A Book On Books: SDNY Issues 160-Page Opinion Declaring That Apple Violated Section 1 Of The Sherman Act By Conspiring To Raise E-Book Prices

On July 10, 2013, 15 months after the Department of Justice (DOJ) filed its suit against Apple Inc. (Apple) and five major publishers for allegedly conspiring to raise e-book prices and end e-book retailers' freedom to compete on price, Judge Denise L. Cote of the Southern District of New York found that Apple violated Section 1 of the Sherman Act. United States v. Apple Inc., No. 12 Civ. 2826 (S.D.N.Y. July 10, 2013). All five publishers have settled with the DOJ, with the final settlement pending court approval. Apple intends to pursue an appeal of the decision, and as a result there may be more to come in the case. However, the decision itself is worth discussion (even though it is largely fact-driven).

Following a three-week bench trial, Judge Cote issued a 160-page opinion, relying primarily on documents rather than testimony, in which she found that Apple masterminded a horizontal conspiracy among the publishers to raise e-book prices. Judge Cote essentially determined that the documents in the case spoke for themselves and that Apple and the publishers "were less than forthcoming" and could not explain away the "contemporaneous documentary record [that] was replete with admissions about their scheme." The publishers' prior attempts to raise e-book prices had been unsuccessful, and Apple's participation was critical to their success in raising e-book prices.

The Court found that Apple did not want to compete on e-book prices with Amazon or any other e-book retailer. Apple entered its negotiations with the publishers knowing that the publishers were frustrated with Amazon's "wretched" $9.99 price point, were eager to raise revenue, and were fearful that Amazon would retaliate against them if pushed for higher prices or would try to go around them by negotiating directly with authors and agents. Apple, according to Judge Cote, on the verge of its 2010 iPad and iBookstore releases, "brilliantly played its hand[,]" taking advantage of the publishers' frustration and providing the publishers with the vision, format, timetable, and coordination to raise e-book prices.

Apple convinced the publishers to force Amazon and other retailers to switch from a wholesale model, in which the retailers set their own prices, to an agency model. Under the agency model, retailers act as agents for the publishers, thereby allowing the publishers to set retail prices. This shift was reinforced by Apple's agreements with the publishers which contained most...