Publishers fight Apple e-book ruling

Woman selecting e-book Apple has been ordered to terminate agreements with publishers, which include retail price deals HarperCollins, Simon & Shuster and Penguin are among publishers who have filed a complaint against restrictions imposed on Apple by a US court.

Last month Apple was found guilty of conspiring with publishers to fix the price of e-books bought via iTunes.

It was ordered to terminate deals with five major companies and allow other e-book retailers to sell to iPad and iPhone users for the next two years.

The publishers say they are being punished by the restrictions.

Under agreements put in place between Apple and companies including Hatchett and Macmillan, electronic book price-fixing took place, creating unfair competition for other retailers, the court ruled last month.

At the time most of the publishers reached separate settlements totalling more than $150m (£96m) but Apple said it would fight the "false allegations".

According to the Associated Press news agency, the publishers' complaint says: "The provisions do not impose any limitation on Apple's pricing behaviour at all.

"Rather, under the guise of punishing Apple, they effectively punish [publishers that settled in the case]."

Garner analyst Van Baker told AP that the ruling seemed "heavy-handed".

"It is basically putting a stake through a portion of Apple's business, and I confess to being surprised by that," he said.

"It strikes me as a pretty heavy-handed solution to the issue."

Apple guilty of e-book price fixing

Apple has been found guilty of conspiring with five publishers to raise the prices of e-books to compete against Amazon and challenge its dominance of the market.

The three-week non-jury trial began in New York in June in which the US Department of Justice (DoJ) charged Apple with conspiring with publishers to adopt the so-called agency model.

Switching to the model meant that publishers set the price of e-books directly, effectively ending Amazon’s ability to set its own prices.

The five publishers were originally named as defendants alongside Apple, but have already reached settlements.

Penguin settled its case for $75m and Macmillan settled for $26m, while Hachette, HarperCollins and Simon & Schuster created a $69m fund for refunds to consumers.

New York judge Denise Cote found that Apple had played a central role in facilitating and executing the conspiracy and ordered a new hearing to set damages to be imposed on Apple, according to the BBC.

US Assistant Attorney General Bill Baer called the ruling "a victory for millions of consumers who choose to read books electronically".

But Apple maintains that it brought innovation and competition to the market without restricting it and said it plans to appeal against the rule and continue its fight against “false allegations”.

If Apple fails to get the ruling overturned, the company could face a separate trial by state attorney generals and consumers pursuing class actions and seeking monetary damages.

Apple last year settled an e-book price-fixing antitrust case with the European Commission.

E-Book Ruling Gives Amazon an Advantage

A federal judge ruled on Wednesday that Apple had illegally conspired with five of the six biggest publishers to try to raise prices in the budding e-books market.

The decision came two days after Barnes & Noble lost its chief executive and said it would not appoint another, signaling that the biggest chain of physical bookstores could be immediately broken up.

The verdict in the Apple case might have been a foregone conclusion, telegraphed by the judge herself, but it emphatically underlined how the traditional players in the book business have been upended. Only Amazon, led by Mr. Bezos, seems to have a plan. He is executing it with a skill that infuriates his competitors and rewards his stockholders.

“We’re at a moment when cultural power is passing to new gatekeepers,” said Joe Esposito, a publishing consultant. “Heaven forbid that we should have the government telling our entrepreneurs what to do, but there is a social policy issue here. We don’t want the companies to become a black hole that absorbs all light except their own.”

The Apple case, which was brought by the Justice Department, will have little immediate impact on the selling of books. The publishers settled long ago, protesting they had done nothing wrong but saying they could not afford to fight the government. But it might be a long time before they try to take charge of their fate again in such a bold fashion. Drawing the attention of the government once was bad enough; twice could be a disaster.

“The Department of Justice has unwittingly caused further consolidation in the industry at a time when consolidation is not necessarily a good thing,” said Mark Coker, the chief executive of Smashwords, an e-book distributor. “If you want a vibrant ecosystem of multiple publishers, multiple publishing methods and multiple successful retailers in 5, 20 or 50 years, we took a step backwards this week.”

