U.S. vs Apple Inc. et al

 

 

Recently a Federal Court Judge in the USA ruled that Apple colluded to fix e-book prices, in violation of anti-trust law.

What happened:

In 2010, when Apple was about to launch the iPad and iBookstore, Amazon.com had a monopoly on e-book retailing. Amazon’s success was largely due to the popularity of Kindle and their low price point. Apple, usually an industry leader, knew that to be successful in the e-book market, they had to be able to compete with Amazon on price.

At this time, publishers were growing increasingly frustrated with Amazon’s cheap prices. Armed with this knowledge, Apple approached the 6 biggest publishers in America with a scheme to give them back control over e-book pricing. The deal would see publishers alter their arrangements with retailers from a relationship of wholesaling to one of agency. In this relationship the retailer would get a standard cut of every sale and publishers would control the price of e-books.

Apple put a cap on the ability of the publisher’s to drive up the price of e-books and insisted that the scheme be implemented with every single retailer – including Amazon.

The effect was the elimination of retail price competition and a spike in e-book prices.

The Law in the US:

US law prohibits every contract, combination or conspiracy that restrains trade and commerce. The law is designed to protect competition not competitors and requires collective action by at least two distinct economic entities.

The decision:

The judge saw Apple as responsible for “herding the cats.” Without the collective action Apple nurtured, it was unlikely any individual publisher would have succeeded in unilaterally imposing an agency relationship on Amazon.

Apple intentionally engaged with publishers in a scheme to raise e-book prices and thereby conspired to restrain trade; a violation of US Federal law.