Federal Court Finds Apple And Publishers Fixed E-Book Prices

Judge Denise Cote of the U.S. District Court for the Southern District of New York ruled on Wednesday that Apple Inc. conspired with five of the “Big Six” publishing houses—Hachette Book Group, Inc., HarperCollins Publishers LLC, Holtzbrinck Publishers LLC d/b/a Macmillan, Penguin Group (USA), Inc., and Simon & Schuster, Inc.—to raise the prices of electronic books (“e-books”) in violation of antitrust law.

The civil suit of U.S. v. Apple Inc. was brought in April 2012 by the Antitrust Division of the U.S. Department of Justice (DOJ) and the attorneys general of 33 states.  It arose from the arrangement adopted by Apple and the publishers to have the publishers set the retail prices for their own e-books instead of having them set by e-book retailers like Amazon and Apple.

The court found that Apple convinced the publishers to move from a “wholesale” model—under which “a publisher receives its wholesale price for each e-book and the retailer sets the retail price”—to an “agency” model, under which “a publisher sets the retail price and the retailer sells the e-book as its agent.”  From December 2009 to January 2010 the publishers switched from the wholesale model—under which Amazon had been selling e-books at $9.99—to the agency model, under which the retailers set e-book prices at $12.99 to $14.99.

The DOJ and plaintiff-states alleged that the agency model was the result of a conspiracy among Apple and the publishers to raise prices for e-books.  The publishers settled with the DOJ and the states prior to the trial, and the case against Apple was tried to Judge Cote without a jury from June 3 to June 20, 2012.

Judge Cote held that the DOJ proved its allegations of conspiracy.  The court found that the publishers and Apple conspired to raise e-book prices.  Judge Cote rejected all of Apple’s arguments, including that Apple had not colluded on prices but had only sought to secure e-book publishing deals in time for Apple’s launch of the original iPad, which Judge Cote acknowledged to be a “revolutionary” innovation.

Apple has stated that it will appeal.

Click here to read Judge Cote’s 160-page opinion.

Click here to read the Associated Press’s much shorter article in which Constantine Cannon partner Ankur Kapoor was quoted on the decision.

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