Some in publishing suspected that Amazon had prompted the government to file its suit. The retailer has denied it, but it still emerged the big winner. While Apple will be punished — damages are yet to be decided — and the publishers were chastened, Amazon is left free to exert its dominance over e-books — even as it gains market share with physical books. The retailer declined to comment on Wednesday.

“Amazon is not in most of the headlines, but all of the big events in the book world are about Amazon,” said Paul Aiken, executive director of the Authors Guild. “If the publishers colluded, it was to blunt Amazon’s dominance. Barnes & Noble’s troubles may stem from a misstep with its Nook tablets, just as Borders’ bankruptcy might have been hastened by management mistakes, but its precarious position is that of any rent-paying retailer facing a deep-pocketed virtual competitor.”

Last week, Penguin and Random House officially merged, creating a publishing behemoth that might be able to determine its future rather than suffer the fate of Barnes & Noble, a once-swaggering entity that now seems adrift. Random House was not a target of the Justice Department; Penguin was.

Penguin and Random House were innovators who made paperbacks into a disruptive force in the 1940s and ’50s. They were the Amazons of their era, making the traditional book business deeply uneasy. No less an authority than George Orwell thought paperbacks were of so much better value than hardbacks that they spelled the ruination of publishing and bookselling. “The cheaper books become,” he wrote, “the less money is spent on books.”

Orwell was wrong, but the same arguments are being made against Amazon and e-books today. Amazon executives are not much for public debate, but they argue that all this disruption will ultimately give more money to more authors and make more books more widely available to more people at cheaper prices, and who could argue with any of that?

This was not a prospect that many on Wednesday were putting much faith in.

Amazon, its detractors argue, is not a nonprofit or public trust but a hard-nosed company whose investors hope will make lots of money someday soon. It shares closed Wednesday at $292.33, a record.

“The Justice Department’s guns seem pointed in the wrong direction,” Mr. Aiken said.

But the more pressing concern for the industry is the fate of Barnes & Noble. When Borders collapsed two years ago, analysts said there was an unexpected consequence to the loss of 400 stores: the e-book growth rate began to taper off, as readers could no longer examine new titles before ordering them from Amazon.

E-books, in other words, were not a magical technology that could shed all the existing infrastructure of publishing. They needed the existing ecosystem.

“If all of those corporate outlets vanish, there is suddenly a hell of a lot less space devoted to showcasing a large number of titles,” said J. B. Dickey, owner of the Seattle Mystery Bookshop. “We’ll probably see a continuing shrinking in print runs, maybe fewer titles published, fewer authors published and the New York houses retreating into the known best-sellers. Which means more novice and midlist authors scrambling to find a way to stay in print and more authors self-publishing their print books — or more likely releasing their works as e-files.”

All of that sounds dire. Perhaps the only consolation for those who fear the power of Amazon is the knowledge that all companies eventually peak, no matter how unlikely that seems when they are in the ascendance.

Mr. Esposito, the consultant, remembered that 30 years ago there was a book called “The Media Monopoly,” which worried about the excessive power of the Gannett chain of newspapers as well as the three major television networks.

“The book reads almost quaint now,” Mr. Esposito said.

Apple Conspired To Set E-Book Prices, Judge Rules

Apple Inc. "conspired to raise the retail price of e-books," a federal judge ruled Wednesday as a civil lawsuit brought by the Justice Department reached its conclusion.

As Bloomberg News reminds its readers, "the U.S. sued Apple and five publishers in April 2012, claiming the maker of the iPad pushed publishers to sign agreements letting it sell digital copies of their books under what's known as the agency model. Under that model, publishers, and not retailers, set prices for each book, with Apple getting 30 percent."

In December 2011, news editor Sarah Weinman from Publishers Marketplace explained the Justice Department's concerns to NPR's Lynn Neary. From an "investigative body's standpoint," she noted, "just the very idea that there could be this uniform price might send up some red flags."

According to The Associated Press:

"In her ruling U.S. District Judge Denise Cote said Apple knew that no publisher could risk acting alone to try to eliminate Amazon.com's $9.99 price for the most popular e-books so it 'created a mechanism and environment that enabled them to act together in a matter of weeks to eliminate all retail price competition for their e-books.' "

Cote also wrote that "the evidence is overwhelming that Apple knew of the unlawful aims of the conspiracy and joined the conspiracy with the specific intent to help it succeed."

