Ondrej Holzman It has been 236 days since the original verdict in which Apple was found guilty of manipulating the prices of e-books. After almost three-quarters of a year, the whole matter reached the Court of Appeal, where Apple immediately appealed and to which it has now also presented its arguments. Does he have a chance to succeed?
Apple's position is clear: raising the price level of e-books was necessary to create a competitive environment. But whether with their own comprehensive arguments whether the California company will succeed is unclear.
It all started in July of last year, or rather at that time, Judge Denise Cote decided that Apple was guilty. Along with five book publishers, Apple has been accused of manipulating e-book prices. While five publishers – Hachette, Macmillan, Penguin, HarperCollins and Simon & Schuster – decided to settle and pay $164 million, Apple decided to fight and lost. As expected, however, the company from Cupertino appealed and the case is now being dealt with by the Court of Appeal.
Before Apple entered, Amazon dictated prices
Before Apple entered the e-book market, there was virtually no competition. There was only Amazon, and it was selling bestsellers for $9,99, while the prices of other novelties "were below what is generally considered to be competitive," Apple wrote in its statement to the appeals court. "Antitrust laws are not there to ensure the lowest prices at all costs, but to enhance competition."
[su_pullquote align=”right”]Apple's most-favoured-nation clause ensured that it never had to deal with competition again.[/su_pullquote]
When Apple entered the market, it made a deal with several publishers to make it profitable to sell e-books. The price of one e-book was set at between $12,99 and $14,99, and the agreement included a best-selling clause that "guaranteed that the e-books will be sold in the Apple Store at the lowest available market price," she wrote in her ruling. Judge Cote. Because of this, publishers had to raise the price of e-books in Amazon's Kindle store.
Apple's most-favoured-nation clause ensured that it "never again had to deal with the competition in e-book sales, while also forcing publishers to adopt an agency model," Cote wrote. In the agency model, publishers could set any price for their book, with Apple always taking a 30 percent commission. This was the exact opposite of how Amazon had worked up until then, buying books from publishers and then selling them at their own prices.
Apple: Prices dropped after we arrived
However, Apple denies that it tries to manipulate the prices of e-books. "Although the court found that Apple's agency agreements and negotiating tactics were lawful, it ruled that by simply listening to publishers' complaints and accepting their openness to prices higher than $9,99, Apple engaged in an ongoing conspiracy as early as the first exploratory meetings in the mid December 2009. Apple had no knowledge of the Publishers being involved in any conspiracy in December 2009 or at any other time. The circuit court's findings show that Apple offered publishers a retail business plan that was in its own independent interests and attractive to publishers because they were frustrated with Amazon. And it was not illegal for Apple to take advantage of the market's discontent and enter into agency agreements in accordance with the law in order to enter the market and fight Amazon."
Although the prices of new titles have risen, Apple counters that the average price of all types of e-books fell from more than $2009 to less than $2011 in the two years between December 8 and December 7. According to Apple, this is what the court should focus on, because until now Cote mainly addressed the prices of new titles, but did not address prices across the entire market and all types of e-books.
[su_pullquote align=”left”]The court order is unconstitutional and should be overturned.[/su_pullquote]
While Amazon sold almost 2009 percent of all e-books in 90, in 2011 Apple and Barnes & Noble accounted for 30 and 40 percent of sales, respectively. “Before Apple came along, Amazon was the only dominant player that set the prices. Barnes & Noble was facing major losses at the time; shortly thereafter, thousands of publishers appeared and began to set their prices within the framework of the competition,” wrote Apple, which maintains that the arrival of the agency model saw a decrease in prices.
Conversely, Apple disagrees with the court's assertion that Amazon's price of $9,99 "was the best retail price" and was intended to benefit customers. According to Apple, the antitrust laws do not favor "better" retail prices against "worse" ones, nor do they set any pricing standards.
The verdict is too punitive
Two months after his decision Cote announced the punishment. Apple was prohibited from entering into most-favoured-nation contracts with e-book publishers or contracts that would allow it to manipulate e-book prices. Cote also ordered Apple not to inform other publishers about the dealings with the publishers, which was to limit the possible emergence of a new conspiracy. At the same time, Apple had to allow other publishers the same terms of sale in their apps that other apps in the App Store had.
Apple has now come to the appeals court with a clear objective: wants to overturn Judge Denise Cote's decision. "The injunction is unduly punitive, overreaching and unconstitutional and should be vacated," Apple wrote to the appeals court. “Apple's order directs it to modify its agreements with the accused publishers, although those agreements have already been changed based on the publishers' court settlements. At the same time, the regulation regulates the App Store, which has nothing to do with the case or the evidence."
The extensive document also includes an outside supervisor who was Cote's deployed last October and was supposed to oversee whether Apple fulfilled everything according to the agreement. However, the collaboration between Michael Bromwich and Apple was accompanied by protracted disputes all the time, and therefore the Californian company would like to get rid of him. "The monitoring here is legally disproportionate with respect to 'one of America's most admired, dynamic and successful technology companies.' In the publishers' settlement, no watchdog is involved, and the monitoring is used here as a punishment for Apple for deciding to go to court and appeal, showing itself to be 'shameless'.
