backtop


Print 36 comment(s) - last by retrospooty.. on Jun 18 at 10:55 PM

Gadgetmaker faced up to $840M USD in damage claims after being found guilty of ebook price fixing

With a trial set for July over accusations that Apple, Inc. (AAPL) and its late CEO -- Steven P. Jobs -- brokered illegal collusive agreements with publishers to fix eBook (electronic book) prices at lower levels, Apple has backed off at the last minute, agreeing to a settlement with a coalition of state attorney generals and consumers.
 
I. New Settlement -- Contents Unknown
 
The most crucial detail -- what is in this settlement -- is missing, as Apple successfully negotiated a court order to seal the settlement.  Given that Apple faced up to $840M USD in potential damages claims (by prosecutors' estimations), the settlement is probably less than $100M USD.
 
Apple has a month to submit a filing asking for approval of its settlement offer.  That filing may provide some insight into exactly what it's willing to pay back to consumers in damages.

The popular gadget maker's legal woes stem from the 2010 release of the iPad.  To drive the device's sales Apple made a major foray into the eBook market, brokering key contracts with publishers.
 
The case was somewhat unusual because Apple at the time did not have a dominant position in the eBooks market.  However, a lengthy federal probe by the U.S. Department of Justice revealed a long paper trail of corporate communications, including emails from Steve Jobs and his executives.  These emails painted what seemed to be a clear picture that Apple colluded with the publishers to fix prices to try to break the power of Amazon.com, Inc. (AMZN).  Price fixing is illegal even for minority players in a given market, according to U.S. antitrust laws.
 
At the time, Amazon's prices for eBooks were around $9.99 USD -- a price that was often below cost.  After Apple's tactics, prices jumped to as high as $15 USD.
 
II. A Brief Recap and the Remaining Unknowns
 
The federal probe's implication that Apple and the publishers price-fixed was met with a federal lawsuit in April 2012.  The publishers who signed questionable contracts with Apple quickly settled, leaving Apple alone to fight the accusations.  The case went to trial and Apple struggled to defend itself during the June 2013 trial.  The trial was held in Manhattan, New York at the U.S. District Court for the Southern District of New York.
 
In July 2013, after reviewing both sides’ arguments and evidence, Judge Denise Cote ruled in the non-jury trial that Apple was guilty.  She proposed a set of solutions to correct the situation in Aug. 2013.
 
Apple quickly rejected that settlement offer, taking particular issue with the idea of an external monitor to watch its behavior for signs of wrongdoing.  It argued a monitor would be a competitive threat and it should be allowed to self-report on its progress in avoiding anticompetitive/collusive behavior.  Apple was granted a hearing before the 2nd U.S. Circuit Court of Appeals in New York to plead its case, but the Circuit Appeals court was unconvinced and order that the lower court's ruling stand.
 
The finding of guilt allowed state attorney generals and consumers to band together under a second suit in the class action lawsuit against Apple seeking monetary damages.  Judge Cote was scheduled to hear both sides and issue a ruling on whether Apple owed the states and consumers damages.
Apple e-book
The ebook ruling has helped to reinforce Amazon's dominant position in the market.

Apple was last heard vowing to file a formal appeal Judge Cote's original finding of guilt (a more aggressive move than its previous tactic of calling for a hearing to try to dismiss the external monitor).  It is probable that Apple may have agreed to forgo its appeal as part of the settlement.  It is unknown how the current settlement impacts Apple's ongoing legal complaints about the external monitor.
 
Ultimately the case appears to result in cheaper rates for consumers, but the dark side is that it has served to reinforce Amazon's dominant position in the market.  Amazon has recently begun to show signs of abusive behavior, delaying shipments of paper books and the release of highly anticipated new titles (both in digital and non-digital form), in an effort to squeeze a bigger cut of digital + non-digital book revenue from publishers.
 
Barnes & Noble, Inc. (BKS) one of Amazon's major rivals was unhappy that DOJ prosecutors had no issue with the market's most dominant player sell eBooks below cost.  It has argued that such a tactic should be illegal.

