The Second Circuit's Apple Ebooks Opinion

The Second Circuit affirmed the district court and held, 2 to 1, that defendant Apple Inc. had violated Section 1 by masterminding the creation, organization and implementation of a conspiracy by five publishers of ebooks that benefited Apple, as Apple intended, by eliminating retail price competition from Apple's rival, Amazon, in the sale of ebooks. United States v. Apple Inc., No.13-3741 (2d Cir. June 30, 2015).1

Amazon, as described by the court, was viewed as the common enemy by Apple and publishers of printed trade books and ebooks (the five publishers settled out before trial for the imposition of equitable relief). Apple was about to introduce the iPad with great fanfare, and wanted to open its iBookstore at the same time. Apple viewed Amazon's across the board $9.99 pricing for ebooks as too low for Apple to make a profit as a retailer, and Apple would not enter into retailing ebooks unless it was profitable. Apple wanted to eliminate Amazon's price competition at the retail level (slip op. p. 24).

The publisher defendants, five of the industry's "Big 6" publishers (p. 14), decried Amazon's $9.99 prices for ebooks as destructive to their traditional way of doing business. They believed that Amazon's prices were making it harder to sell hardcover versions of new releases and New York Times bestsellers; that Amazon would permanently depress prices for printed trade books and gain the power to demand lower wholesale prices; and that authors would go directly to Amazon to get published and cut out the publishers altogether (pp. 14, 85). They were at a loss as to how they could force Amazon to raise ebook prices. Apple knew of and used the publishers' willingness to combine and conspire to force Amazon to raise retail prices (p. 19).

The Court of Appeals affirmed the district court's findings that Apple implemented its plan through its contracts with the publishers to sell their books at retail; by regularly informing them of what the other publishers were doing and what they should do; and by directing them to act in unison so that Amazon would surrender when the publishers made their demands that Amazon enter into contracts with them using Apple's "agency model." It worked. Amazon gave in to the combined strength of the publishers (pp. 38-40), giving the publishers the power to set Amazon's retail prices for their ebooks. That led to higher retail prices by rival Amazon that Apple considered "reasonable."

Apple's contracts for its...