engage in monopolistic tactics, and refusing to sell above a certain price, is price fixing.

Price fixing hurts consumers by many sellers agreeing to artificially raise the price of something such as to avoid the pain of competing on price.

Apple convinced publishers to accept a lower price - nominally - and to sell at a reasonable market price, or they couldn't be stocked in their store. A brick and mortar retailer could never be faulted for refusing to sell products at a loss!!!

I'm not saying Apple is perfect, but in this case they behaved more responsibly and in the interests of content creators and consumers, in the long run, than all other parties involved.

The true price fixing was Amazon and the publishers, pre-iBooks, agreeing to sell some items as high as 24.99 for eBooks - something Steve Jobs refused to do. Average price higher, highest price lower.

I still buy books on Amazon instead of iBooks because my Kindle is handy as a dedicated reader and hey, I want to pay less out of self interest. I also got my Kindle for free.

But it must be clear this is surely fucking the authors.

Also, to those who think eBooks should be far cheaper than print, what do you think it costs to print a thousand page novel? You think the hardcover costs $10-15 more, or that it's a premium sell?

podperson2• 13 years ago

Can you give some examples of hardcovers being cheaper than kindle or ibooks versions? I can see isolated examples but when I look for hardcovers on the nytimes bestseller list on Amazon, kindle versions are uniformly cheaper than hardcovers.

I very seldom encounter books that are cheaper to buy (new) physically than electronically. I agree that the electronic versions should be even cheaper, but that's a separate story. The first order reason that ebook prices rose in response to Apple's entry into the market is simple -- competition. In this case, Amazon had a monopsony and dictated prices to publishers. Apple broke or offered the whiff of a break in the monopsony and the rest is history. What does this competition look like up close? A bunch of contract negotiations.

Did Apple "orchestrate a conspiracy" to raise ebook prices? That's another question altogether. The video of Jobs saying prices won't be higher simply indicates he knew about the "most favored nation" contracts. I couldn't be bothered reading through the entire judgment, but certainly followed coverage pretty closely and I just don't see a case.

dkl2• 13 years ago

One that I ran across today:

http://www.amazon.com/The-Shadow-Factory-Eavesdropping-Ameri...

I will never buy an electronic copy for more than a paperback. Ever. I've actually written to published to complain about it.

MaysonL• 13 years ago

Amazon ruled the ereader/ebook marketplace, because it was the first company to offer both a reader and electronic books together

And because it was selling ebooks for less than it was paying publishers for them.

mullingitover2• 13 years ago

I'm shocked, SHOCKED, that a company that was colluding with competitors to suppress their workers' wages[1] would also collude with publishers to rig the ebook market.

[1] http://www.inquisitr.com/486164/google-intel-and-apple-under...

astrodust• 13 years ago

Contracts of that sort have been around for decades. The enforceability of them is somewhat questionable.

mullingitover2• 13 years ago

At least in California, I was under the impression that there was really no question--they're totally unenforceable unless you plan to pay your employee full wages for the entire duration that they're not allowed to work for the competition.

But this wasn't about no-compete clauses, this was about the companies having an off-the-books agreement not to give unsolicited job offers to the competitors' employees.

srik12342• 13 years ago

Apple is absolutely wrong with Most Favored clause. Even if they did not conspire with publishers directly, publishers effectively had the same opportunity and re-did their contracts with Amazon. The most concerning thing is that current law is granting amazon an unequivocal monopoly status. Lossleader strategy is employed to the extreme by amazon. Laws need to address that. At some point Amazon will raise prices. Current situation is essentially a loss for consumers and publishing industry.

fpgeek11• 13 years ago

There are plenty of other companies that can check Amazon. Consider Google. They make they can easily out-discount Amazon, they're also cross-platform and... and now that the Google Books scanning cases are turning in their favor they may soon have an huge new asset Amazon (and others) will have some trouble matching or beating.

srik12342• 13 years ago

I'm sure other cash rich companies can mimic amazon strategy. Apple,google, microsoft, samsung certainly can. That is not good for industry though. Startups will have unbelievably tough time competing with Amazon. I cant remember any startup in recent times that ventured into ebook sales. Innvoation from other startups in ebooks creation, consumption is hard to come by, when amazon is playing a lossleader strategy forever.

DannyBee3• 13 years ago

This is no surprise, the judge is essentially constrained to rule this way, given the evidence.

Some people are arguing about amazon, but again, that is irrelevant legally.

