United States vs. Apple (and the Big Six, I mean Five)

I’m not going to go into any depth on the Apple ruling. It wasn’t really a close case or even an interesting bit of law. Just straight-forward collusion on price fixing. I do however have a few comments and recommendations.

Don't worry. I'm not going to let the motto drag me into another Latin discussion.

Don’t worry. I’m not going to let the motto drag me into another Latin discussion.

First of all, I recommend that you read the fact section of the opinion. You can find it, and just about everything else involved with the case if you have a couple of days to kill, on the DOJ website here. Look for “Opinion & Order.” The factual portion is written in narrative form and is pretty accessible to anyone. The reason I recommend reading it is it gives you a glimpse into the business and minds of big publishers. Read it to get a glimpse at the motives of the publishers in all of this. And I’m not trying to imply judgment of those motives, just that seeing through their eyes is interesting.

Let me add one caveat though. This was written by a judge as findings of fact – to support the conclusions of law. In other words, it has a slant – to make the legal conclusions look obvious.

If you want a quick summary, take a look at Professor James Grimmelmann’s post. He correctly points out what many flew past – that the publishers’ motives were not just about setting higher price expectations, but also about protecting the physical retail sector (that is their last trump card in the whole thing we call book publishing).

The Atlantic breaks it down into “6 bullet points.” While the article does provide a quick summary, it’s a bit light on Amazon an a bit heavy on Apple. For example, it states “Amazon was actually losing money on ebook sales, but it didn’t care. The long-term goal was to get people to buy Kindle e-readers.” Selling more Kindles may be a goal for Amazon, but in the long-term, selling more Kindles is just a means toward accomplishing its true goals (e.g. locking customers into Amazon through hardware-DRM combinations).

Later, the article refers to “Apple’s plan to raise ebook prices overall” which I think is a little unfair in its characterization of Apple’s goals. Apple did not just decide one day that eBook prices needed to be higher. Apple wanted to open an eBook store to help sell iPads, and Apple wanted to make money off eBook sales in that store. Giving publishers a way to accomplish their goals – which was to raise eBook prices – was simply Apple’s quickest option to get the publishers on board and its iBookstore off the ground. I’m not saying their actions were not illegal. I’m just saying that raising eBook prices was not their “plan.”

The article does a good job overall and  provide an excellent summary of the publishers’ thinking processes:

With Amazon’s aggressive pricing, the publishers reasoned, the Internet company might grow so powerful as to be able to drive down prices for all books, even the hardcovers sold in mom-and-pop stores. Amazon might even begin to negotiate directly with authors and cut out the publishing houses altogether.

For a slightly different take on the ruling, see this Forbes article describing the potential downsides for the industry and consumers.

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2 Comments

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2 responses to “United States vs. Apple (and the Big Six, I mean Five)

  1. Nerdy

    This is not a cut-and-dried case at all, in my opinion. Judges have been refusing to sanction hub-and-spokes cases for decades now – the law on this type of conspiracy has really gotten extremely difficult to prove. The chances of the court treating it as a horizontal conspiracy were definitely not that amazing. I would characterize what the court saw as a wagon wheel: hub and spokes with a solid, thick, iron rim.

    Second, I thought that the refusal to buy this as a “transforming industry” case was also heavy handed. As you’ve alluded to above, I think that there was a case against Amazon for predatory pricing – but the DOJ went after Apple instead. Interesting, I think.

    Let’s just say that I don’t see this particular case as a renaissance of “per se” antitrust cases in this country. I await the appeals with great interest.

  2. mscottboone

    I will bow to your expertise on all matters antitrust, Nerdy. This is more your area than mine. I certainly did not mean to give the impression that I thought we were going to see an upswing in antitrust cases – of any sort.

    This one just didn’t seem in doubt given (1.) the smoking gun emails (particularly when the testimony attempting to explain them away was less than believable), (2.) the main conspirators had already settled (and might actually benefit from Apple being required to disgorge monies back to consumers), and (3.) Steve Jobs oft-cited public statement about where prices were going to be. In other words, the facts were just too bad and to some extent too public for the result to go any other way. But that is really just an armchair judgment on my part.

    P.S. Though I appreciate the “Nerdy” pseudonym, was “Velma JD” already taken or something?

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