Apple and E-Books: The Conspiracy

The 2nd U.S. Circuit Court of Appeals has ruled that Apple did conspire with five major book publishers to fix prices and establish itself in the e-book industry, and that it also actively hurt competitors such as Amazon and Barnes & Noble in the process.  The judges stated that the company violated antitrust laws by working with the publishers to set pricing terms.

The result of this ruling is that Apple now has to pay a settlement $450 million dollars.  $400 million is to be returned to the consumers, while the remainder goes to attorney’s fees for the plaintiffs’ counsel.  The ruling came in early June 30th, with Reuters being one of the first to report on the outcome.

Apple has already stated that they object to the ruling and are now considering the next steps to take.  According to a spokesman from Apple, “Apple did not conspire to fix e-book pricing and this ruling does nothing to change the facts.  We are disappointed the Court does not recognize the innovation and choice the iBooks Store brought for consumers. While we want to put this behind us, the case is about principles and values. We know we did nothing wrong back in 2010 and are assessing next steps.”

Over the past several years, Apple has been trying unsuccessfully to argue that it did not partner with publishers in an inappropriate manner through its iBooks e-book platform.  This latest ruling is just the most recent in a string of setbacks for the company on this matter.

In 2010, Apple offered publishers what they refer to as “the agency model”: a contract that allowed the publishers to set the prices of e-books.  This, of course, allowed the publishers to increase the prices and therefore increase their profits from each title.  Amazon (Apple’s top competition at the time), however, used a traditional pricing model that allowed for the offer of sale prices on e-books and thereby allowing the retailer to have latitude on pricing depending on consumer demand, just as with regular books.

The lengthy investigation revealed that Apple was, in fact, actively trying to take down Amazon, and several of the publishers accused of colluding with Apple settled out of court for their involvement in the agency model pricing.

For more in technology news, check out our blog.  And to ask about our IT services, contact Enstep today!