Apple’s Last Chance to Win eBook Conspiracy Case Lies with Securing Supreme Court Hearing

Despite having the world’s most popular smartphone model, and for a while a near monopoly on the tablet market, Apple has not been able make much of a dent in either mobile advertising or ebook sales. Its best chance came early on when it was working with the big book publishers to try and break Amazon’s stronghold on the ebook market.

iBooksStore-iPadThings, as you know, didn’t go well. The U.S. Department of Justice, along with 33 states, filed suit accusing Apple of conspiring with five major publishers to raise the retail prices of ebooks. It was a rare instance when the public was not on Apple’s side.

One by one, those publishers settled, but Apple pressed their case in court. In July of 2013, District Judge Denise Cote ruled that Apple had, indeed, conspired with the publishers, and therefore violated the Sherman Act.

The Plaintiffs have shown that the Publisher Defendants conspired with each other to eliminate retail price competition in order to raise e-book prices, and that Apple played a central role in facilitating and executing that conspiracy. Without Apple’s orchestration of this conspiracy, it would not have succeeded as it did in the Spring of 2010.

The key matter motivating Apple and the publishers was the desire to raise prices above the $9.99 level Amazon had set. Amazon wanted to push both Kindles and Kindle Editions and was willing to lose money to do so. Apple wanted to break into the ebook market, and was never prepared to do so using a software solution. Publishers, on the other hand, wanted to control prices.

Since the judge’s ruling, Amazon has renegotiated prices with the publishers allowing them to raise their prices to the point where sales have fallen. Amazon, though, has continued to dominate the market, while Apple has gone backwards with electronic book, magazine and newspaper sales, this year officially giving up on the Newsstand (it actually gave up on it in late 2013).

Apple’s problem, as any bBook publisher will tell you, is that it doesn’t offer a cross-publishing solution. so publishers are forced to think Amazon first. This is the same problem, in reverse, that initially existed in digital magazines and newspapers – developers thought Apple first because they dominated the smartphone and tablet markets. But as Apple did not introduce a cross-platform publishing solution for the newspaper and magazine markets either, leaving it to Adobe, Mag+, Quark, Aquafadas and others to do so, the result was that Android app numbers grew.

When TNM published the Guide to Digital Publishing Platforms in 2014, there were well over 100 different solutions for creating a digital magazine app, but only a handful of solutions for creating digital books, with none really offering a good solution for publishing to Amazon, Apple and Android at the same time. This has made it easy for magazine publishers to developer for both iOS and Android.

The same person who testified on ebooks to District Judge Cote was the same person in charge of the iBooks Store and the Newsstand: Eddy Cue. He may be the one person with the most to gain by having Apple press its case to the Supreme Court.

Apple’s argument for having the Supreme Court hear the case is that the company basically claims it didn’t do it. That is, they weren’t actually involved the conspiracy end of the fraud, that the publishers themselves met to fix pries, Apple was the one standing on the sidelines to take advantage of the conspiracy.

Respondents’ repeated incantation of the word “participation” merely begs the question: When can genuine vertical business conduct, normally subject to the rule of reason, be branded as per se unlawful “par- ticipation” in a horizontal conspiracy?

Apple is arguing that it didn’t join in a horizontal conspiracy. Apple lays out out the DOJ’s case this way:

They argue that Apple crossed the line by keeping the publishers “informed of what their competitors were doing,” “urg[ing] the publishers to work together,” “actively help[ing] to coordinate their efforts,” and “us[ing] ‘the promise of higher prices as a bargaining chip.’”

The DOJ, on the other hand, described Apple as not a “hapless actor” that was drawn into the conspiracy, “but in fact orchestrated the publishers’ conspiracy, and actively relied on their collusion to achieve its business ends.”

The DOJ could file another brief in answer to Apple’s brief, but whether it does or not we are finally nearing the end of the line. Many legal observers believe the court will simply deny a hearing, and that will be that. The court will already be in the limelight this summer as it will hear, then rule, on the Obama administration’s immigration executive order – just in time for the July conventions. The court should let the parties know this spring whether they will hear the Apple ebook case.