During the trial, Apple attorney Orin Snyder said the judge would set a "dangerous precedent" if she concluded that Apple manipulated e-book prices.

The Wall Street Journal calls Wednesday's ruling "a stern rebuke" for Apple. It notes that the five publishers Apple was accused of colluding with "have all since entered into settlements with the Justice Department, as well as in a separate lawsuit by a group of state attorneys general. But Apple refused to settle and decided to go to trial."

Apple, the Journal adds, "argued at trial that it engaged in hard-fought negotiations with the publishers and denied that it engaged in any collusion."

Judge Cote has not yet assessed damages.

Update at 10:40 a.m. ET. The Ruling:

We've put a copy of the judge's ruling here, and in the box below. Click on the title to pop up a larger view.

Update at 10:20 a.m. ET. "Victory For Millions Of Consumers," Justice Says; Apple Plans To Appeal:

"This result is a victory for millions of consumers who choose to read books electronically," Assistant Attorney Gen. Bill Baer writes in a statement e-mailed to reporters. "After carefully weighing the evidence, the court agreed with the Justice Department and 33 state attorneys general that executives at the highest levels of Apple orchestrated a conspiracy with five major publishers — Hachette, HarperCollins, Macmillan, Penguin and Simon & Schuster — to raise e-book prices. Through today's court decision and previous settlements with five major publishers, consumers are again benefiting from retail price competition and paying less for their e-books."

Meanwhile, Apple spokesman Tom Neumayr says:

"We did not conspire to fix e-book pricing and we will continue to fight against these false accusations. ... We've done nothing wrong and we will appeal the judge's decision."

Judge rules Apple colluded with publishers to fix ebook prices

Turns out it doesn’t hurt any less when the book the judge throws at you is an ebook.

U.S. District Judge Denise Cote on Wednesday handed down her ruling in the case between the Department of Justice and Apple over ebook price-fixing, saying that Apple conspired with the five major publishers to raise rates. A trial on damages will be held to decide how much relief the U.S. government and a coalition of U.S. states are entitled to.

The five major publishers—Hachette, Macmillan, HarperCollins, Simon & Schuster, and Penguin (which has since merged with Random House)—all chose to settle the case with the government and states before the trial kicked off last month; as part of the settlement, they are now required to submit for approval any ventures undertaken in collaboration with other publishers. Apple was the only defendant to go to trial, but the company maintained that it had done nothing wrong.

“We’re not going to sign something that says we did something that we didn’t do, so we’re going to fight,” said CEO Tim Cook during an interview at the D11 conference in May.

The trial itself had its ups and downs, with testimony coming from Apple executives like Eddy Cue, publishers like Penguin CEO David Shanks, and even Amazon personnel like Russell Grandinetti, the retailer’s vice president of Kindle content.

However, the ruling was itself presaged by comments made by Cote before the trial began, in which she said she believed “that the government will be able to show at trial direct evidence that Apple knowingly participated in and facilitated a conspiracy to raise prices of ebooks.”

Still unclear, of course, are the long-term ramifications of the decision. Most likely to benefit is Amazon, who was alleged to be the target of the collusion between Apple and publishers. But some reports suggest that Amazon has already started to raise prices.

Apple, for its part, won’t take the judgment lying down. “Apple did not conspire to fix ebook pricing and we will continue to fight against these false accusations,” Apple spokesman Tom Neumayr told Macworld. “When we introduced the iBookstore 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.”

After closing arguments, Apple's fate in e-book antitrust case goes to judge

“Word games,” an “overreaching narrative” and a “case of inferences” were a few choice phrases used by attorney Orin Snyder Thursday in closing arguments for Apple in the U.S. Department of Justice’s antitrust, ebooks price fixing case against the tech giant.

 

The DOJ brought the case against Apple and five of the largest book publishers in the U.S. for allegedly conspiring to limit price competition and raise prices in the ebook market in 2010 in an effort to stop Amazon from pricing their best-selling electronic books at $9.99 each.

 

Both the DOJ and Apple are making their closing arguments Thursday before Judge Denise Cote, who will decide the outcome of the antitrust suit. The five large publishers also named in the DOJ suit have already settled for a cumulative $164 million, leaving Apple to defend its practices in court. Cote presided over the three-week, non-jury trial in the U.S. Southern District Court of New York in Manhattan.

