Apple Loses Its Appeal on Price-Fixing Case Concerning E-books

On 30 June 2015 the United States Court of Appeals for the Second Circuit upheld a verdict that determined Apple to be the leader of a group that conspired to raise prices of e-books.

The appellate court found that Apple orchestrated a horizontal conspiracy among the publishers to raise e-book prices, and that this agreement, aimed at raising the prices of e-books, led to an unreasonable restraint of trade.

By a 2-to-1 vote, the court agreed with the conclusions of Judge Denise L. Cote of the United States District Court in Manhattan, who rendered her verdict in 2013.

The case started in 2012, when the Justice Department accused Apple and five book publishers of forming a conspiracy to raise e-book prices above the standard price of $9.99 for new titles, which is at Amazon. This meant that the publishers, and not the retailers, would set the prices for e-books. The five book publishers settled the case before trial.

Apple implemented a model called agency pricing, where the publishers set the prices, and Apple took a provision from each sale. According to the Justice Department, this has forced Amazon to raise prices.

The main piece of evidence in the trial was an email written by Steve Jobs to Eddy Cue (Apple’s senior vice president for Internet software and service). Steve Jobs wrote about the contracts negotiated with the publishers: “I can live with this, as long as they move Amazon to the agent model too for new releases for the first year. If they don’t, I’m not sure we can be competitive”. Judge Cote noted that this email indicates that Steve Jobs was aware that the publishers were dissatisfied about Amazon’s standard price of $9.99 and that the entrance of Apple to the e-book market would cause a rise in the prices of e-books.

Apple has expressed its discontent with the judgment and is now considering its further legal options. The case now is final and there is no ordinary appeal from it. Most probably Apple will file a petition for Writ of Certoriari, asking the United States Supreme Court to review the decision of the Court of Appeals for the Second Circuit. The Supreme Court can refuse to take the case.

Apple currently also faces other legal challenges. The Justice Department is now probing Apple’s deals in the music industry. Apple’s negotiations in the music streaming sector are also subject to an enquiry of the European Commission.