Apple Antitrust Case Settled, But Collusion Still Stains The Tech Giant’s Reputation

Apple reached an out-of-court settlement for its e-book antitrust case, potentially paying hundreds of millions in damages. Apple has not disclosed the specifics of the deal. Nevertheless, collusion, coercion and price-rigging have stained the reputations of Apple and five big book publishers (Hachette Book Group, HarperCollins Publishers, Macmillan Publishers, Penguin Group, and Simon & Schuster). That may seriously damage them in the future.

It’s also still unclear how and if book publishers and retailers can peacefully co-exist in the digital age, but this antitrust case settlement tells a story about how difficult the transition to e-books has been.

Amazon was the first to offend by lowering the price of e-books to $9.99 to promote its Kindle e-reader. Amazon started demanding that publishers sell them e-books at lower prices to accommodate. And Amazon could make those demands because it had already grown to dominate the e-book market.

The publishers fought back.

According to court evidence, Apple arranged meetings with the five publishers. They agreed to an agency model that would allow publishers to control the book price, and Apple would get a 30% cut. The publishers then simultaneously demanded an agency model with Amazon, threatening to withhold books otherwise.

Amazon gave in, and the prices started getting fishy.

As Amazon vice president Russel Grandinetti stated in his testimony, “[I] recall that Penguin raised the digital price of Atlas Shrugged by Ayn Rand to something like $19 or $20 – the paperback sold for under $10.”

Then it was Amazon’s turn again.

It began to work directly with writers to cut out the middle man. This act lowered the price of e-books even further, but many reputable authors continued to work with large publishers. So Amazon sent a letter to the Federal Trade Commission complaining about the apparent collusion.

In 2012, the Department of Justice (DoJ) sued Apple and the publishers for antitrust behavior (collusion) to raise the price of best selling e-books by 2 dollars.

The DoJ won. The final court decision required the publishers to immediately terminate their agency agreements with Apple.

Then all future contracts with retailers, and joint venture among the defendants would have to be submitted to the U.S. government, to check for any antitrust like provisions. For example, provisions preventing discounting and retailer price control were completely banned for the defendants for two years.

To make sure all the parties maintained the courts ruling, an antitrust compliance officer observed the antitrust policies of Apple and the publishers (a move that Apple staunchly opposed).

Apple appealed the antitrust case, arguing that it never intended to conspire to raise the price of e-books.

That appeal has yet to be decided.

All that brings us to the settlement, the exact terms of which will be dependent on the final appeal of the case. The settlement may save Apple hundreds of millions of dollars, since the original court decision demanded over $800 million in damages from Apple.

The settlement and appeal may also bring back the $9.99 e-book for good, at the publisher’s expense.

In another recent spat, Amazon started delaying pre-orders of certain popular books from Hachette.

Amazon’s power and coercive tactics might hit the point where they are in their own antitrust case. But that may be a ways off. Walmart pioneered the art of being a dominating retailer, and its actions continue to be tolerated.

Until then, the Apple antitrust case and decisions will give Amazon a big advantage at the negotiating table.