Meanwhile, not much is changing in the ebook market. Sales for the big publishers are flat to declining, mostly due to rising prices. Amazon, on the other hand, continues to expand its hold on the market, and has recently reported good earnings. Its next earnings report comes out on January 28. (Apple’s comes out on Tuesday.)

reposted with permission from Talking New Media

About D. B. Hebbard (25 Articles)
Douglas Hebbard (or if you are using D.B. Hebbard use that) is a 30+ year veteran of the newspaper and magazine publishing business, and has been publisher of the digital publishing website Talking New Media since 2010.

3 Comments on Apple’s Last Chance to Win eBook Conspiracy Case Lies with Securing Supreme Court Hearing

  1. Actually, no. Apple isn’t arguing that they “didn’t do it.” Apple’s primary argument in the reply brief is that Judge Cote and the DOJ were applying the law incorrectly. (As Judge Roberts agreed his desent on their appeal. And as numerous other legal experts have also agreed.) The brief states:

    “The Solicitor General and the States try to reframe Apple’s petition as a dispute about factual findings. It is not. Apple seeks review of the panel majority’s legal error in concluding that Apple was per se liable for “joining” the publishers’ horizontal conspiracy.”

    Basically, the DOJ is trying to make something that should be legal (creating new competition in an emerging market) into something illegal. That’s Apple’s argument and that’s why it’s fighting this to the Supreme Court.

    As for Apple failing to offer a cross platform solution, it doesn’t offer a cross platform solution for it’s app store and it’s making billions with it. In terms of it’s “failure” in the advertising market, Apple’s focus has never been on selling advertising and it’s pretty clear it made a strategic decision to end what was a minor experiment in creating mobile ads that aren’t too annoying. The jury is still out on their pivot to allow publishers to keep all the profits on that feature.

  2. I wonder: is a cross platform solution possible at all? I guess the answer is no.
    Although there is a Kindle app in iOS and Mac OS X, iBook does not read azw nor Kindle does read epub or Apple’s version of epub.
    And the underlying reason is that neither of them will license to the other.

  3. It’s pretty clear that Apple did not want to compete on price and never had ambitions about competing in other ways. They just wanted to make it as convenient as possible for Apple customers to buy ebooks from them, and eliminate reasons to consider other vendors.

    In the beginning, I think they just wanted to replicate what they had done with iTunes music, where there were ‘standard’ prices, and publishers basically had to get in line with that. To a large extent, that model holds true: nobody discounts MP3 files, the price is the same on Apple, Google, Amazon. It’s amazing that Apple maintains such a large market share in music, though that’s now threatened by the rise in subscription services. And one can imagine that had they never developed a Windows iTunes app, they would have lost much more market share over time. MP3 files, long DRM free, can be used on any device. Lock-in is really just a matter of convenience.

    The app store is a monopoly, given the 100% closed-for-your-own-good design. It is successful because Apple is great at marketing their hardware to people who can afford it, and those same people can also afford to spend more money on apps. Amazon can only pick up the crumbs with low cost devices and by giving away apps in their app store.

    The eBook market is much different than either of these. DRM is still the norm, so one is effectively locked to a given ecosystem, and in Apple’s case, to Apple hardware platforms (Adobe DRM is theoretically ‘portable’ between reading systems, but even Adobe’s vendors early on made it their practice to put road blocks in the way of this portability).

    Had Apple really wanted to compete with Amazon (or even Kobo or Google or Nook), there would be iBooks for Android, iBooks for Windows, a way to read books or at least purchase books with a browser. But there has been no hint of their doing any of these things. Their authoring tools, as well as their publishing tools, require Apple hardware as well. This is largely why their argument about ‘creating competition in a new market’, in my view, rings hollow. They have had plenty of time and money that they could have invested in such an endeavor, as well as the built-in advantage when it comes to their own platform (competitors cannot include storefronts in their own apps), but they simply have not made such an investment. Their priority is all about selling hardware profitably, and competing in a real way in the eBook market is not consistent with that.

    The iBookstore is almost a study in how to frustrate discoverability and ensure that, for the most part, only best selling books being advertised by large publishers get found and purchased. This is in their mutual interest, and explains why they did what they did, the nature of the ‘horizontal conspiracy’. Apple doesn’t want to compete on selection or expend resources in making personalized recommendations. They just want to skim off the most profitable part of the business, and that is the extent of their interest. Price competition is deeply antithetical to that goal.

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