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Digital River - Talk to the Experts

Apple Hit Upside the Head by E-Book Ruling

By Richard Adhikari MacNewsWorld ECT News Network
Jul 10, 2013 12:59 PM PT

Apple, which has been beset by a variety of troubles in recent months, took another hit on Wednesday when a federal judge ruled that it had violated antitrust laws by conspiring with several publishers to raise e-book prices.

Apple Hit Upside the Head by E-Book Ruling

"The result is a victory for millions of consumers who choose to read books electronically," exulted Bill Baer, head of the United States Department of Justice antitrust division.

Apple has vowed to appeal, but it's widely expected that 33 states will seek damages in light of this ruling.

The resulting legal battles could mark "the beginning of what could be a pretty tough time for Apple" because the company's size and dominance in its fields mean its moves and strategies will bear close scrutiny, Charles King, principal analyst at Pund-IT, told MacNewsWorld.

Apple did not respond to our request to comment for this story.

Highlights of the Ruling

Judge Denise Cote of the U.S. District Court for the Southern District of New York ruled that Apple played a central role in facilitating and executing a conspiracy among the publishers named in the DoJ's lawsuit: The MacMillan Group; Simon and Schuster; the Hachette Book Group; Penguin; and HarperCollins.

"Compelling evidence of Apple's participation in the conspiracy came from the words uttered by Steve Jobs, Apple's founder, CEO and visionary," Cote said. "Apple has struggled mightily to reinterpret Jobs' statements in a way that will eliminate their bite. Its efforts have proven fruitless."

In 2010, when asked why consumers would buy an e-book from Apple rather than from Amazon, which then charged US$9.99 a book, Jobs told a reporter that the prices would be the same.

In addition, he said in an email to Apple executive Eddy Cue, who was negotiating deals with the publishers, that he could live with the contracts negotiated "so long as they move Amazon to the agent model too for new releases for the first year. If they don't, I'm not sure we can be competitive."

Jobs was referring to the agency pricing model that Apple proposed, in which the publishers set the prices instead of the retailers. Under that model, Apple took a cut of each sale.

"The judge's language was pretty harsh and she basically said -- and I'm paraphrasing -- that Apple had completely failed to explain away its intentions," King said. "It doesn't surprise me that Apple plans to continue to press its case, but with the kind of language in the judge's ruling, it will have to come up with a better approach than it did the last time around."

The contention that the judge was predisposed against Apple may come into play. At a pretrial hearing in May, Cote said that the government would be able to show at trial direct evidence that Apple knowingly participated in and facilitated a conspiracy to raise prices of e-books.

Good Run of Bad Luck?

The e-book case ruling is the latest in a wave of problems plaguing Apple of late.

Earlier this month, Boston University filed suit over a patent for a semiconductor. France's antitrust watchdog Autorite de la Concurrence recently searched the offices of Apple, as well as its wholesalers and retailers, as part of a probe into whether Cupertino was engaged in anticompetitive practices there.

Apple is facing a ban on sales of older iPhones and iPads in the U.S. effective Aug. 5 because of a patent ruling awarded to Samsung; it has appealed to the U.S. International Trade Commission for a stay.

However, "Apple ... is no longer a seat-of-the-pants managed company," Larry Chiagouris, a professor of marketing at Pace University, told MacNewsWorld. "Its operations have already accounted for these kinds of problems and, as such, these are for the most part minor irritations."

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