Apple Hit with Permanent Injunction in Ebook Price Fixing Case

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Judge Denise Cote followed through on her plan to hobble Apple's position in the ebook market on Friday by imposing a permanent injunction on the company that limits it's ability to negotiate contracts with publishers and tosses out some of the provisions in the contracts the iPhone and iPad maker has already signed.

Apple hit with injunction in ebook price fixing caseApple hit with injunction in ebook price fixing case

The ruling comes as part of the Department of Justice case accusing Apple and several publishers of conspiring to artificially raise book prices. While the publishers all settled out of court to avoid a lengthy and expensive trial process, Apple pushed ahead alone maintaining that it did nothing wrong and that there never was a conspiracy.

Judge Cote is placing a third party observer in Apple to monitor the company's practices and to make sure it doesn't engage in activities that violate antitrust laws, is breaking any contracts Apple has with publishers that include any type of price restrictions, is stripping out "most favored nation" clauses from Apple's contracts, and is blocking Apple from striking similar deals with publishers for four years.

The restrictions effectively block Apple from competing in the ebook market since it won't have control over the prices for books it sells, and can't easily react to price changes from competitors like Amazon. Since Amazon can continue to sell books below cost, the Department of Justice and the Federal Courts are essentially giving control over the book market to online retailer.

Judge Cote said in her ruling that she isn't restricting Apple's ability to compete and that her ruling doesn't do anything that "prohibits Apple from entering into or maintaining an agreement with an ebook publisher merely specifying prices that Apple must pay for the ebook publisher's ebooks."

Apple still maintains that it did nothing wrong. In a statement to The Verge, Apple said,

Apple did not conspire to fix ebook pricing. The iBookstore gave customers more choice and injected much needed innovation and competition into the market. Apple will pursue an appeal of the injunction.

The injunction isn't the end of the story for Apple. The company has already said that it plans to appeal the ruling and injunction, so there's a good chance the case will continue to be a big part of Apple's world for at least the next couple of years.

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Comments

skipaq

Could you clarify the length? Is it for five years? Permanent seems beyond what I have read elsewhere.

webjprgm

I still think the capitalist economy is in favor of Judge Cote and Amazon on this one. Apple most definitely did conspire to set prices. They conspired to set them at reasonable levels, while Amazon sells at a loss, but that’s still against the spirit of capitalism where the market forces alone, not the cost of the good, should dictate the price.

Does anyone disagree with that statement? If so why?

(For the record, I am an avid Apple fan and prefer iBooks over Amazon’s iPad reading experience.)

gnasher729

There is no evidence that Apple conspired with anyone. Except for an email draft (while the contents of the email that was actually sent five minutes later was totally different). The publishers, who are the ones who know the truth, were willing to testify, but were not allowed to do so.

geoduck

webjprgm
I think disagree would be too strong. Overall you’re right. I’m not sure if I would call what Apple and the publishers did conspiracy. They were trying to set up a formula where they could compete with Amazon’s predatory tactics. Companies working together is not necessarily conspiracy and I question that the DOJ really showed anything that I would call illegal. Amazon’s tactics, and the well documented harm they have caused is what, IMO, the DOJ should have actually been going after.

I still think the capitalist economy is in favor of Judge Cote and Amazon on this one.

I agree. Unfettered capitalism has a tendency toward monopoly and Amazon, now with the help of the DOJ is well on the way to creating one.  The DOJ was way off target and I would not be surprised if this gets overturned on appeal.

Anyone else notice that there was no mention of monitory damages? Not sure if that’s the other shoe, or it’s off the table completely, but I found it significant.

skipaq

A truly free market would tend toward pricing items within a narrow range. Check out the prices on gasoline, milk, bread and other things. A company may decide to sell something as a loss leader for a period of time. However, when an item or category is endlessly sold at a loss it will drive the competition out of that business. The end result is not free market competition; but a monopoly. It is still capitalism but harmful to producers and/or consumers.

xmattingly

I don’t buy ebooks or have yet to own an iPad. Even so, I’m kind of pissed about what this means, which is nothing more than anticompetitive market intervention from an activist branch of government.

While judgment may be perceived as a “win” for consumers, by putting a collar on Apple with one hand, they’ve given Amazon a monopoly with the other. Now they’ll have free license to take out the floor on book prices, which in the long run will have a detrimental effect on publishers’ ability to make a reasonable profit from their creations.

1. There was never anything illegal about pricing with the agency model to begin with.
2. Apple contract with publishers only stipulated that they sell their material no less than competitors’ prices.
3. You were never forced to purchase ebooks from Apple’s book store to view on an iOS device, so vendor lock-in never existed.
4. Have any of these clowns ever heard of a library? More ebooks are becoming available all the time, and even if it’s not available, just about any book can be borrowed in physical form.
5. I’m not sure where they’re at now, but at one point Amazon owned 90% of the ebook market.

