N.Y. Judge: Apple Colluded to Raise E-book Prices

In a Friday, June 7, 2013 file photo, a sign displays the Apple logo outside of the company's headquarters in Cupertino, Calif. A federal judge ruled Wednesday, July 10, 2013, that Apple Inc. broke antitrust laws and conspired with publishers to raise electronic book prices.
Associated Press + More

By LARRY NEUMEISTER and MICHAEL LIEDTKE, Associated Press

NEW YORK (AP) — Apple Inc. milked the popularity of its iTunes store to form an illegal cartel with publishers to raise electronic book prices, a federal judge decided in a case swayed by the words of the late Steve Jobs.

Wednesday's ruling by U.S. District Judge Denise Cote in Manhattan sided with government regulators' contention that Apple joined five major book publishers to gang up on Amazon.com in a price-fixing conspiracy that caused consumers to pay more for electronic books.

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Determined to protect one of the world's most beloved brands, Apple has steadfastly denied it did anything wrong, even as the book publishers involved in the case settled to avoid a trial. Apple didn't waver from its insistence of innocence after Cote drew an unflattering portrait of the iPhone and iPad maker in her 160-page ruling.

The Cupertino, Calif., company vowed to appeal the decision, extending a legal odyssey that could wind up in the U.S. Supreme Court.

It's unclear whether the initial outcome will have a dramatic impact on the pricing of e-books, which continue to supplant printed copies as more people buy tablets such as the iPad and other devices such as Amazon's Kindle.

"The effect on consumers will be negligible," predicted Ankur Kapoor, an antitrust specialist for Constantine Cannon in New York.

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The earlier settlements with book publishers were designed to encourage more discounting. But that hasn't happened, even at Amazon, which had unnerved publishers by selling e-book versions of popular hardcover titles for $9.99 before the April 2010 release of Apple's iPad.

It's a discounting practice that Apple and the publishers sought to eliminate leading up to the iPad's debut, according to the antitrust lawsuit filed last year by the U.S. Justice Department and 33 state attorneys general.

Apple's iTunes store, where hundreds of millions of consumers already were regularly buying music, videos and applications, provided a powerful platform to undermine Amazon's pricing system, the government contended in arguments that ultimately convinced Cote, who presided over the two-and-half-week trial.

"Apple seized the moment and brilliantly played its hand," Cote said. She wrote that Apple's deals with publishers caused some e-book prices to rise 50 percent or more virtually overnight. As part of its standard commission, Apple received a 30 percent cut of each e-book sold.

Cote, who hasn't yet determined the financial scope of the damages, said the evidence was "overwhelming that Apple knew of the unlawful aims of the conspiracy and joined the conspiracy with the specific intent to help it succeed."

Jobs' words played a pivotal role in the trial's outcome, even though the Apple co-founder and longtime CEO died in October 2011 after a long battle with cancer.

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Government lawyers cited some of Jobs' email exchanges and thoughts that he shared with his biographer Walter Isaacson as proof of his willingness to collude with publishers. His aim, lawyers argued, was to gain access to more digital content that would help make the iPad a more attractive device.

In her ruling, Cote said "compelling evidence of Apple's participation in the conspiracy" came from Jobs' words.

Isaacson wrote that Jobs said Apple assured publishers, "We'll go to the agency model, where you set the price, and we get our 30 percent and yes, the customer pays a little more, but that's what you want anyway."

Jobs told publishers that they had to allow Apple to sell at a lower price, if rivals also continued to discount. That's when the publishers asked Amazon to sign a contract requiring them to pay the higher "agency" prices. If Amazon refused, it wouldn't get any books to sell, Jobs told Isaacson.

The publishers that previously settled the price-fixing charges are Hachette, HarperCollins, Simon & Schuster, Holtzbrinck Publishers, doing business as Macmillan, and The Penguin Publishing Co. Ltd., doing business as Penguin Group.