Apple Gets BAD NEWS in E-Book Case

Apple (NASDAQ:AAPL) will be in court June 3, 2013, on which date will commence the e-book antitrust bench trial brought by the Department of Justice against Apple and two major book publishers. Judge Denise Cote of the U.S. District Court for the Southern District of New York set the date Monday, which was much earlier than the DOJ wanted but much later than Apple wanted.

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Apple had hoped to get the trial under way as soon as possible, saying it would cast a cloud over the industry until its resolution. Three of the book publishers originally implicated in the DOJ’s lawsuit — Harper Collins (NASDAQ:NWSA), Simon & Schuster (NYSE:CBS) and Hachette — chose to settle and avoid further scrutiny. The terms of their settlements have yet to be finalized, but they revolve around each giving up the “agency model” of e-book pricing that Apple introduced. 

Macmillan and Penguin (NYSE:PSO) decided to remain in the suit, along with Apple, as the other named defendants. DOJ officials argue that Apple’s deal with the publishers is keeping e-book prices artificially high, a claim that has been echoed by consumer groups. The three defendants claim no wrongdoing in the case.

Apple argues that the “agency model,” which it introduced around the time it launched the first iPad, allows publishers to set prices, rather than having a single party controlling the market pricing, as was the case with Amazon (NASDAQ:AMZN), which was undercutting e-book sellers to promote its Kindle e-readers. Amazon’s “wholesale” model allowed books to be sold at prices of a dominant seller’s choosing, often at a loss. For now, Amazon continues to pay royalties at established rates based on the book’s “cover” price, which is set by publishers. But wary of Amazon’s past behavior, publishers are concerned that down the road they will be forced to accept payouts on whatever the books sell for, over which they have no control.

Apple says the DOJ’s suit is “fundamentally flawed” and argues that it will ultimately harm customers by returning the e-book monopoly to Amazon. In the past, Apple has pointed out that the agency model has forced Amazon to cease its “predatory pricing” and has decreased Amazon’s market share from 90 percent to 60 percent, forcing it to compete more fairly.

Regardless of the outcome of the DOJ’s suit, Apple and all five of the alleged conspiratorial publishers will still be facing a class-action civil suit filed on behalf of e-book customers. Judge Cote refuses to block the civil suit, saying that Apple assisted the publishers in avoiding an open market and “helped the suppliers to collude, rather than compete independently.”

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