U.S. District Court Judge Denise Cote ruled on Wednesday that Apple is guilty of conspiracy to artificially raise the price of ebooks. Apple found itself in Federal Court after the U.S. Department of Justice accused it, along with several book publishers, of working together to force ebook prices above Amazon's US$9.99 price point, and ultimately to push Amazon into agreeing to a pricing model it didn't want. The ruling is a blow to Apple and consumers, and a big win for Amazon.
Apple's ebook conspiracy loss is a big win for Amazon
Judge Cote said in her ruling,
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... Without Apple's orchestration of this conspiracy, it would not have succeeded as it did in the spring of 2010.
Penguin, MacMillan Simon & Schuster, HarperCollins, and Hachette Book Group were also named in the suit, but settled out of court to avoid the heavy legal costs and potential fines they faced. The DOJ called Apple the ringleader in a conspiracy with book publishers to artificially raise prices by forcing an agency pricing model retailers, and that the iPhone and iPad maker included wording in its contracts ensuring no other retailer could sell books below its iBookstore prices.
Apple presented a strong case in its defense, while to outsiders it appeared that the DOJ was sloppy in court and tried to spin what seemed to be standard business practices into a sordid conspiracy with Apple calling the shots.
Even with Penguin CEO David Shanks saying Apple had a "take it or leave it attitude" towards being in the ebook market, and Barnes & Noble Vice President of Digital Content Theresa Horner saying her company was working on similar deals with publishers ahead of Apple, Judge Cote felt that the DOJ had sufficiently proven its case.
Considering the strength of Apple's defense, it's surprising to see that Judge Cote ruled in favor of the DOJ.
As part of its case against Apple, the DOJ presented a draft email from Steve Jobs that seemed to back up the claims that the company was actively working to push publishers into using an agency pricing model. That model lets publishers set book prices instead of resellers and does have the potential to drive up how much consumers pay. According to the DOJ, that email showed Apple's intent, while Apple argued that email was never sent and Mr. Jobs reworded the message once he had a better understanding of the terms they were looking for: the ability to lower their book prices to match competitors.
Publishers did push retailers into agreeing to the agency pricing model, and ultimately Amazon struck its own agency pricing deal with terms that matched Apple's.
Apple will no doubt appeal Judge Cote's ruling, especially since it has steadfastly maintained that it did nothing wrong.
The DOJ may spin this as a big win for consumers, but the real winner is Amazon. The government has essentially endorsed Amazon's monopoly position in the book market, and given a nod of approval to selling books below cost to drive its competition out of the book selling business.
[Thanks to Reuters for the heads up]