Apple loses e-book antitrust appeal

The federal appeals court ruling is another setback in the company's attempt to justify its e-book sales practices

Apple's iBooks app

Apple's iBooks app

An appeals court ruled against Apple's challenge of a lower court's decision which found the company liable for illegally conspiring with e-book publishers to jack up prices.

A 3-judge panel from the U.S. Court of Appeals for the Second Circuit voted 2 to 1 against Apple. Writing for the majority, Judge Debra Ann Livingston said that Apple illegally orchestrated a conspiracy between book publishers, upholding a district court ruling from 2013. The lawsuit was filed by the U.S. Department of Justice.

Additionally, she said that the injunction imposed by District Court Judge Denise Cote was appropriate and left it in place. It's the latest strike against Apple in this long-running case, which stems from agreements the company set up with publishers around the launch of its online e-book marketplace.

At the time, Amazon held a dominant position in this market, and often sold e-books for $9.99, even when it was buying them wholesale from publishers for more than that. Publishers were unhappy about that, and Apple offered them an alternative with the iBookstore. Publishers were able to set their own prices and Apple would give them a percentage of sales under an agency pricing model.

As part of that agreement, the publishers also agreed to abide by a "most-favored nation" clause that required prices on Apple's e-book store be equal to the lowest price available elsewhere. In other words, if Amazon was selling a book for $9.99, Apple would be able to do the same. That encouraged publishers to move all of their contracts with e-book sellers like Amazon to an agency model, which the court said led to increased prices.

Judge Dennis Jacobs dissented from the majority, arguing that Apple needed to work with publishers to raise prices in order to compete with Amazon, and that holding it responsible for the publishers' collusion was inappropriate.

"A further and pervasive error (by the district court and by my colleagues on this appeal) is the implicit assumption that competition should be genteel, lawyer-designed, and fair under sporting rules, and that antitrust law is offended by gloves-off competition," he wrote.

Livingston had little patience for Jacobs' reasoning in her opinion, criticizing his justifications as being unsupported by Apple's own arguments and being disconnected from antitrust law. In her view, his opinion "endorses a concept of marketplace vigilantism that is wholly foreign to the antitrust laws."

It's unclear whether Apple will continue to appeal the decision. It could request a review by the Supreme Court of the United States. In the past, company executives have vehemently defended its actions, claiming that Apple did nothing wrong. Apple did not respond to a request for comment.

Bill Baer, an assistant attorney general in the Justice Department's Antitrust Division, said in an emailed statement that the agency was "gratified by the court's decision."

"I am proud of the outstanding work done by the trial team who initially established Apple's liability and by the lawyers who defended the district court's decision in this appeal," he said. "The Antitrust Division will continue to vigorously protect competition and enforce the antitrust laws in this important business, and in other industries that affect the everyday lives of consumers."

As a result of the ruling, Apple is on the hook to pay consumers $400 million as part of a settlement the company reached with a class of e-book buyers and 33 state attorneys general. The company will also owe the lawyers in that case an additional $50 million. Had the court struck down the judgement, Apple wouldn't have owed a cent. Steve W. Berman, a managing partner of law firm Hagens Berman and lead attorney representing the consumer class in that case, said in an emailed statement that the firm is "pleased at the recovery we have been able to secure."

The news comes on what is an otherwise good day for Apple, which just released its new music streaming service and Internet radio station. However, its entry into the streaming music market may be a harbinger of future antitrust woes, since the Attorneys General for New York and Connecticut are investigating the company's practices in setting up Apple Music.

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Blair Hanley Frank

IDG News Service
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