Apple is starting their trial today due to allegations by federal and state authorities that they conspired with publishers to increase the prices of e-books. Apple will be facing against the U.S. Justice Department to determine if there was an e-book price violation.
The Justice Department filed the lawsuit against Apple and five out of the six largest U.S. book publishers around a year ago. The lawsuit said that they conspired to increase e-book prices as a way to battle a standard that Amazon.com set for best sellers.
Essentially Amazon.com was selling best selling e-books for $9.99 on their tablets as a way to entice consumers into buying the Kindle.
Going At It Alone
Apple is going to be alone in the court room because the five publishers agreed that they would eliminate prohibitions on wholesale discounts. They are collectively paying a $164 million fine that benefits consumers. The five publishers involved in this case include Penguin Group, HarperCollins Publishers, Simon & Schuster, Hachette Book Group, and MacMillan.
Apple will not be expected to pay a fine for the damages, but the government is aiming to block Apple from engaging in similar conduct. If Apple is found liable for the case, they may face damages in the form of a class action lawsuit filed by consumers.
The government likely will be able to show direct evidence that shows Apple participated and facilitated a conspiracy to raise e-book prices. Late last month, Quartz.com posted e-mails that went back-and-forth between the late Apple co-founder Steve Jobs and James Murdoch, who oversaw News Corp’s HarperCollins at the time. In the e-mails, Jobs and Murdoch discussed why using Apple’s proposed ideas may be better than working with Amazon.
However, Apple CEO Tim Cook said that the company was “not going to sign something that says we did something we didn’t do.” In 2009, Amazon was controlling the 90% of the e-book sales market. Many of the sales were driven by a loss.
Based on a recommendation from Hachette and HarperCollins, Apple started to consider an agency model where publishers set the price and Apple received a fixed percentage of 30%. This led to consumers having to spend more for the e-books.
Apple said that they were not aware that the publishers were conspiring before they entered the marketplaces. When they did enter the marketplace, Apple acted independently. Apple added that when they introduced the iBookstore, prices dropped rather than increased to an average of $7.34
The lawsuit was filed as United States v. Apple Inc et al, U.S. District Court, Southern District of New York, No. 12-02826.