 

For Apple’s summation, Snyder characterized the interactions that Apple had with the five publishers as typical conversations and negotiations that accompany any business agreement. At no point did Apple try to coordinate the activities of the publishers in an attempt to fix the prices of electronic books for the market. “The evidence does not show this,” Snyder told the court, arguing that the DOJ made this case solely on “overreaching” interpretation of electronic documents.

 

Snyder focused on the timeline between December 2009 and January 2010 to rebut the DOJ’s assertions over what took place between Apple and the publishers. He noted that at the time there was “turmoil” in the ebook market and that Apple executives, who had no prior knowledge of this market, were speaking with publishing heads just to hear their concerns. He also offered multiple examples of disagreement between Apple and the publishers over the proposed contracts, this contention serving as proof that the parties were not acting in unison to fix retail prices.

 

The case stems from contracts that Apple made with the publishers in 2010, just before the company launched its iPad mobile computing device. In January of that year, each publisher—HarperCollins, Penguin, Hachette, MacMillan, and Simon & Schuster—agreed to let Apple sell their electronic books in a relatively novel business model, one in which Apple would sell their books at the prices the publishers had set, and reap 30 percent of the retail price.

 

This approach, called the agency model, differed from the standard decades-old wholesale model of book selling, in which the retailer, not the publisher, set the book prices. With the new agency approach, retailers “lost their ability to compete on price, including their ability to sell the most popular ebooks for $9.99 or for other low prices,” charged the DOJ in its complaint.

 

According to the testimony of Apple Senior Vice President Eddy Cue, publishers immediately expressed a desire to move electronic book sales to the agency model when he initially approached them in December 2009 to secure electronic book rights for the iPad.

 

The publishers saw the agency model as the solution to the issue of Amazon pricing the electronic versions of best selling books for $9.99, less than what the online retailer paid for these titles in many cases. The publishers worried that Amazon, which enjoyed a 90 percent share of the electronic book market in 2009, was lowering the perceived price point of books in consumers’ eyes, as well as laying plans to cut publishers out of Amazon’s book sales altogether and to deal with authors directly. The publishers had met throughout 2009 to discuss the issue, according to Apple.

 

Cue proposed the agency model to then Apple CEO Steve Jobs, who liked the idea, given that Apple was already using the agency model for its iTunes media store and the company’s App store. So, in early January, Apple proposed an agency model agreement with all the publishers, in which Apple would in effect get a fixed 30 percent commission for each sale.

 

Apple also added a number of additional provisions to the contract. It established a tier of price points for books. Best sellers, for instance, could be priced at $12.99 and $14.99 and, later at the publishers’ insistence, $16.99 and $19.99. Apple mandated caps, or limits to how much publishers could charge for electronic books. It prohibited publishers from both withholding best-selling titles from electronic release, and delaying the release of some titles in electronic form, a practice known as windowing.

 

Finally, Apple added what it called a “most favored nation” (MFN) clause. The MFN stipulated that the publishers must offer their electronic books to Apple at 70 percent of the lowest price offered on the retail market elsewhere. In this way Apple could match the lowest price of ebooks elsewhere and still make its 30 percent cut.

 

The DOJ had argued that MFN was proof that Apple was trying to set the prices for ebooks not just for itself, but for the entire industry. Snyder argued Apple was only looking out for its own best interest. Apple did not care what prices the publishers would charge, as long as Apple got its 30 percent cut. “If books were sold at $1.99, we’d make a ton of money,” he said.

 

Snyder also pointed out that after Apple settled on the idea of including an MFN in its contract, it had no preferences as to whether the book publishers signed other retailers such as Amazon to an agency model. He showed a number of different pieces of correspondence that Cue and Jobs had had with publishers to back this point.

 

Five of the six largest book publishers all signed Apple agency contracts within a few days of one another in January (the sixth and largest publisher, Random House, abstained). Over the next few months, the publishers had set up other agency agreements with other retailers as well, such as Amazon.

 

Immediately after the contracts took effect in April 2010, and publishers moved all their retailers to the agency model, and prices of electronic books offered by both Amazon and Barnes & Noble increased by almost 20 percent, the DOJ calculated.

