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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



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

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.


"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














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