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NY judge: Apple conspired to raise e-book prices

Published: Thursday, July 11, 2013 5:30 a.m. CDT
Caption
(AP file photo)
A sign displays the Apple logo outside of the company's headquarters June 7 in Cupertino, Calif. A federal judge ruled Wednesday that Apple Inc. broke antitrust laws and conspired with publishers to raise electronic book prices, citing "compelling evidence" from the words of the late Steve Jobs.

NEW YORK – Apple Inc. broke antitrust laws and conspired with publishers to raise electronic book prices significantly in spring 2010, a federal judge ruled Wednesday, citing “compelling evidence” from the words of the late Steve Jobs.

U.S. District Judge Denise Cote said Apple knew that no publisher could risk acting alone to try to eliminate Amazon.com’s $9.99 price for the most popular e-books so it “created a mechanism and environment that enabled them to act together in a matter of weeks to eliminate all retail price competition for their e-books.”

“Apple seized the moment and brilliantly played its hand,” Cote said. She wrote that Apple’s deals with publishers caused some e-book prices to rise 50 percent or more virtually overnight.

The Manhattan jurist, who did not determine damages, said the evidence was “overwhelming that Apple knew of the unlawful aims of the conspiracy and joined the conspiracy with the specific intent to help it succeed.”

Her decision was not surprising, since she had urged Apple to settle before trial and said the company had only a slim chance of winning. Government officials and industry experts have said e-book prices have declined and stabilized since rising after Apple entered the market.

Cote identified five trial witnesses as “noteworthy for their lack of credibility,” including Eddy Cue, a top Apple executive described as Jobs’ right-hand man.

Apple spokesman Tom Neumayr said the Cupertino, Calif.-based company will appeal.

“Apple did not conspire to fix e-book pricing and we will continue to fight against these false accusations,” he said. “We’ve done nothing wrong.”

Assistant Attorney General Bill Baer called the ruling “a victory for millions of consumers who choose to read books electronically.”

He said the judge agreed with the Justice Department and 33 state attorneys general that executives at the highest levels of Apple orchestrated a conspiracy with five major publishers.

“Through today’s court decision and previous settlements with five major publishers, consumers are again benefiting from retail price competition and paying less for their e-books,” he said.

The publishers that had settled were Hachette, HarperCollins, Simon & Schuster, Holtzbrinck Publishers, doing business as Macmillan, and The Penguin Publishing Co. Ltd., doing business as Penguin Group.

In her ruling, Cote said the conspiracy harmed consumers in numerous ways.

She said some had to pay more for e-books, others bought a cheaper e-book rather than the one they preferred to purchase and others deferred a purchase altogether rather than pay the higher price.

Although she acknowledged that many of Apple’s practices in its dealing with publishers would individually be legally, Cote said they collectively furthered the goal of raising e-book prices across the board.

“Apple is confronted with the fact that the conspiracy succeeded. It not only succeeded, it did so in record-setting time and at the precise moment that Apple entered the e-book market,” she said.

Apple attorney Orin Snyder had told Cote previously that she would set a “dangerous precedent” if she concluded that Apple manipulated e-book prices as it entered the market in 2010. He did not immediately respond to a message for comment Wednesday.

Neumayr said Apple’s introduction of the iBookstore “gave customers more choice, injecting much needed innovation and competition into the market, breaking Amazon’s monopolistic grip on the publishing industry.”

Amazon declined to comment Wednesday.

The government claimed Apple and the publishers agreed to a pricing policy that forced millions of consumers to pay several dollars more for most online books. In her ruling, Cote said “compelling evidence of Apple’s participation in the conspiracy came from the words uttered by Steve Jobs, Apple’s founder, CEO and visionary.”

She quoted Jobs, who died in 2011, as saying he understood publishers’ concerns that Amazon’s $9.99 price for new releases was eroding the perceived value of their products and that Apple was willing to try pricing e-books at $12.99 and $14.99. She noted that Jobs bought an e-book for $14.99 at the launch of Apple’s e-book store and told a reporter that day that Amazon’s $9.99 price for the same book would be irrelevant because soon all prices will “be the same.”

“Apple has struggled mightily to reinterpret Jobs’s statements in a way that will eliminate their bite,” Cote wrote in the 160-page opinion. “Its efforts have proven fruitless.”

Tim Bajarin, an analyst at Creative Strategies who has followed Apple for more than three decades, said the expected appeal meant the case would not be resolved anytime soon.

He said Apple’s position was strong because Amazon’s low e-book prices were hurting publishers and authors at the time, whereas they are “a bit more consistent now.”

Cote said a damages trial would follow, though none was immediately scheduled. In her ruling, she found the government had proven Apple engaged in an illegal price-fixing conspiracy by joining with publishers to eliminate retail price competition and to raise e-book prices.

The state attorneys general are seeking unspecified damages. The federal government is seeking an order that Apple be banned for two years from agreements that let publishers rather than retailers set prices and that the company be prohibited from future antitrust law violations. The Justice Department also is asking Apple to establish an antitrust compliance program and antitrust training for executives and to put in place an independent monitoring trustee.

The trial had featured testimony from executives for Apple, publishers and Seattle-based Amazon.com Inc. Witnesses from the publishing industry conceded that they were disappointed that Amazon was selling e-books so inexpensively when Apple came along in late 2009 with plans for its e-book store.

“Through their conspiracy they forced Amazon (and other resellers) to relinquish retail pricing authority and then they raised retail e-book prices,” Cote wrote. “Those higher prices were not the result of regular market forces but of a scheme in which Apple was a full participant.”

___

AP Technology Writer Barbara Ortutay contributed.

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