 

In his summation, Snyder made the case that the publishers, and even other retailers such as Barnes & Noble and Google, were already considering the use of the agency model before meeting with Cue. He noted for instance that Barnes & Noble had also approached the publishers in January 2010 with an agency model to sell ebooks for its Nook reader. This was proof, he asserted, that the whole industry was about to undergo a transformation in how electronic books were sold to retailers.

 

While the DOJ had highlighted the many talks Cue had with publishing executives as evidence that they were coordinating activities, Snyder asserted that these meetings were simply introductory meetings and, later, individual contract negotiations. Snyder cast doubt on the idea of a price fixing conspiracy given that the publishers had already been in talks for more than a year about dealing with Amazon. “How can Apple be a ringmaster before the iBookstore was even a twinkle in Apple’s eyes,” he rhetorically asked, referring how up until late December 2009, Jobs wasn’t even interested in entering the electronic book market.

 

At one point, Cote asked Snyder if Apple was aware that the publishers may have been colluding among themselves. “We don’t have an opinion on that. It’s not our burden” to disprove that type of assertion in court, he responded. He also pointed out that the contract negotiations between Apple and the publishers were far too contentious to be considered collusion. As of mid-January Apple didn’t have any agreements with the publishers and each publisher had taken issue with different parts of the proposed agreement, such as the MFN clause, or the price caps. If there was a secret agreement already in place, the negotiations would have gone far more smoothly, he asserted.

 

When making its case, the DOJ had to prove anticompetitive behavior in a number of ways. It had to show that the publishers had conferred with one another in order to set up a new cross-publishing company pricing model that would limit retailer price control, and that Apple helped exchange information among the publishers. It also had to show that the publishers had attempted to conceal their communications. In addition, it had to show that consumers were harmed by this collusion.

 

Whether the DOJ has made its case sufficiently to Cote remains to be seen. Early reports indicated that she believed that the government had a strong case. Thus far, the DOJ has compiled a copious amount of email and other electronic documentation that it feels points to how the different parties worked with one another.

 

Legal observers, however, have doubted that the DOJ documentation is sufficient, and that its case relies too heavily on inference.

 

For the government's summation, DOJ director of litigation Mark Ryan challenged Snyder's idea that difficult negotiations between Apple and the publishers constituted proof there was no conspiracy.

 

"Sure, there was some dispute ... about what the price should be," he said. "But disagreement among a cartel doesn't mean there isn't a cartel." He urged the court to look beyond the discussion of the agency model, MFN and other details, and to focus on how book prices immediately changed after the agency agreements went into play.

 

Ryan described the events of early 2010 as "the publishers acting as a group, and Apple bringing that group along." There was a "fairly brazen price-fixing element to this," he said.

 

He discounted the fact that Apple was a new entrant -- and not yet a powerhouse -- in the e-book market, asserting that the Sherman Antitrust Act, the law on which the suit is based, made no distinctions for new entrants. "There is no court decision saying that because you are new you can organize the suppliers of the market. This is not a defense," Ryan said.

 

Ryan also noted that Apple, in its talks with book publishers, stressed how moving to the agency model would solve "the industry's" problems with Amazon. Less often did Cue and Jobs talk about how it would help an individual publisher.

 

Cote asked if Apple, in talking about the Amazon issue, wasn't just making a sales pitch. Perhaps Apple recognized the difficulties publishers were having and proposed a solution like any new business might, she posited. Ryan countered that part of Apple's pitch was to help all the publishers confront Amazon in unison, which was an antitrust violation.

 

Apple put the MFN in place with one goal in mind, Ryan argued: to get Amazon to move to the agency model. Without Amazon doing so, Apple could not compete on price. But it was essential for the major book suppliers to act in unison to get Amazon to agree to an agency model, or so the publishers thought at the time. In a free market, Ryan said, each publisher would work out their issues with Amazon independently.

 

It was the "collective force" of the publishers that prompted Amazon to adopt the agency model and stop offering $9.99 best sellers, Ryan said.

 

"Apple was simply indifferent to customers paying higher prices," Ryan said.

 

Cote is expected to reach her decision within a few weeks.