Source: Bloomberg



Comments     Threshold


This article is over a month old, voting and posting comments is disabled

Typical American Govt "Justice"
By anactoraaron on 6/17/2014 2:57:08 PM , Rating: 2
Make millions screwing over the public... pay a "fine" typically less than 1% of your profits from it.

Sometimes after company pays media outlets to express outrage about said fine - even when it is LESS than what they have set aside to pay the anticipated fine (JP Morgan Chase fine coverage on CNBC anyone?).

We as a society somehow continue to let this happen too. The question is how do we stop this from happening again? Both parties do it. And unless something changes, both parties are going to stay in power.




RE: Typical American Govt "Justice"
By Reclaimer77 on 6/17/2014 3:02:24 PM , Rating: 2
As an Apple hater, I'm pretty pleased with this ruling. Apple is probably going to pay almost a billion in fines, and more importantly, Amazon gets to put it's boot on Apple's neckbeard and shove them back down where they belong. Everyone wins but Apple, what more could you want?

I really don't see this as a political issue at all. Not sure what you're getting at. You can never stop stuff like this from happening again no matter who's put in charge. Companies by definition will seek to exploit whatever gains in profit they can get away with.

This time, Apple didn't get away with it.


RE: Typical American Govt "Justice"
By anactoraaron on 6/17/2014 3:46:16 PM , Rating: 2
Backroom deals and details hidden from the public has this administration written all over it.

quote:
the settlement is probably less than $100M USD.


I guess I'm not following this story enough to know where the other $900 million is being fined.


RE: Typical American Govt "Justice"
By Reclaimer77 on 6/17/14, Rating: 0
RE: Typical American Govt "Justice"
By tonyswash on 6/17/14, Rating: -1
RE: Typical American Govt "Justice"
By retrospooty on 6/17/2014 5:10:20 PM , Rating: 5
"Meanwhile the company actually using monopoly power to strong arm people in the publishing business is Amazon."

I really take issue with this statement Tony... You mean even through your "Apple is Rosey" colored glasses, you would say that the company that illegally conspired to artificially raise prices (and BTW was found guilty of that charge) is less the villain than the company that lowered prices for all customers?

Even for you that is a HUGE stretch of logic.


RE: Typical American Govt "Justice"
By Reclaimer77 on 6/17/14, Rating: 0
RE: Typical American Govt "Justice"
By tonyswash on 6/18/14, Rating: -1
RE: Typical American Govt "Justice"
By retrospooty on 6/18/2014 8:22:04 AM , Rating: 2
I re-post the same question... You mean even through your "Apple is Rosey" colored glasses, you would say that the company that illegally conspired to artificially raise prices (and BTW was found guilty of that charge) is less the villain than the company that lowered prices for all customers?


RE: Typical American Govt "Justice"
By Cheesew1z69 on 6/18/2014 8:32:54 AM , Rating: 2
Come on, you know the answer to that, of course he is going to defend Apple no matter what.


By retrospooty on 6/18/2014 8:50:59 AM , Rating: 2
Actually I think he would just avoid the question, but now that he has been called out for avoiding it he will try to post a somewhat watered down response. LOL. But lets see.

It's a valid question... Like reclaimer said above. "It's not the convicted murderer you need to be worried about, its' that guy who cut the warning tag off of his mattress" - It's all fine when its his own mattress, but sooner or later, they are gonna come for the tag on YOUR mattress!!! aaaaarrgh!


RE: Typical American Govt "Justice"
By Reclaimer77 on 6/18/14, Rating: -1
By retrospooty on 6/18/2014 10:55:55 PM , Rating: 1
holy crap reclaimer is on fire today


RE: Typical American Govt "Justice"
By nafhan on 6/17/2014 5:10:53 PM , Rating: 2
quote:
the company actually using monopoly power to strong arm people in the publishing business is Amazon
Strong arming the publishing business - I'm OK with. Their whole business is all about strong-arming each other, their writers, and the consumer.

