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Apple found to have conspired to raise e-book prices

CNN
Wednesday, July 10, 2013 - 9:14am

NEW YORK (CNNMoney) -- A federal judge ruled Wednesday that Apple conspired to raise the prices of e-books.

The e-book publishers at issue -- CBS's Simon & Schuster, Hachette Book Group, Pearson's Penguin Group, Macmillan and News Corp.'s HarperCollins -- settled and didn't go to trial. Apple held out, and the Justice Department brought a civil antitrust suit against the company in 2012.

The U.S. alleged that Apple and the publishers engaged in a conspiracy to team up against Amazon and fix the price of e-books. Publishers hated Amazon's discounted price structure, under which the retailer set the prices for e-books. Amazon sold many titles for $9.99 each, which publishers thought was far too low.

Apple entered the e-book market in 2010 with the launch of the iPad -- and that's when, the suit alleges, publishers saw a way out of Amazon's "wholesale" pricing. Apple offered the five book companies an "agency model," in which the publishers set their own prices and Apple took a 30% cut off the top.

Apple also made sure to include a clause saying publishers on Apple's platform had to match the lowest price found elsewhere -- including that of Amazon. (Those agreements, called "most-favored nation" clauses, aren't inherently illegal under antitrust laws -- but they're also not always legal.) A few days after Apple inked its own deals with publishers, Amazon backed down and allowed e-book prices to rise to about $12.99 to $14.99.

The DOJ called the setup a "conspiracy," and the agency accused Apple of being the "ringleader" of it all. U.S. District Judge Denise Cote agreed after hearing three weeks of arguments in June, and the "bench trial" did not include a jury.

Judge Cote said she'll schedule a hearing to discuss possible damages. Apple will likely appeal the ruling.

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