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  • Apple Has to Pay Up in E-book Antitrust Case

    March 8th, 2016

    So it’s over. Apple’s attempts to appeal a $450 million court judgment for antitrust behavior got turned back by the U.S. Supreme Court. By refusing to consider findings that Apple, along with several publishers, were engaged in a scheme to fix e-book prices, thus resulting in higher prices to customers, it let the lower court ruling stand. Apple has no choice but to write a bunch of checks to customers, states and lawyers.

    Extolling its victory, U.S. Assistant Attorney General Bill Baer, who heads the Justice Department’s antitrust division, said “Apple’s liability for knowingly conspiring with book publishers to raise the prices of e-books is settled once and for all.”

    It also means that $400 million of that verdict must be paid as refunds to customers who bought those overpriced e-books. So I suspect they will ultimately receive emails asking them to apply for their share. This seems similar to the usual class-action legal settlement where individuals receive coupons or checks to redress them for their losses. Indeed I just received a check for sixteen dollars and change for one of those cases.

    Then again, one report I read says that customers will be automatically credited somehow, although credit cards are apt to change from the 2010-2012 timeframe involved to now.

    Now the entire case has, as one might expect, been clouded with the usual back and forth posturing. The publishers caved early on, but Apple continued to claim they were acting to prevent Amazon from keeping its monopoly status in the e-book business.

    Briefly, it all started in 2010, when Amazon dominated the market by offering e-books, particularly best-selling titles, as cheap loss leaders. In other words, they’d sell them for less than the publisher charged in order to build traffic and cash flow. This is a time-honored way of building a business, but it also left other dealers out in the cold because they wouldn’t play the same game.

    So supposedly Apple conspired with the publishers to establish what’s called an “agency” pricing model, which means they set the prices and not the dealers. Supposedly the motives were pure, that no single dealer could undercut other dealers and charge less. But nothing prevented Apple, Barnes & Noble and other dealers from having loss leaders too, so why bother? In either case, the publishers would still receive their usual wholesale price, or whatever wholesale price they negotiated with a dealer.

    Indeed, when two or more companies work out a deal to set prices, that appears to be the classic definition of price fixing. It didn’t help that the evidence included some frank emails from Steve Jobs that, shall we say, appeared to confirm the conspiracy. One letter alleged that publishers were withholding books from Amazon because they were unhappy with the pricing situation.

    As Apple continued to appeal the verdict, which seemed fairly cut and dry to an outside observer, the court ordered Apple to alter its business practices, and even appointed a court monitor to make sure the company complied with the verdict. But even that became a matter of contention, as Apple accused the monitor of being too intrusive, and the monitor complained that Apple wasn’t cooperating.

    The whole affair reminded me of a series arc on “The Good Wife,” a CBS drama, where a legal firm at which the main protagonist worked at the time had gone bankrupt and had to contend with a court monitor, an accountant, to get its affairs in order. He sat with the partners at their strategy meetings and would question every little decision they made. The role was played with comic flair by Nathan Lane, and, although the court monitor in the Apple case looked nothing like him, the whole brouhaha reminded me of the funny byplay on that show.

    Regardless, it shouldn’t matter to a customer whether a dealer earns a profit or not from a sale, or what that dealer does to remain competitive in the marketplace; that is, so long as the customer doesn’t suffer. Surely customers don’t suffer when e-book prices are lowered. On the other hand, if a dealer engages in monopolistic behavior by doing unethical things to expand its market share, that’s a different story altogether.

    Surely, if Apple had been able to demonstrate that Amazon was somehow violating antitrust laws, it might have had a valid complaint. To the outsider, however, it was Apple who, in collusion with major book publishers, was guilty of a price fixing conspiracy. That these companies allegedly acted to protect the interests of the customer seems to go against logic. How does paying more for a product or service benefit customers?

    Now understand that this case will barely impact me. I’ve only purchased a few e-books over the years. I prefer to buy real (print) books. But I can see where Apple might get loads of requests to share some of that $400 million largesse with customers who apply for refunds.

    In any case, writing these checks will amount to chump change to Apple. Most of the affected customers probably won’t apply for refunds. But one hopes Apple has actually learned something from the experience, and won’t continue to view it as an unfair court decision. As someone who has two novels available at Amazon, I’d love to see them offered at full price, but the e-book versions are priced at $9.99, and that’s their right. It’s a right that’s been affirmed by the courts.



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