Given all the variables, the “consumer advocacy” element was never really a factor, even though that appears to be the reasoning behind the judgement. Our government needs to spend less time sticking their beak in free markets to score political points and more time fixing the problems they’ve created.

Steve Jobs must be rolling in his grave.

daemon

“A truly free market would tend toward pricing items within a narrow range. Check out the prices on gasoline, milk, “

@skipaq: Both gas and milk are heavily price controlled by state and federal laws.

The federal government pays subsidies to farmers to reduce the amount of milk produced and the price itself is heavily regulated. Gasoline prices are also heavily regulated by state laws.

Seriously, if you’re going to talk about free market prices how bout picking things that aren’t regulated or subsidized by the government.

If you want to see the free market in motion you should reflect on the computer industry, and one of the biggest things you should notice is the wide variety of prices for computers.

skipaq

@daemon
Gas prices within the area you live will fall within a limited range. It is true that you will pay more in some states or counties due to differences in taxes or costs related to regulations. But the prices will still fall within a limited range. The same is true of the other things that I mentioned irrespective of government interference. You will spikes in prices for some things when the seller has a captured market. For example, try buying an ice cream bar at a theme park and at the supermarket. The theme park is a temporary monopoly in this regard.

I would not make the point that this tendency holds true for every item. Something new to market is also a temporary monopoly and we will pay whatever the producer asks if we deem it worth the price. Books and e-books are more of a commodity than high tech items like computers. But the variance in the pricing on computers has been shrinking for years due to the same market forces.

Bosco (Brad Hutchings)

Oh Eddie Cue…
Oh Eddie Cue…
Oh Eddie Cue, why’d we listen to you?
Eddie Cue.

Oh Eddie Cue
Now we’re totally screwed.
They must approve everything we do.
Eddie Cue.

Harvey Lubin

Jeff, thanks for another excellent article.

In addition to Judge Cote’s very questionable decision-making (and what appears to be a bias for Amazon, and against Apple, in selecting what evidence was considered), there is another factor that I’m surprised that no one (including Apple’s lawyers) have been talking about.

Regardless of Amazon’s predatory pricing, even if Amazon was not low-balling the prices on the books it sells, the eBook products that Amazon sells are not comparable to the ones that Apple sells.

Although Apple and Amazon do sell eBooks with the same titles, Apple’s eBooks are better featured than the ones Amazon sells. These are some of the major differences between the two:

* Apple’s iBooks store has a rich assortment of dazzling multimedia books that include interactivity, videos, audio, etc., but Amazon’s Kindle books do not.

* iBooks can be read in a continuous scrolling mode, Kindle books cannot.

* iBooks let you change the fonts with more and better choices than Kindle books.

* iBooks lets you change justification and hyphenation. Kindle doesn’t.

* iBooks lets you change and display metadata. Kindle doesn’t.

* iBooks lets you create collections (basically playlists for books). Kindle doesn’t.

* iBooks lets you copy and paste sections of text. Kindle doesn’t.

* iBooks syncs your position and bookmarks to all of your devices via iCloud. Kindle doesn’t.

* iBooks allows you to write long notes. Kindle’s notes are limited in size.

* iBooks are less restrictive and easier to manage authorization on multiple devices than you can do with Kindle books.

If Amazon and Apple were both car dealerships selling Kia cars, and Apple was selling the same cars for a higher price than Amazon, Judge Cote would have some reason to question the difference in pricing… But they are not the same products!

What Judge Cote is doing is comparable to telling Apple it must sell BMW cars at the same price points as Amazon’s Kia cars… and that is unjustifiable.

daemon

“What Judge Cote is doing is comparable to telling Apple it must sell BMW cars at the same price points as Amazon’s Kia cars… and that is unjustifiable.”

Talk about ignorance. Look, the entire issue here is that Apple set the price for Amazon’s Kia cars to be no less than their BMW cars, no one could sell below Apple. Apple fixed the industry price for all ebooks. That’s what is illegal.

Harvey Lubin

daemon: “Talk about ignorance.”

Yes, I would like to talk about ignorance… yours.

You have the misconception that Apple sets prices for eBooks. That is just as untrue as saying that Apple sets prices for iOS apps submitted by developers.

You seem to be totally unaware of the fact that Apple functions as an agency for others to sell their wares. Apple has no control whatsoever over pricing.

As an agency, Apple gets a standard 30% commission on items sold, whether it is ebooks or iOS apps or Mac apps. Apple does not buy nor does it own the items being sold. It is the owners of those properties that set the prices for themselves.

You, like Judge Cote, are oblivious to these facts.

Thankfully Judge Cote presides over a lower-level court, and Apple has the right to (and most probably will) appeal this decision to a higher court.

daemon

“You seem to be totally unaware of the fact that Apple functions as an agency for others to sell their wares. Apple has no control whatsoever over pricing.”

