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Apple May Slip the DoJ's Noose

By John P. Mello Jr. MacNewsWorld ECT News Network
Apr 13, 2012 5:00 AM PT

Odds are Apple will beat the antitrust lawsuit filed Wednesday by the U.S. Department of Justice (DoJ) against the iPad maker and a half dozen publishers.

Apple May Slip the DoJ's Noose

Three of the publishers named in the lawsuit -- Hachette, HarperCollins and Simon & Schuster -- settled with the DoJ immediately. However, the other defendants -- MacMillan, the Penguin Group, the Penguin Group USA and Apple -- have vowed to grapple with the feds in court.

The DoJ alleges that Apple and the publishers conspired to raise retail e-book prices and otherwise limit competition in the e-book market.

"It appears to me that they have a stronger conspiracy claim and price-fixing claim between the publishing houses than they do against Apple," David Vance Lucas, an attorney with Bradley Arant Boult Cummings, told MacNewsWorld.

Apple declined to comment for this story.

Market Maker, Not Breaker

In its complaint in the antitrust case, the DoJ alleges that Apple teamed up with the publishers to restrain retail price competition for e-books.

"The case against Apple will be more difficult to prove given that Apple was a new competitive entrant into that market and was trying to find a way to compete with a dominant market player, Amazon," Lucas explained.

Far from being an anticompetitive player in the market, he said, "Apple's attempt to enter the market actually was pro-competitive, long term."

He added that the DoJ will have difficulty showing Apple's market role impaired competition for e-books when "even to this day, Amazon still commands a predominate market position in the delivery of e-books."

Proximity to Conspiracy

"The liability of the publishers is much clearer than the liability of Apple with respect to this behavior," observed Joseph P. Bauer, a law professor at Notre Dame Law School.

That's because the publishes are all in the same business and compete with each other so their alleged fixing of price policy and structure goes to the heart of federal antitrust law, he explained.

If Apple arranged or orchestrated the fixing scheme, it would share the liability with the publishers, he continued.

However, "If Apple came in afterwards -- say the publishers got wind of what Apple would like, but Apple was not directly involved -- then Apple's liability would be diminished," he said.

Hub of Fixing Scheme

Geoffrey Manne, executive director of the International Center for Law and Economics, agrees that the case against the publishers is stronger than the one against Apple.

The allegations in the DoJ's complaint, if proven true, would mean that the publishers were engaged in naked price fixing, he explained. But if Apple acted as a hub for that price fixing, he said, "then Apple has got a problem as well."

The DoJ alleges that Apple was key in implementing the price-fixing scheme of the publishers. "That's a story that requires a lot more argumentation to demonstrate, which is why the DoJ's case against Apple is more tenuous," Manne argued.

"If everything in the complaint pans out, turns out to be true and is believed by a court -- which never happens -- Apple would be in trouble," he added.

Settlement Likely

But the party with the biggest problem may be the DoJ.

"The DoJ knows its case is not a slam dunk so, all things being equal, might very well prefer not to go to court so you would expect there to be continued discussions between the hold-out publishers, Apple and the DoJ over terms of settlement they could all accept," Manne said.

It's somewhat ironic that Apple and the publishers may have been acting in monopolistic way against a competitor, Amazon, which has a quasi-monopoly of the retail book market, with the intent of increasing competition.

"Does Amazon's large market power permit other members of the industry to act in ways that are clearly anticompetitive?" asked Bauer. "If price-fixing is clearly anticompetitive, then the answer has to be no."

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