As I wrote 43 days ago here:

"A finding about Amazon will be completely irrelevant to Apple's conduct in this case. The question is whether Apple committed horizontal price fixing. Amazon's possibly illegal conduct is going to be completely irrelevant in that, as horizontal price fixing is still per-se illegal. They could prove Amazon hurt the market a lot. They could prove whatever they like. As long as the DOJ proves they committed horizontal price fixing, it's game over. Now, the supreme court may, in the end, decide horizontal price fixing should be analyzed under the rule of reason instead of being a per-se violation, but that's completely irrelevant to the current state of the law, and in fact, Apple's behavior. SCOTUS is not going to change the doctrine because they think Apple did the right thing here, they will change doctrine because they think the doctrine was wrong in general. However, that doctrine is the current state of the law, and what this case, and the appeal, will be analyzed under."

This is exactly what happened. From the decision:

  "In sum, the Plaintiffs have shown not just by a 
  preponderance of the evidence, see Herman & MacLean v. 
  Huddleston, 459 U.S. 375, 390 (1983), but through compelling 
  direct and circumstantial evidence that Apple participated 
  in and facilitated a horizontal price-fixing conspiracy. As 
  a result, they have proven a per se violation of the Sherman 
  Act."

I think, sadly, there is a good chance the supreme court will change horizontal price fixing to be under the rule of reason, and then we will finally all be screwed (The rule of reason analysis is why you see so much vertical price fixing these days, since it is no longer a per-se violation)

Note that the judge, being prescient, also wrote part of the decision to explain why she believes Apple would also be guilty under the rule of reason (IE if it was not a per-se violation). This portion of the decision takes into account Amazon's conduct.

This was done so that if the supreme court declares horizontal price fixing to be subject to the rule of reason, they won't need a new trial.

tunesmith• 13 years ago

Can you explain the distinction between horizontal price fixing and vertical price fixing with an example?

dragonwriter7• 13 years ago

Horizontal price fixing is when competitors in a market (like, say, the major book publishers) cooperate to control prices in that market.

Vertical price fixing is an entity at one level of the chain of production controlling prices at another level (typically, its a manufacturer dictating retail prices.)

DannyBee3• 13 years ago

dragonwriter's explanation is a good one.

Vertical price fixing is also rarely naked "price fixing" (IE directing a price to sell something at), it's usually resale price maintenance:

Two fake (I think!) examples:

Microsoft tells amazon they can't sell the xbox 360 for less than 399.99 (minimum resale price maintenance)

Microsoft tells amazon they can't sell the xbox 360 for more than 299.99 (maximum resale price maintenance)

Horizontal, on the other hand would look like this:

Microsoft and Sony agree that they will not let anyone sell the xbox360 or playstation 3 for less/more than 399.99.

Your local gas stations get together and agree they won't undercut each other's prices anymore.

(IE they've made a horizontal agreement not to compete on price)

bjustin2• 13 years ago

Even if Amazon never got into selling ebooks, Apple would have wanted the same terms: a 30% cut of the sale price, and sane pricing for ebooks. It matches their terms for music[1] and they take the same 30% cut for apps.

I wonder what would have happened if Apple never mentioned or alluded to Amazon in licensing discussions. It seems like mentions of Amazon are included in all of the damning evidence.

[1] I don't know about TV shows and movies, but I imagine it is the same for them as well.

josephlord• 13 years ago

I think as long as they were acting as the conduit for pricing information and plans between competitors they were in a risky position (or were at least putting the competitors in a risky position). The talk about their ability to raise/increase prices looked fairly incriminating to my eyes.

What I wonder is if they could have achieved the same result with less explicit talk about what the other publishers were doing and without discussing it as an opportunity to raise prices but to set whatever prices they wanted.

JimmaDaRustla10• 13 years ago

Great article just posted by Ars: http://arstechnica.com/tech-policy/2013/07/how-apple-led-an-...

July413• 13 years ago

Wow:

Random House, the largest publisher, resisted Apple's call to adopt the agency model in 2010. But the company capitulated a year later in order to get its books on the iPad.

"Apple decided to pressure Random House to join the iBookstore," Cote wrote. "As Cue wrote to Apple CEO Tim Cook, 'When we get Random House, it will be over for everyone.' Apple had its opportunity in the Fall of 2010, when Random House submitted some e-book apps to Apple’s App Store. Cue advised Random House that Apple was only interested in doing 'an overall deal' with Random House. By December, they had begun negotiations, and Random House executed an agency agreement with Apple in mid-January 2011. In an e-mail to [Steve] Jobs, Cue attributed Random House’s capitulation in part to 'the fact that I prevented an app from Random House from going live in the app store this week.'"

For a second I thought I was reading about Bill's Microsoft not Steve's Apple.

fpgeek11• 13 years ago

The biggest tactical difference between Bill's Microsoft and Steve's Apple was always in the level of market power each could exert at any given point in time.

Judge rules Apple conspired to raise prices on e-books

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