Apple Agrees to Secret eBook Settlement, Hides Deal From Public
June 17, 2014 2:00 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. (
) 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
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. (
). 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.
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
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.
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. (
) 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.
"I'm an Internet expert too. It's all right to wire the industrial zone only, but there are many problems if other regions of the North are wired." -- North Korean Supreme Commander Kim Jong-il
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