Apple may be having some regrets this afternoon. Having refused to settle an eBook price-fixing case brought by the Department of Justice, it took a big legal hit today when a federal judge in Manhattan found the company guilty of conspiracy to restrain trade, and cleared the way for a second trial on damages. The court's full decision is here.
Just to recap, Apple -- and an alleged cartel of big publishers -- attracted the DoJ's notice by moving from a wholesale to an agency model for eBook sales. Under the wholesale model, the publisher sets the price to the retailer, then the retailer sets the price the consumer pays. Under the retail model, the publisher sets the price, and the retailer takes a commission.
The twist in this case was a "most favored nation" clause, under which Apple had the right to match lower retail prices set by a competitor (i.e. Amazon). This, according to the government, allowed the publishers to force an agency model on Amazon, under the threat of withholding new best-sellers from the Amazon store.
The result, the court found, was an almost immediate increase in the price of eBooks, with Amazon pressured to raise the retail price of the publishers' eBooks by an average of 18.6 percent (much more for bestsellers). Result? Happy Apple, happy publishers, swindled consumers.
In fact, it's not that simple. In the long-term, consumers may rue this result.
Certainly, there seems to have been ample evidence that the deal with the publishers, negotiated by Steve Jobs, included an agreement to set higher prices. In an email, Jobs had told James Murdoch of News International (HarperCollins' parent company):
Throw in with Apple and see if we can all make a go of this to create a real mainstream e-books market at $12.99 and $14.99.
But the irony is that the result of these antitrust proceedings seems likely to be the inadvertent creation of a monopoly. Although Apple's share in the US eBook market improved marginally following the adoption of the agency model, Amazon is estimated to control about 65 percent of that market, with Barnes & Noble is second place at 25 percent.
In another much-quoted email, Jobs said he was "not sure [Apple] can be competitive," absent the model now outlawed by the court. With Barnes & Noble beset by problems, it's easy to imagine the eBook market contracting dramatically. And if Amazon is the only major retailer left standing, it will have a stronger hand than ever to exploit the wholesale model, driving furious bargains with publishers, while actually maintaining -- or even raising -- retail prices.
Apple will seek to appeal the decision, of course (the publishers settled before the case came to trial), but if it loses, the cost could be high. The 33 states which joined the DoJ's action are seeking triple damages for "overcharging customers." Even so, handing over the eBook market to the tender mercies of Jeff Bezos may mean that the victory for consumers will be short-lived.
Related posts:
? Kim Davis 
, Senior Editor, Internet Evolution
Thinkernetter
Wednesday July 10, 2013 5:24:52 PM
There is some evidence that the Steve Jobs email was only a draft, never sent. The actual, final email, removes the conspiratorial language. That point is disputed.
The email to Murdoch I cited was sent.? The other email, an internal communication, was one of a series of draft emails.? The government argued that they established a pattern, and I guess--without seeing the full records--that the judge agreed, as they were clearly admitted in evidence.
The analogy would be if I'm accused of setting fire to the house, and I have several draft emails on my PC saying I plan to set fire to the house.? Just because I never sent them doesn't mean the court will necessarily keep them from the jury.
:I am not a lawyer:
Thinkernetter
Wednesday July 10, 2013 5:16:54 PM
Here's a possible response to my concerns, from a Washington Post interview with Randall Picker, an antitrust scholar:
That's not how Section 1 of the Sherman Antitrust Act [which deals with cartels] works. Under standard U.S. antitrust law, it's not a good defense to say we've organized our cartel to beat up on the monopolist.
...To the extent that Amazon has monopoly power, as long as it's achieved that power through legitimate means, you get to exercise that monopoly power.
?
link
?
Thinkernetter
Wednesday July 10, 2013 4:55:03 PM
There is some evidence that the Steve Jobs email was only a draft, never sent. The actual, final email, removes the conspiratorial language. That point is disputed.
Publishers seem to be willingly granting Amazon monopoly powers through publishers' insistence on DRM in ebooks. This is mind-blowing. You very seldom see companies fighting hard to give away their competitive advantage.
Thinkernetter
Wednesday July 10, 2013 4:08:32 PM
The motivation behind antitrust prosecutions is surely to protect consumer interests.? I can see arguments for and against the proposition that handing the eBook market to Amazon is a good thing for consumers.
I'd love to know what other people think.
The ThinkerNet does not reflect the views of TechWeb. The ThinkerNet is an informal means of communication to members and visitors of the Internet Evolution site. Individual authors are chosen by Internet Evolution to blog. Neither Internet Evolution nor TechWeb assume responsibility for comments, claims, or opinions made by authors and ThinkerNet bloggers. They are no substitute for your own research and should not be relied upon for trading or any other purpose.
previous posts from Editor's Blog
Crank up the volume -- perhaps the new CD from ex-Groupon CD Andrew Mason -- and check out our holiday edition of the Friday File. It's full of ducks, sports, lies, smart tech, and intrigue. What else could you ask for?
The hottest new technology for Internet marketing is almost 50 years old. Email is seeing explosive growth in driving sales, according to a recent study.
What do Richard Stallman and the late Aaron Swartz have in common? They're brilliant products of the hacker culture, for sure, but they also both attracted police attention for their Internet freedom activism.
Lots of people thought big this week.
IETV: the thinkerNet on film
John KennedyHow Big-Data Is Changing Marketing
6|13|13 ? | ? 1:07 ? | ? 1 comment
Big-data and analytics tools enable marketers to understand customers as individuals, identifying unmet needs and addressing each customer as a "segment of one," says John Kennedy, VP corporate marketing, IBM.
an IBM information resource
sponsored content
big blue blog
We?ve been hearing more and more in recent times about information technology rapidly moving into the ?cockpit? of our automobiles.
an IBM information resource
sponsored content
Expert Integrated Systems: Changing the Experience & Economics of ITIn this e-book, we take an in-depth look at these expert integrated systems -- what they are, how they work, and how they have the potential to help CIOs achieve dramatic savings while restoring IT's role as business innovator.
READ THIS eBOOK your weekly update of news, analysis, and
opinion from Internet Evolution - FREE!
REGISTER HERE Wanted! Site Moderators
Internet Evolution is looking for a handful of readers to help moderate the message boards on our site ? as well as engaging in high-IQ conversation with the industry mavens on our thinkerNet blogosphere. The job comes with various perks, bags of kudos, and GIANT bragging rights. Interested?
Please email: moderators@internetevolution.com
severe weather wichita brian wilson storm chasers david blaine gotye divine mercy
No comments:
Post a Comment