Apple conspired to boost prices on e-books: US judge

A digital book is displayed on an Apple iPad for a photograph in New York (file). Apple violated federal anti-trust law by playing a “central role” in a conspiracy with the publishers to eliminate retail price competition and raise e-book prices, a US federal judge ruled yesterday.

Reuters/New York

In a sweeping rejection of Apple Inc’s strategy for selling electronic books on the Internet, a federal judge ruled that the company conspired with five major publishers to raise the retail prices of e-books.

US District Judge Denise Cote in Manhattan found “compelling evidence” that Apple violated federal antitrust law by playing a “central role” in a conspiracy with the publishers to eliminate retail price competition and raise e-book prices.

The decision could expose Apple to substantial damages. It is a victory for the US Department of Justice and the 33 US states and territories that brought the civil antitrust case.

Apple was accused of pursuing the conspiracy to undercut online retailer Amazon.com Inc’s e-book dominance, causing some prices to rise to $12.99 or $14.99 from the $9.99 that Amazon charged. Amazon once held a 90% market share.

“Apple chose to join forces with the publisher defendants to raise e-book prices and equipped them with the means to do so,” Cote said in a 159-page decision. “Without Apple’s orchestration of this conspiracy, it would not have succeeded as it did.”

Yesterday’s decision was not a total surprise, given that Cote indicated before the 2-1/2 week non-jury trial began on June 3 that Apple’s defences might fail. Cote ordered a trial to set damages.

“This result is a victory for millions of consumers who choose to read books electronically,” Bill Baer, head of the Justice Department’s antitrust division, said in a statement. “This decision by the court is a critical step in undoing the harm caused by Apple’s illegal actions.”

In a statement, Apple maintained that the plaintiffs’ allegations are false and said it will appeal Cote’s decision.

“Apple did not conspire to fix e-book pricing,” Apple spokesman Tom Neumayr said. “When we introduced the iBookstore in 2010, we gave customers more choice, injecting much needed innovation and competition into the market, breaking Amazon’s monopolistic grip on the publishing industry. We’ve done nothing wrong.”

Last year, Apple settled a separate antitrust case over e-book pricing with the European Commission, without admitting wrongdoing.

The alleged collusion began in late 2009 and continued into early 2010, in connection with the Silicon Valley giant’s launch of its popular iPad tablet.

Only Apple went to trial, while the publishers agreed to pay more than $166mn combined to benefit consumers.

The publishers included Lagardere SCA’s Hachette Book Group Inc, News Corp’s HarperCollins Publishers, Pearson’s Penguin Group (USA) Inc, CBS Corp’s Simon & Schuster Inc and Verlagsgruppe Georg von Holtzbrinck GmbH’s Macmillan.

Baer said Cote’s decision, together with the publishers’ settlements, have helped consumers by reducing prices of e-books.

Steve Berman, a partner at Hagens Berman Sobol Shapiro pursuing consumer class-action litigation against Apple, called Cote’s decision “a very big deal.”

“It exposes Apple to hundreds of millions of dollars in damages, which is what we’ll ask for,” Berman said.

Amazon’s strategy involved buying e-books at wholesale and then selling them at below cost, in an effort to promote its Kindle reading device.