Apple may have to pay $400 million to e-book users
July 1, 2015 11:53 AM
(Bloomberg)—Apple Inc. is a step closer to paying $400 million back to e-book readers after losing a bid to overturn a court ruling that it orchestrated a price-fixing scheme in the electronic-book market.
A sharply split federal appeals court left intact a judge’s opinion that Apple “played a central role” in conspiring with five publishers to fix the prices of e-books. The company agreed last year to pay $400 million, plus $50 million in lawyers’ fees, to consumers and a group of states if it lost its appeal of the Justice Department’s claims.
Apple, No. 2 in the Internet Retailer 2015 Top 500 Guide, hasn’t said whether it will seek review by the U.S. Supreme Court. If the decision stands, the total payout would be 4.4% of the company’s estimated profit for the current quarter. It would pay nothing if Tuesday’s decision by the U.S. Court of Appeals in New York is overturned.
The appeals court upheld a 2013 decision by U.S. District Judge Denise Cote that spurred changes in how e-books are priced. The Manhattan judge imposed a monitor to ensure that Apple’s antitrust compliance policies are adequate.
In her ruling, she said Apple lost the case in part because of statements made by founder Steve Jobs. The government argued that Jobs, who died in 2011, revealed his company was unfairly targeting e-book leader Amazon.com Inc., No. 1 in the Top 500 Guide.
“Apple found an easy path to opening its iBookstore, but it did so by ensuring that market-wide e-book prices would rise to a level that it, and the publisher defendants, had jointly agreed on,” U.S. Circuit Judge Debra Ann Livingston wrote in the majority opinion, joined by U.S. Circuit Judge Raymond Lohier.
“Apple did not conspire to fix e-book pricing and this ruling does nothing to change the facts,” Cupertino, Calif.-based Apple said in a statement.
U.S. Circuit Judge Dennis Jacobs dissented from the ruling, agreeing with Apple that it behaved legally in setting up a new pricing structure to compete with Seattle-based Amazon. Lohier said in a concurring opinion that Apple’s argument that Amazon needed a strong rival wasn’t enough to overcome the illegality of its methods.
“There is some surface appeal to Apple’s argument that the e-book market, in light of Amazon’s virtually uncontested dominance, needed more competition,” Lohier wrote. “But more corporate bullying is not an appropriate antidote to corporate bullying.”
Apple entered the e-book market in 2010, introducing its iBookstore as a feature that could be used on its iPad, also introduced that year. The U.S. sued Apple and five of the biggest publishers in 2012, claiming they fixed prices through the use of a so-called agency model that let publishers, not retailers, set book prices. The Justice Department suit was joined by 33 states.
After a three-week trial in 2013, Cote concluded that Apple’s intent was to force Amazon, 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.
“The decision confirms that it is unlawful for a company to knowingly participate in a price-fixing conspiracy, whatever its specific role in the conspiracy or reason for joining it,” Assistant Attorney General Bill Baer said in a statement.
Before signing the Apple settlement, the states and consumers recovered a total of $166 million in individual accords with publishers Hachette Book Group Inc., HarperCollins Publishers LLC, Simon & Schuster Inc., Pearson Plc’s Penguin Group and the Macmillan unit of Verlagsgruppe Georg von Holtzbrinck GmbH.
The case is U.S. v. Apple Inc., 13-3741, U.S. Court of Appeals for the Second Circuit (Manhattan).