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Apple Found Guilty of E-Book Price Fixing

Apple Found Guilty of E-Book Price Fixing

After three weeks of arguments, U.S. District Judge Denise Cote found Apple guilty of conspiring with publishers to raise the price of e-books. The book publishers - Penguin, HarperCollins, Hachette, Simon & Schuster, and Macmillan - were originally named as defendants but eventually settled with the U.S. Department of Justice before the case went to trial.

"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 wrote in the decision. "Without Apple's orchestration of this conspiracy, it would not have succeeded as it did in the Spring of 2010."

Publishers were unhappy about Amazon's near monopoly on books and didn't like the continued pricing of popular titles below cost. Amazon wanted to establish pricing for e-books at $9.99 while Apple offered the publishers an opportunity to raise prices to $12.99 to $14.99 using the Agency pricing model.

Apple was instrumental in conspiracy, Judge Cote ruled. "Apple seized the moment and brilliantly played its hand. Taking advantage of the Publisher Defendants' fear of and frustration over Amazon's pricing... Apple garnered the signatures it needed to introduce the iBookstore at the Launch," she says. "It provided the Publisher Defendants with the vision, the format, the timetable, and the coordination that they needed to raise e-book prices."

Apple argued during trial the agreements used, including the Agency pricing and Most Favored Nation, were legal and did not violate anti-trust laws. Judge Cote agreed that those agreements and clauses taken individually did not constitute anti-competitive behavior but Apple disclosed the status on ongoing negotiations between publishers in a fashion which would be considered collusion.

"Apple did not conspire to fix e-book pricing and we will continue to fight against these false accusations," Apple spokesperson Tom Neumayr said today in a statement to Reuters. "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."

While Apple staunchly defends it's behavior and touts the benefits to consumers by introducing a new competitive force, the DoJ presented evidence that the agreements pushed e-book prices up as much as 50-percent.

"This result is a victory for millions of consumers who choose to read books electronically," Assistant Attorney General Bill Baer said in a statement today. "Through today's court decision and previous settlements with five major publishers, consumers are again benefiting from retail price competition and paying less for their e-books."

Image by: Apple