Apple takes e-book price-fixing fight to U.S. Supreme Court

21 Sep 2015 | Author: | No comments yet »

Apple Takes Ebook Price-Fixing Case to Supreme Court.

The tech giant on Wednesday filed a motion with the high court, asking for a 30-day extension to find its formal submission to begin the appeal process. WASHINGTON – Apple has signaled it will ask the Supreme Court to hear its claims that lower courts erred in finding it colluded with publishers to raise electronic book prices in 2010.

In April 2012, the Department of Justice sued Apple and five publishers—Macmillan, Penguin, Hachette, HarperCollins, and Simon & Schuster—over an alleged “illegal conspiracy” involving ebook price fixing. At the time of the appellate loss, Apple’s press statement hinted that it might take this step: “While we want to put this behind us,” the company asserted at the time, “the case is about principles and values.

We know we did nothing wrong back in 2010 and are assessing next steps.” (The financial stakes for Apple at this point are fairly modest for a company of its size. District Court Judge Denise Cote found that Apple broke the law when it convinced five major publishers to adopt the same “agency” pricing model, in which they set their own prices and agreed not to offer lower prices elsewhere. The judge on the case ultimately agreed, saying the evidence demonstrated “a clear portrait of a conscious commitment to cross a line and engage in illegal behavior.” Apple appealed the case, but ultimately lost there as well. In 2012, Apple was among several publishers that included Penguin, MacMillan Simon & Schuster and HarperCollins named in a Justice Department lawsuit that claimed the companies worked together to artificially inflate e-book prices

This had the effect of raising some prices at rival e-book seller Amazon, as publishers abandoned the “wholesale” model that let Amazon set e-book rates on its own. The filing nevertheless reads like a mini-cert petition itself, spending more time outlining Apple’s basis for seeking review than explaining the attorneys’ need for an extension of time—which was, basically, other Supreme Court assignments. (Apple attorneys on the submission are former Solicitor General Seth Waxman of WilmerHale and Theodore Boutrous, of Gibson, Dunn & Crutcher.) The case arose from the way Apple entered the market for ebooks on a very compressed schedule between November 2009 and January 2010, just before then CEO Steve Jobs launched the original iPad, which included an iBooks store. If the original court ruling, which found Apple guilty of price-fixing, is not affirmed and the liability part of the case must be re-tried, Apple will pay $50 million to consumers, and $10 million each to the states and class counsel. If the court does hear the case, Apple, as explained in yesterday’s filing, will argue that its actions were not anticompetitive. “This question is exceedingly important to the United States economy as it concerns the rules that will govern disruptive entry by dynamic companies into new or stagnant markets,” Apple writes. The then six major book publishers were up in arms, because Amazon was selling most of their most sought-after books—new trade releases and New York Times bestsellers—for $9.99, which was often below the wholesale price at which Amazon was buying the books from publishers.

There was also a “most favored nations clause,” which—by permitting Apple to match Amazon’s prices if they were lower—in effect tended to ensure that any publisher signing on with Apple would require Amazon to switch to the agency model, too. Why this matters: The monetary stakes in this case are fairly low for a huge company like Apple, with the company agreeing to pay out $450 million if it exhausts all its appeal options. As reported earlier this year, Apple may have tried convincing record labels to kill the free version of Spotify to help pave the way for Apple Music.

Most conduct challenged as violating the antitrust laws is tested under a “rule of reason” analysis, where the court weighs all the circumstances, including the potentially procompetitive and anticompetitive effects of whatever the defendant did. However, when certain categories of conduct are alleged—including horizontal price-fixing—courts have decided that there is such a longstanding consensus that such conduct is anticompetitive, that it can be considered illegal per se, freeing the judge from undergoing a full-blown rule-of-reason analysis. Then, as an apparent backup ruling, she also ruled against Apple under a rule-of-reason analysis, though that portion of the 160-page ruling was only one-paragraph long and perfunctory. Judge Debra Ann Livingston upheld Judge Cote’s ruling, finding both that the per se rule applied, and that, even if it didn’t, Judge Cote’s one-paragraph rule-of-reason analysis sufficed. Since Leegin, at least one other federal circuit court of appeals—the one based in Philadelphia—has found that the conduct of an alleged vertical participant in a horizontal conspiracy must be judged under the rule of reason analysis, according to Apple.

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