You’re conflating the function of Apple’s store with Apple’s actions.

This is what Apple did illegally. Contacted major book publishers and proposed a standard set price for all ebooks that no one could sell below, to which five of the six agreed to and set their prices to for the entire industry.

That is what is illegal. It’s called “price fixing” and you can’t do that.

Harvey Lubin

daemon, Apple has no power over the publishers to make them set “a standard set price for all ebooks”.

Apple however can and did request a “most favoured nation” (MFN) clause in its agreements with the various publishers. This is a clause in an agreement granting to one entity the same terms as are then or may thereafter be granted to any other entity. This is common practice in business, and it is actually beneficial (not detrimental) to consumers.

daemon

@Harvey Lubin: Son, are you stupid? I told you what they did wrong and instead of addressing those actions you go and conflate hard power over publishers with soft power and expect everyone to be just as stupid as you.

Harvey Lubin

If you are trying to win an argument by being insulting, rather than using logic and facts… it’s not working.

daemon

“If you are trying to win an argument by being insulting, rather than using logic and facts… it’s not working.”

LoL!

You start with this FUD:
“In addition to Judge Cote’s very questionable decision-making (and what appears to be a bias for Amazon, and against Apple, in selecting what evidence was considered), there is another factor that I’m surprised that no one (including Apple’s lawyers) have been talking about.”

Then attempt to conflate Apple’s store power with Apple’s actions:
“You have the misconception that Apple sets prices for eBooks. That is just as untrue as saying that Apple sets prices for iOS apps submitted by developers.”

And when called out for not addressing the argument, respond with this gem:
If you are trying to win an argument by being insulting, rather than using logic and facts… it’s not working.

Son, If’n you’re not gonna talk about what actually happened and instead go off about stuff this case has nothing to do with I’m sure the hell not gonna indulge ya.

Harvey Lubin

And I’m not going to indulge your need to be derogatory!

You have demonstrated yourself to be the sort of person who hides behind his anonymity on the web, to be insulting to others without restraint or common sense.

This seems to be a tactic taken to obscure your own lack of knowledge in this discussion, and inability to put forward a rational argument.

Your lack of respect for others only reflects poorly on yourself, NOT on those that you attempt to denigrate, and I will not deal with you any further.

You would do well to honestly examine your behavior, and make appropriate changes to it. Disregarding this and continuing with your negative attitude and insults will only gain you an equal amount of disrespect from others.

daemon

“You have demonstrated yourself to be the sort of person who hides behind his anonymity on the web, to be insulting to others without restraint or common sense.”

@Harvey Lubin: Oh please. I’ve owned this pseudonym for years on this site. I’m known among this community and I own my reputation here. I’m neither anonymous on this site nor hiding.

“This seems to be a tactic taken to obscure your own lack of knowledge in this discussion, and inability to put forward a rational argument.”

Ad hominem attack that does nothing to prove your stance that Apple never fixed ebook prices.

“Your lack of respect for others only reflects poorly on yourself, NOT on those that you attempt to denigrate, and I will not deal with you any further.”

You’re conflating disrespect with disagreement.

“You would do well to honestly examine your behavior, and make appropriate changes to it. Disregarding this and continuing with your negative attitude and insults will only gain you an equal amount of disrespect from others.”

Christ, look in a mirror some time. I answered your wild, ludicrous assertions with base facts and you resorted to ad hominem attacks.

MuppetGate

I’ve always been a little unclear on this, but I found this article very helpful.

http://untangledtranslations.wordpress.com/2013/08/06/legal-language-what-is-an-mfn-clause/

The interesting part is this:

“Apple decided to let publishers set their own price for e-books, unless a better price was found on the market. Then, the publishers would have to eat the loss, giving Apple their e-books for the lowest marketed price available. Apple could thus compete on price without reducing its own profit margin. As a result, these publishers decided to amend their contracts with Amazon, too, to limit their own losses—or else they would cease supplying Amazon with popular, new e-books.”

Okay, so here’s how I understand it:

As a publisher, | decided to sell my book on Amazon for $2.00.

I decided to also sell it on the iBook store, but because of the extra work involved (I put in some animations, sound, a few video reels) I decide, as a publisher, to sell the book for $2.05 to recoup my extra production costs.

Apple says I cannot do that; I have to charge the same price, which means I’m losing money. To make sure I’m not losing money I need to charge $2.05! So how do I get around it? I raise the price of the Amazon book.

Now can anyone honestly say that does not strike them as a little bit ... odd?

Bosco (Brad Hutchings)

@MuppetGate: Who is going to buy the beautiful Apple rendered ebooks if any other vendor is allowed to sell the same material in an obviously inferior format that nobody will appreciate for less? Damned lawyers don’t know the value of our preferred aesthetic.

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