Screwing over consumers (basically the anti-trust case Apple lost, as discussed in this article), I'm much less OK with.


RE: Typical American Govt "Justice"
By Cheesew1z69 on 6/17/2014 5:15:36 PM , Rating: 2
And yet, he still defends Apple as if they did no wrong. That's dedication. Or...just outright insanity.


By themaster08 on 6/18/2014 2:21:06 AM , Rating: 2
It's pure idiocy. The fact that he feels obliged to defend Apple after they were proven to be wrong in a court of law goes to show that.

He is unable to subject himself to any form of criticism towards Apple. Even when that criticism is evidenced and justified. That, I would say, is the sign of an idiot.


RE: Typical American Govt "Justice"
By hpglow on 6/17/2014 11:59:47 PM , Rating: 3
Give up guys. Just move into Reclaimer's mothers basement so you two can end your obvios sexual tension.


By Dorkyman on 6/18/2014 10:34:32 AM , Rating: 1
Good one. But it should be obvious you need a spellchecker.


RE: Typical American Govt "Justice"
By TheJian on 6/18/2014 6:28:31 AM , Rating: 1
Even the prosecutor only estimated 840mil, so when you settle it's FAR less.

They should have taken it all the way to the end and bled apple for as much as possible. At these rates they did the crime, but they didn't do the "time" so to speak. They will never stop attempting to screw people unless the punishment is in the BILLIONS. IE when Intel makes 60B in earnings over the years they screwed AMD, and then give up a paltry ~1B+ they laugh and go right back to breaking the law. Who wouldn't? If the fine had been $30Billion directly in a check to AMD, they'd think twice and so would EVERY other company with a CEO that had half a brain.

Punishments need to explode exponentially here in order to have ANY effect. Same story with MS, they earn $20B+ now, so a fine of even a few billion after YEARS of a court case is laughable to these people when they make $80B etc during the case. They'll continue to use anti-competitive practices until it doesn't make them money, meaning until you fine the holy living crap out of them (as in a FEW YEARS worth of their earnings). Can't blame them, it's good business and kills your enemies. Shareholders would then vote to fire them all and so would boards, for doing such COSTLY mistakes. Until then, get ready for more laws being broken ;)


RE: Typical American Govt "Justice"
By tayb on 6/17/2014 4:04:13 PM , Rating: 2
The problem is that even $1 billion in fines is a mere slap on the wrist for Apple. Last quarter Apple earned $45.6 billion in revenue and brought in $10.2 billion in profit. A fine of $1 billion seems like a lot but for Apple it's nothing. They'll consider it an operating system and the net effect on them won't be anywhere near $1 billion.

The purpose of a fine is to deter future behavior. If the fine is not large enough to deter future behavior then the fine is not serving its intended purpose.

One of two things should happen in these cases.

The fine should be equal to 50% of annual revenue.

Or

The executive staff should go to prison.

That should deter future illegal behavior.


RE: Typical American Govt "Justice"
By Reclaimer77 on 6/17/2014 4:15:06 PM , Rating: 2
quote:
Last quarter Apple earned $45.6 billion in revenue and brought in $10.2 billion in profit.


That's irrelevant though. ALL their profit didn't come from this illegal deal, did it?

What matters to me is how much profit THIS price-fixing scheme made them. I don't have that number, curious if anyone does.

quote:
The fine should be equal to 50% of annual revenue.


lol wow! I hate Apple, but that's just..wow. That's extreme!

quote:
The purpose of a fine is to deter future behavior.


Well I'm pretty sure this has put an end to this particular "strategy" by Apple. Doubt they'll be trying it again.

Also the deal could have more than just monetary penalties. We just don't know.


RE: Typical American Govt "Justice"
By tayb on 6/18/2014 9:29:55 AM , Rating: 4
It doesn't matter what percentage of their profit came from this illegal deal. They violated federal law in an attempt to scam the entire United States market.

The fine should be dollar for dollar ever penny they earned in this deal with a 50 - 100x punitive multiplier to discourage future behavior.

