U.S. District Court Judge Denise L. Cote has ruled that Apple, Inc. “played a central role in facilitating and executing” a conspiracy with five big publishers to raise the price that consumers pay for e-books, not only at Apple's online store but at competing sellers like Amazon.com and Barnes & Noble.
Some background: While futurists and technologist had predicted the rise of the electronic book for decades, it was the 2007 launch of the Amazon Kindle that made the e-book a mainstream consumer item. Amazon.com sold e-books using the wholesale model that traditional booksellers had used for decades, whereby the retailer buys books from the publishers for an agreed-upon set price, usually about half of the recommended cover price, and is then free to sell the book to consumers at whatever price the retailer wants. Amazon famously sold most popular titles for $9.99, which was usually several dollars less than the corresponding hardback and trade paperback prices, and a price point that many credit with getting the e-book market off the ground.
Then in 2010, as many Kindle owners unhappily discovered, e-books that had cost $9.99 suddenly started to cost 30-50 percent more. In many cases, the Kindle version of a popular book—which uses no paper or ink, requires no labor to manufacture, and does not need to be shipped either from the publisher to Amazon or from Amazon to you—would cost almost as much as or even more than the traditional version.
This was no coincidence. In 2010, Apple was preparing to introduce the first iPad, and wanted a piece of the potentially lucrative e-book market. When negotiating with publishers to sell their works online, Apple had proposed that they move from the wholesale model to the so-called "agency model," whereby the publisher would set the retail price of the book and the retailer would take a cut of the price. If the publishers were to enforce this agency model with other online sellers, Apple reasoned, they would wipe out any price advantage Amazon and others would be able to claim. By coordinating this transition itself, federal prosecutors argued, Apple crossed the line into unlawful collusion. Today, the judge agreed.
In the end, it was the words of Apple's late CEO Steve Jobs that did as much as anything else to convict the company, as the New York Times story explains:
One e-mail, written by Steven P. Jobs when he was chief executive of Apple, was frequently brought up at the trial. In an e-mail conversation with Mr. Cue about the contracts negotiated with the publishers, Mr. Jobs wrote: “I can live with this, as 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.” The Justice Department said this showed Apple’s intent to help the publishers push Amazon to the agency model so they could raise e-book prices....What does this mean for consumers? It's hard to say. A trial for damages will follow this one, but it's not clear to me whether the publishers can or will be made to return to the wholesale model for e-books, so it's possible that we may be paying the price for this unlawful collusion for decades to come. If nothing else, though, this verdict proves that antitrust law isn't yet dead in the United States.
Judge Cote said the words of Mr. Jobs were compelling evidence against Apple. They showed that Mr. Jobs, who died in 2011, was aware that the publishers were unhappy with Amazon’s pricing of $9.99 for e-books, and that Apple’s entry would drive up prices across the industry.
In one famous instance, Mr. Jobs made comments to a reporter after he introduced the iPad and the iBookstore in January 2010. When asked why consumers would purchase an e-book from Apple’s store instead of Amazon.com, where e-books were $9.99, Mr. Jobs replied, “The prices will be the same.”
“Apple has struggled mightily to reinterpret Jobs' statements in a way that will eliminate their bite,” Judge Cote said. “Its efforts have proven fruitless.”