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May 30, 2012
Apple Files Its Answer In The e-Book Antitrust Case
Apple has answered the complaint filed by the Department of Justice in the e-book pricing litigation case now that the Court has denied the motion to dismiss. I can characterize Apple’s answer in several ways, if characterize is the operative word here. One is that Apple would have the Court view the big picture, that Amazon ruled the e-book world before Apple entered the e-book market to introduce competition rather than stifle it. Pricing is merely one element in a competitive market and Apple suggests higher prices only affected a handful of titles (Introduction). As an example of the fuller market, Apple points to the interactivity and color capabilities the iPad introduced to the electronic publishing market. That may be true for magazines, but I’m not aware that offerings from the defendant publishers took advantage of these capabilities. In some sense Apple wants to change the subject. Then again, all defendants try to do that when they can.
Another is that all Apple wanted from the publishers was pricing guarantees that made offerings through the iBookstore competitive with any other distributor. It didn’t matter to Apple whether the publishers used the agency model or the wholesale model. If I read what Apple is saying correctly, if Amazon sold an e-book for $9.99, then that is the price Apple should get to sell the book, less its 30% cut. If that’s the case, Apple was essentially asking the publishers to subsidize the difference between Amazon’s prices and the wholesale price for a title. That appears to guarantee that publishers would lose money on almost every e-book sale through the iBookstore if Amazon was paying the wholesale price and selling to consumers for less than that. Apple claims this would hardly induce the publishers to demand Amazon go to an agency model (Response paragraph 66).
Apple says that its meetings with individual publishers neither directed their strategy nor had Apple act as a conduit for the publishers to work in concert with each other. Apple was only concerned with its own “legitimate business interests” in positioning the company’s entrance in the e-book market (Response paragraph 69). Any quoted statements from Steve Jobs reflect Apple’s interests in its own sales and not any attempt to control pricing in the e-book market. Essentially, Apple didn’t care what the ultimate price of e-books would be as long as it could sell them competitively. Otherwise Apple might not have entered the market at all.
Apple is effectively severing its interests from that of the publishers in this case. I take it from the whole of the answer that Apple’s view is that the company negotiated a hard bargain with the publishers in good faith. If the publishers acted illegally with each other, Apple had no part in or motivated those actions.
I don’t know what evidence exists beyond what is contained in the allegations. Those were upheld to state a claim that Apple and the defendant publishers violated the antitrust laws. I have to believe that the Justice Department has more material from its investigation that supports the complaint, otherwise why file it? I also have to believe that given Apple’s stance, its interests in the case outcome may not coincide with those of the publishers. How they characterize their meetings with Apple representatives may not agree completely with Apple’s version of reality. The Justice Department might or might not be counting on that. We’ll see once discovery commences. There should be some very interesting depositions about to take place. [MG]