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2nd Circuit: Apple Conspired With Publishers to Fix eBook Prices

The fight for dominance in the ebook industry has been hard-fought. While Amazon, Barnes & Noble and Apple were battling for market share in distribution, book publishers were likewise rushing to produce them. It was 2010 and Amazon already dominant in the market, so Apple had some catching up to do if it was to market ebooks for its new iPad.

In order to break in to the market, Apple needed a competitive advantage. So, it apparently made an agreement with several book publishers to control their pricing in order to give Apple that advantage.

A 33-state consumer class action and a lawsuit from the U.S. Department of Justice followed. When a federal district court judge ruled in 2013 that Apple’s deals with those book publishers amounted to an illegal price-fixing conspiracy, the publishers took the blow and prepared to pay up.

Apple decided to appeal the ruling, but it first had to satisfy the judge regarding the related consumer class action. Ultimately, Apple agreed to settle the class action for $450 million if it prevailed in its appeal against the Justice Department.

Horizontal price fixing: the supreme evil of antitrust

Recently, the 2nd Circuit Court of Appeals held a 2-1 that Apple and the publishers had indeed engaged in a horizontal price-fixing conspiracy, which the U.S. Supreme Court has called “the supreme evil of antitrust.” So-called horizontal agreements are between competitors at the same level, and when they fix prices, the consumer is the one losing out.

“Plainly, competition is not served by permitting a market entrant to eliminate price competition as a condition of entry,” the opinion reads, “and it is cold comfort to consumers that they gained a new ebook retailer at the expense of passing control over all ebook prices to a cartel of book publishers.”

Apple continues to insist it did nothing wrong, although it seems unlikely it will appeal further, considering that it’s expected to begin paying out damages to consumers.

“Apple did not conspire to fix ebook pricing and this ruling does nothing to change the facts,” said a spokesperson for the company. “We are disappointed the Court does not recognize the innovation and choice the iBooks Store brought for consumers.”

If an innovative idea appears to give you an enormous competitive advantage, your first call should probably be to your lawyer. The more things change, the more they remain the same.

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