Judge: Apple Conspired To Fix Prices Of E-Books

Apple conspired with book publishers to fix prices on e-books, a federal judge ruled this morning.

The ruling by U.S. District Judge Denise L. Cote in the non-jury trial rejects Apple's argument that its discussions with the five major book publishers merely amounted to doing business in a new marketplace. A second trial for damages will likely follow.

From Reuters:

"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," Cote said.
"Without Apple's orchestration of this conspiracy, it would not have succeeded as it did in the spring of 2010," she added.

In his opening statements in the trial, Apple attorney Orrin Snyder argued that the government's case against Apple depended solely on out-of-context quotes from e-mails gathered by Federal investigators.

The federal lawsuit claimed that Apple, led by then-CEO Steve Jobs and senior vice president of Internet Software and Services Eddy Cue, conspired with HarperCollins, Hatchett, Macmillan, Penguin and Simon & Schuster to drive e-book prices up from the $9.99 level Amazon had established.

This model of pricing is known as agency pricing, and allows a publisher set the prices of an ebook, with the retailer getting a cut of the price as a commission. This differs from the wholesale model that Amazon was using, where a book’s price is merely suggested by publishers, allowing retailers to discount it to their heart’s content.

Agency pricing isn't necessarily a problem—it's a perfectly legitimate way of doing business. Judge Cote, however, found that Apple colluded with the five publishers to get them to all jump to agency pricing at the same time. This was a highly anti-competitive act.

Apple was the last company defiantly standing in the eBook price-fixing trial—all five of the original publishers had already settled with the government.

Update: In a statement to the Washington Post, Apple spokesperson Tom Neumayr confirmed what was suspected—Apple will be appealing the desision.

"Apple did not conspire to fix ebook pricing and we will continue to fight against these false accusations," Neumayr said to the Post. "When we introduced the iBookstore in 2010, we gave customers more choice, injecting much needed innovation and competition into the market, breaking Amazon’s monopolistic grip on the publishing industry. We’ve done nothing wrong and we will appeal the judge’s decision."