Or we can treat this like we treat any other case where someone has broken the law and jail the executives.

I'm just beyond sick and tired of coddling major corporations. Apple isn't doing shit for the American economy and they get a "get out of jail free" card when they collude to scam the entire fucking book market.


RE: Typical American Govt "Justice"
By amanojaku on 6/17/2014 5:19:03 PM , Rating: 2
Fines aren't just to deter future illegal behavior. They're also meant to take away the advantages gained from past illegal behavior.

Apple caused eBook prices to go up 50%, then took 30% of the total. Where Amazon would have gotten $3 per sale on a $10 book, Apple got $4.50 per sale on a $15 book. Apple sold more than 100M iBooks by 2011; the iBookstore opened in 2010. I don't have sales figures for 2011, but assuming growth in sales of 30%YoY then 2011 sales had to be at least 130M iBooks. That means a total of around 250M iBooks sold by the time the lawsuit hit.

At 250M books sold, Apple's costs model would have generated $1.125B in fees and Amazon's would have generated $750M, for a difference of $375M. The fine appears to be WAY out of line at nearly three times the estimated profit!

The thing is, we don't know what other factors were involved in determining the fine. Since the publishers were required to raise prices with other vendors, that means ALL eBook consumers were affected. The fine could cover other eBook sales, since Amazon would have continued at $10 if it could. And if memory serves, Amazon and Apple each own about 45% of the eBook sales. That means another $375M was taken from consumers due to the price fixing. Now the fine is $750M ($375M from Apple sales, $375M from Amazon sales).

If Apple and Amazon accounted for 90% of eBook sales, then 28M eBooks were sold by everyone else. The Apple cost model profit nets another $42M. The fine is now just under $800M. Then, there's the potential loss of book sales. Some publishers reported a reduction of sales after the price bump; one publisher said 5%. That's a reduction of 14.6M eBook sales. Since the publishers were involved in this their loss is their fault and not counted. The retailers (Amazon, B&N, etc...) lost out on $22M in licensing fees from lost sales.

I'm not willing to account for the remaining $200M in fines, but there's my analysis.


RE: Typical American Govt "Justice"
By amanojaku on 6/17/2014 5:22:29 PM , Rating: 3
Eh! It was a DT poster who stated $1B in fines. The media quoted a potential of $840M. So my $800M analysis might be more accurate than I thought...


RE: Typical American Govt "Justice"
By Reclaimer77 on 6/17/2014 6:16:52 PM , Rating: 1
I said ABOUT a billion. To me ~$800 million is about a billion. Wtf?


RE: Typical American Govt "Justice"
By amanojaku on 6/17/2014 6:27:39 PM , Rating: 2
God dammit, Reclaimer. Not everything is an attack against you. I was clarifying the details of my post, since someone would accurately point out that $800M is pretty far away from $1B, unless you happen to have a few billion to spare. If you're paying a fine, $200M is a lot.


By Reclaimer77 on 6/18/2014 9:40:04 AM , Rating: 1
My bad I misinterpreted. Relax :)


RE: Typical American Govt "Justice"
By rountad on 6/18/2014 11:33:37 AM , Rating: 2
We don't know what the settlement is. It could be practically nothing.

Apple might not want it to be public because it is so *low* that there would be a backlash against them.

Just my anecdotal viewpoint is that I was and still am paying more. Lots of books (more than before the action) at Amazon were and still are listed as having the "price set by the publisher". This price model is higher than the model they previously used.


cost of e-books
By wallijonn on 6/17/2014 3:15:53 PM , Rating: 3
quote:
At the time, Amazon's prices for eBooks were around $9.99 USD -- a price that was often below cost. After Apple's tactics, prices jumped to as high as $15 USD.


Exactly what would/should be the cost an e-book? If the e-book price is being compared to the price of a physical book, that costs $9.99 retail, for example, then what is wrong with having an e-book cost less?

The publisher has computers, he formats the book in the font he likes, then either sends it off to the printer or "leaves it" on DVD. If that one "original" copy is copied to Amazon's servers, how does one decide what the price of each copy should be? ("Whatever the market will bear" is exactly the issue being debated.)

