Judge Rules Against Apple in E-Books Trial

A federal judge on Wednesday found that Apple violated antitrust law in helping raise the retail price of e-books, saying the company “played a central role in facilitating and executing” a conspiracy with five big publishers.

“Without Apple’s orchestration of this conspiracy, it would not have succeeded as it did in the spring of 2010,” the judge, Denise L. Cote of United States District Court in Manhattan, said in her ruling. She said a trial for damages would follow.
Government lawyers argued in court last month that Apple had colluded with five big American publishers to raise prices for electronic books across the publishing market.
The Justice Department brought the antitrust case against Apple and the publishers a year ago. The publishers settled their cases, but Apple executives insisted that the company had done nothing wrong, and the company continued to insist that on Wednesday.
“Apple did not conspire to fix e-book pricing and we will continue to fight against these false accusations,” Tom Neumayr, an Apple spokesman, said. “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.”
The Justice Department said the judge’s decision was a victory for people who buy e-books.
“Companies cannot ignore the antitrust laws when they believe it is in their economic self-interest to do so,” the Justice Department said in a statement. “This decision by the court is a critical step in undoing the harm caused by Apple’s illegal actions.”
It appears unlikely that the ruling will have an immediate effect on the book-buying public. The publishers who have already settled with the government are operating under the settlement’s terms, which prohibit publishers from restricting a retailer’s ability to discount books.
Since those settlements have gone into effect, prices on many newly released and best-selling e-books have gone down. One New York Times best-seller, “And the Mountains Echoed,” by Khaled Hosseini, is sold on Amazon.com for $10.99. But other e-books seem to have held closer to pre-settlement prices: “The Ocean at the End of the Lane,” by Neil Gaiman, is listed for $12.80 on Amazon.
The antitrust battle underscores the turmoil in the book industry as readers shift from ink and paper to electronic devices like tablets and smartphones, where they can buy content with the push of a button. While the publishers want to embrace new media, they are also trying to protect their profits and retain control of their businesses. Apple’s lawyers noted at the trial that the publishers had long complained that Amazon.com’s uniform pricing of $9.99 for new e-book titles was too low.
A recent survey of the publishing industry revealed that in the United States, e-books account for 20 percent of publishers’ revenue, more than $3 billion, up from 15 percent the year before. E-books have had a slower rate of adoption in Europe and the rest of the world, but analysts expect that major growth will develop in the next several years. A report by Forrester predicted that by 2017, Europe will be the largest e-book market in the world, generating revenue of $19 billion.
In his testimony, Eddy Cue, Apple’s senior vice president of Internet software and services, who was in charge of negotiating deals with the publishers, conceded that Apple opened the door for book publishers to raise prices in its own e-book store. But he said that the company was not intending to push Amazon, the dominant player in the e-book market, to raise its prices, too.
“Amazon could have negotiated a better deal,” Mr. Cue said in his testimony. “They had a lot more power.”
But the Justice Department said Apple’s deal with the publishers left Amazon with no choice but to raise prices. When Apple entered the e-book market in 2010, it changed the way publishers sold books by introducing a model called agency pricing, where the publisher — not the retailer — sets the price, and Apple took a cut of each sale. As a result, the publishers were able to set e-book prices higher. Apple proposed price caps of $12.99 and $14.99.

By Brian X. Chen, Julie Bosman

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