Apple loses e-book lawsuit

A sign displays the Apple logo outside of the company’s headquarters in Cupertino, Calif. Apple conspired with publishers to fix the prices of electronic books, a federal judge ruled Wednesday.
A sign displays the Apple logo outside of the company’s headquarters in Cupertino, Calif. Apple conspired with publishers to fix the prices of electronic books, a federal judge ruled Wednesday.

Apple Inc., the world’s biggest technology company, “played a central role” in conspiring with five publishers to fix the prices of electronic books and will face a trial to set damages, a federal judge ruled.

U.S. District Judge Denise Cote, ruling in a suit brought by the U.S. government and 33 state attorneys general, said Apple lost the case, in part, because of statements by its deceased founder, Steve Jobs, that government lawyers said showed Apple was targeting e-book leader Amazon.com Inc.

The ruling means that Apple will be ordered to stop its price-fixing conspiracy and may have to pay triple damages for overcharging customers. The Justice Department isn’t seeking damages. Apple said it will appeal.

“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, in Manhattan, said in her opinion Wednesday.

While Apple said during the trial that is has about 20 percent of the e-books market, the sales are a fraction of its overall business. The company had $156.5 billion in sales last year, with about half that coming from the sale of iPhones.

“It’s not a material part of their business,” said Colin Gillis, an analyst with BGC Partners LP.

Apple shares fell $1.62 to close Wednesday at $420.73.

The U.S. sued Apple and five of the biggest publishers in April 2012, claiming the maker of the iPad pushed publishers to sign agreements letting it sell digital copies of their books under a model that raised prices and harmed consumers. In that so-called agency model, publishers, not retailers, set book prices, with Apple getting 30 percent.

The intent was to force Amazon.com, the No. 1 e-book seller, to change its pricing model. At the time, Amazon was selling electronic versions of best-selling books for $9.99, which was often below cost.

When Apple entered the e-book market in 2010, it reached agreements with the five publishers to let it sell digital copies of their books under the agency model. A so called “most favored nation” clause in the contracts meant that Apple could match lower prices charged by Amazon and other e-book retailers.

“Through the vehicle of the Apple agency agreements, the prices in the nascent e-book industry shifted upward, in some cases 50% or more for an individual title,” Cote said in her ruling. “Virtually overnight, Apple got an attractive, additional feature for its iPad and a guaranteed new revenue stream, and the publisher defendants removed Amazon’s ability to price their e-books at $9.99.”

Apple, based in Cupertino, Calif., was the last defendant left in the case after the publishers avoided trial by settling.

The settling publishers are Verlagsgruppe Georg von Holtzbrinck GmbH’s Macmillan unit, CBS Corp.’s Simon & Schuster, Lagardere SCA’s Hachette Book Group, Pearson Plc’s Penguin unit and News Corp.’s HarperCollins. The No. 1 publisher, Bertelsmann SE’s Random House Inc., wasn’t involved in the U.S. suit.

“Apple did not conspire to fix e-book pricing and we will continue to fight against these false accusations,” said Apple spokesman Tom Neumayr. “When we introduced the iBook store 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.”

Cote said evidence of the conspiracy came from Jobs himself.

“Compelling evidence of Apple’s participation in the conspiracy came from the words uttered by Steve Jobs, Apple’s founder, CEO, and visionary,” Cote said in the opinion. “Apple has struggled mightily to reinterpret Jobs’s statements in a way that will eliminate their bite. Its efforts have proven fruitless.”

States are seeking triple damages for overcharges to consumers, according to Connecticut Attorney General George Jepsen’s office. Spokesman Jaclyn Falkowski declined to comment on the specific amount.

“As we move into the next phase of this trial, we will continue to aggressively seek compensation for those who have been injured by this conspiracy,” Jepsen said.

Business, Pages 21 on 07/11/2013

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