Consider DVDs, BDs and music CDs. They come out for a set price and months later can be found in the bargain bins for $1 apiece. Apply the same model to e-books. Why should an e-book price never decrease? So how is a price of $9.99 "below cost"?




RE: cost of e-books
By Dorkyman on 6/18/2014 10:43:21 AM , Rating: 2
You make some good points, but "below cost" I would assume means that Amazon buys a product at x and then sells it at something less than x. Done all the time. I love the McDonalds Sausage McMuffin; it's priced at just $1. One dollar! They probably pay nearly that much for just the sausage patty, let alone transportation, storage, prep, and overhead. But they do it because customers drawn in will buy other stuff that delivers a profit.

With an ebook there is very little "manufacturing" cost for each additional volume sold. They still have things like per-unit royalties, though.


Amazon doing great
By TheDoc9 on 6/17/2014 2:43:55 PM , Rating: 2
quote:
Barnes & Noble, Inc. (BKS) one of Amazon's major rivals was unhappy that DOJ prosecutors had no issue with the market's most dominant player sell eBooks below cost. It has argued that such a tactic should be illegal.</qoute>

This is the cost of getting and keeping customers.

Amazon was burned big time when Apple colluded with publishers - the collusion was obvious to everyone at the time. I'm not surprised they're on the offensive now and I don't think they deserve bad press for it.




RE: Amazon doing great
By mchentz on 6/17/2014 2:57:17 PM , Rating: 2
I agree. I bought a lot of books because Amazon was so inexpensive. Now not so much as I only get eBooks but not anywhere near the amount I used to as they too are expensive even now!


By Bateluer on 6/17/2014 11:55:14 PM , Rating: 2
Why an ebook needs to be priced higher or identically to the printed version is ludicrous. You know whats driving those prices up? Book publishers. The author gets peanuts, Amazon gets peanuts. The publisher laughs all the way to their offshore banks.




By acer905 on 6/18/2014 12:22:51 PM , Rating: 2
Exactly! The worst thing about it was the idiots claiming that the price that Amazon sold ebooks for hurt the authors. Seriously? Amazon buys books, physical and electronic from publishers at a fixed wholesale price. It doesn't matter if they give the books away after that, the publisher and author were already paid their full amount either way.


dumb sheepies
By SPOOOK on 6/17/2014 7:00:45 PM , Rating: 3
apple products are overpriced overrated
dumb sheepies set up tents when a new product comes out that is 2 years behind Samsung products




Amazon "Monopoly"?
By kyuuketsuki on 6/17/2014 8:36:43 PM , Rating: 2
"Ultimately the case appears to result in cheaper rates for consumers, but the dark side is that it has served to reinforce Amazon's dominant position in the market. Amazon has recently begun to show signs of abusive behavior, delaying shipments of paper books and the release of highly anticipated new titles (both in digital and non-digital form), in an effort to squeeze a bigger cut of digital + non-digital book revenue from publishers."

Uh, in what way is Amazon's behavior "abusive"? It doesn't have any obligation, legal or otherwise, to carry products from a certain publisher/manufacturer/whatever. If Amazon doesn't like the publisher's terms, they don't have to carry the publisher's titles in digital or paper form. Amazon may have a dominant position, but nothing they are doing prevents the publisher from selling through other mediums or prevents customers from buying through those other mediums.

Sure, there's the danger of Amazon abusing "loss-leader" tactics to undercut other retailers' pricing to drive them out of business, but so far I don't see any evidence of anything illegal. Apple's collusion, however, was pretty blatantly illegal.




"If you can find a PS3 anywhere in North America that's been on shelves for more than five minutes, I'll give you 1,200 bucks for it." -- SCEA President Jack Tretton














botimage
Copyright 2014 DailyTech LLC. - RSS Feed | Advertise | About Us | Ethics | FAQ | Terms, Conditions & Privacy Information | Kristopher Kubicki