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Apple Loses E-Book Price Fixing Suit; Drops 'App Store' Lawsuit

By William Peacock, Esq. on July 10, 2013 | Last updated on March 21, 2019

Apple's lawyers may want to make vacation plans now, because their docket just cleared.

In an expected ruling, especially in light of the judge's pretrial statements regarding the strength of Apple's case, Judge Denise Cote ruled against Apple earlier today. The government alleged that Apple conspired with publishers to fix e-book prices and force other retailers, such as Amazon and Google, to adopt an agency and commission model, where the publisher sets (typically higher) prices.

After Apple entered the market, and the publishers hiked prices in unison, consumers paid average increased prices of 18 percent across the board, reports Ars Technica.

The scheme almost seems too obvious not to discover. Much like it's App Store, Apple, using the agency model, took a commission on each e-book sale, with prices set by the publisher. Other outlets bought the books at a wholesale rate and set their own prices, at least, until the major publishers, in unison, forced them to adopt the agency model and higher prices.

In the months leading up to the release of the iPad, Apple not only negotiated the terms of their own agreement, but also included a Most Favored Nations (MFN) clause in the contracts, ensuring that other outlets could not sell at a lower price. The company also ensured publishers that their competitors would sign similar agreements in unison. When one publisher, Random House, held out, Apple rejected their app from the App Store in order to force them to comply.

If all of that wasn't enough evidence, Steve Jobs, the late tech visionary and in-house counsel's worst nightmare, not only sent emails to the publishers hinting at the price fixing scheme, but as Judge Cote noted:

When asked by a reporter later that day why people would pay $14.99 in the iBookstore to purchase an e-book that was selling at Amazon for $9.99, Jobs told a reporter, "Well, that won't be the case." When the reporter sought to clarify, "You mean you won't be 14.99 or they won't be 9.99?" Jobs paused, and with a knowing nod responded, "The price will be the same," and explained that "Publishers are actually withholding their books from Amazon because they are not happy."

With that statement, Jobs acknowledged his understanding that the Publisher Defendants would now wrest control of pricing from Amazon and raise e-book prices, and that Apple would not have to face any competition from Amazon on price.

The import of Jobs's statement was obvious. On January 29, the General Counsel of S&S [Simon & Schuster] wrote to S&S CEO Carolyn Reidy that she "cannot believe that Jobs made the statement" and considered it "[i]ncredibly stupid."

A second trial on damages is expected to follow.

That wasn't the only legal news for Apple this week. They also dropped their long-running "App Store" trademark infringement lawsuit against Amazon, which has the Amazon Appstore for Android. Statements by the judge in that case also indicated poor chances of success.

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