Apple Guilty of Price Fixing

U.S. District Judge Denise Cote has found that Apple is guilty of colluding with five book publishers to fix ebook prices artificially high in the iBookstore, thereby forcing Amazon and other online booksellers to do the same. There's no word yet on how much cash money and concessions Apple will have to fork over, but beyond the punishment, hopefully it will serve as a warning to stave off other online retail conspiracies.

In April 2012 the DOJ filed an anti-trust complaint against Apple the five book publishers alleging that the companies "conspired to raise, fix, and stabilize the retail price for newly released and bestselling trade e-books". Apple went ahead with a non-jury trial last month, and today, the court ruled that Apple had indeed colluded by suggesting that they should all charge prices such as $12.99 and $14,99 in the iBookstore, rather than the standard ebook price of $9.99.

In a statement, given to the AP and others, Apple spokesman Tom Neumayr said that Apple had done nothing wrong and that it would appeal the decision.

According to the trial record pieced together from obtained emails, depositions, and testimony, the story, of collusion begins back in 2009 when Apple SVP Eddy Cue started studying the ebook market in advance of the iPad's release. Lo and behold, Apple realized that the market for ebooks was potentially huge and that their main competitor was Amazon.

Cue—which the record goes out of its way to paint as a "master negotiator"—and his team knew that publishers didn't like Amazon's rock-bottom $9.99 pricing for ebooks, and that as a whole the publishers were hoping to drive that price up.

The record goes into clinical detail about Cue's meetings with various publishers and how Apple subtly "orchestrated" a conspiracy to drive prices higher than they would naturally be to the detriment of both Apple's competitors and consumers. It's a surprisingly engrossing read, if you've got the patience for all 160 pages.

Indeed, Judge Cote is unequivocal in her decision:

The question in this case has always been a narrow one: whether Apple participated in a price-fixing scheme in violation of this country’s antitrust laws. Apple is liable here for facilitating and encouraging the Publisher Defendants’ collective, illegal restraint of trade. Through their conspiracy they forced Amazon (and other resellers) to relinquish retail pricing authority and then they raised retail e-book prices. Those higher prices were not the result of regular market forces but of a scheme in which Apple was a full participant.

In other words, the collusion between Apple and the publishers artificially raised the prices beyond what competing retailers would have set themselves, and presumably, higher than the natural price. Which is bad for you because you shouldn't have to pay more money just because executives want to wring more cash out of your wallet. [New York State District Court via Reuters and AP (WaPo)]