Apple violated antitrust laws by colluding with publishers to raise electronic book prices when it entered a market in 2010 that had been dominated by Amazon.com, a divided federal appeals court panel said Tuesday.
A three-judge panel of the 2nd U.S. Circuit Court of Appeals in Manhattan ruled 2-to-1 that a lower-court judge correctly found Apple Inc. violated the law to upset Amazon.com Inc.’s control of the market.
The appeals court also agreed that U.S. District Judge Denise Cote was right in 2013 to order injunctive relief to ensure the Cupertino, California-based company didn’t commit additional violations of antitrust laws.
In a statement, Apple said the ruling did nothing to change the fact that it did not conspire to fix e-book pricing.
“We are disappointed the court does not recognize the innovation and choice the iBooks Store brought for consumers,” it said. “While we want to put this behind us, the case is about principles and values. We know we did nothing wrong back in 2010 and are assessing next steps.”
The judge had ordered the technology giant to modify contracts with publishers to prevent price fixing and appointed a monitor to review the company’s antitrust policies. The appeals court last month upheld the appointment of the monitor.
In a majority opinion written by Judge Debra Ann Livingston, the 2nd Circuit said the judge’s finding that Apple orchestrated a conspiracy among publishers to raise electronic book prices was “amply supported and well-reasoned” and that her remedy was “lawful and consistent with preventing future anticompetitive harms.”
In a dissent, Judge Dennis Jacobs defended as “eminently reasonable” the actions Apple took as it fought to raise the price of e-books when Seattle-based Amazon controlled 90 per cent of the market while selling the most popular books online for $9.99. Afterward, its share of the market dropped to about 60 per cent.
“Apple took steps to compete with a monopolist and open the market to more entrants, generating only minor competitive restraints in the process,” the judge wrote.
In the majority opinion, though, Judge Livingston said it was “startling” that Judge Jacobs would agree Apple intentionally organized a conspiracy among publishers to raise e-book prices and then say the company was entitled to do so because the conspiracy helped it become an e-book retailer.
Joining the majority, Judge Raymond J. Lohier Jr. agreed with much of what Livingston wrote, though he noted that the publishers may be more culpable than Apple after using the company as “powerful leverage against Amazon and to keep each other in collusive check.”
And he said there was “surface appeal” to Apple’s argument that the e-book market needed more competition.
“But more corporate bullying is not an appropriate antidote to corporate bullying,” he wrote.
The U.S. Justice Department and 33 states and territories originally sued Apple and five publishers. The publishers all settled and signed consent decrees prohibiting them from restricting e-book retailers’ ability to set prices. Two publishers joined Apple’s appeal.
In settlements with lawsuits brought by individual states, Apple has agreed to pay $400 million to be distributed to consumers and $50 million for attorney fees and payments to states, though it will pay nothing if it ultimately wins on appeal. Lawyers for the states say the $400 million combined with $166 million already turned over by publishers represent double the maximum amount consumers lost in the conspiracy.
In a release, Assistant Attorney General Bill Baer of the Justice Department’s Antitrust Division said the government was gratified with the ruling.
“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. Because Apple and the defendant publishers sought to eliminate price competition in the sale of e-books, consumers were forced to pay higher prices for many e-book titles,” he said.
