Apple’s last chance to win eBook conspiracy case lies with securing Supreme Court hearing
The Cupertino company has filed its brief to the Supreme Court, attempting to win a hearing that might reverse the decision by the lower court that it engaged in a conspiracy to fix eBook prices
Despite having the world’s most popular smartphone model, and for a while a near monopoly on the tablet market, Apple has not been able make much of a dent in either mobile advertising or eBook sales. Its best chance came early on when it was working with the big book publishers to try and break Amazon’s stronghold on the eBook market.
Things, as you know, didn’t go well. The U.S. Department of Justice, along with 33 states, filed suit accusing Apple of conspiring with five major publishers to raise the retail prices of ebooks. It was a rare instance when the public was not on Apple’s side.
One by one, those publishers settled, but Apple pressed their case in court. In July of 2013, District Judge Denise Cote ruled that Apple had, indeed, conspired with the publishers, and therefore violated the Sherman Act.
The Plaintiffs have shown that the Publisher Defendants conspired with each other to eliminate retail price competition in order to raise e-book prices, and that Apple played a central role in facilitating and executing that conspiracy. Without Apple’s orchestration of this conspiracy, it would not have succeeded as it did in the Spring of 2010
The key matter motivating Apple and the publishers was the desire to raise prices above the $9.99 level Amazon had set. Amazon wanted to push both Kindles and Kindle Editions and was willing to lose money to do so. Apple wanted to break into the eBook market, and was never prepared to do so using a software solution. Publishers, on the other hand, wanted to control prices.
Since the judge’s ruling, Amazon has renegotiated prices with the publishers allowing them to raise their prices to the point where sales have fallen. Amazon, though, has continued to dominate the market, while Apple has gone backwards with electronic book, magazine and newspaper sales, this year officially giving up on the Newsstand (it actually gave up on it in late 2013).
Apple’s problem, as any eBook publisher will tell you, is that it doesn’t offer a cross-publishing solution so publishers are forced to think Amazon first. This is the same problem, in reverse, that initially existed in digital magazines and newspapers – developers thought Apple first because they dominated the smartphone and tablet markets. But as Apple did not introduce a cross-platform publishing solution for the newspaper and magazine markets either, leaving it to Adobe, Mag+, Quark, Aquafadas and others to do so, the result was that Android app numbers grew.
When TNM published the Guide to Digital Publishing Platforms there were well over 100 different solutions for creating a digital magazine app, but only a handful of solutions for creating digital books, with none really offering a good solution for publishing to Amazon, Apple and Android at the same time. This has made it easy for magazine publishers to developer for both iOS and Android.
The same person who testified on eBooks to District Judge Cote was the same person in charge of the iBooks Store and the Newsstand: Eddy Cue. He may be the one person with the most to gain by having Apple press its case to the Supreme Court.
Apple’s argument for having the Supreme Court hear the case is that the company basically claims it didn’t do it. That is, they weren’t actually involved the conspiracy end of the fraud, that the publishers themselves met to fix pries, Apple was the one standing on the sidelines to take advantage of the conspiracy.
Respondents’ repeated incantation of the word “participation” merely begs the question: When can genuine vertical business conduct, normally subject to the rule of reason, be branded as per se unlawful “par- ticipation” in a horizontal conspiracy?
Apple is arguing that it didn’t join in a horizontal conspiracy. Apple layouts out the DOJ’s case this way:
They argue that Apple crossed the line by keeping the pub- liters “informed of what their competitors were do- ing,” “urg[ing] the publishers to work together,” “ac- tively help[ing] to coordinate their efforts,” and “us[ing] ‘the promise of higher prices as a bargaining chip.’”
The DOJ, on the other hand, described Apple as not a “hapless actor” that was drawn into the conspiracy, “but in fact orchestrated the publishers’ conspiracy, and actively relied on their collusion to achieve its business ends.”
The DOJ could file another brief in answer to Apple’s brief, but whether it does or not we are finally nearing the end of the line. Many legal observers believe the court will simply deny a hearing, and that will be that. The court will already be in the limelight this summer as it will hear, then rule, on the Obama administration’s immigration executive order – just in time for the July conventions. The court should let the parties know this spring whether they will hear the Apple eBook case.
Meanwhile, not much is changing in the eBook market. Sales for the big publishers are flat to declining, mostly due to raising prices. Amazon, on the other hand, continues to expand its hold on the market, and has recently reported good earnings. Its next earnings report comes out on January 28. (Apple’s comes out on Tuesday.)