Apple e-Book Collusion Saga May Not Be Over


Apple says it wants to take its e-book pricing collusion case to the Supreme Court. A ruling there could fundamentally affect the way courts oversee alleged cartels in tech and beyond.

With us having covered the case on several occasions, I’ll give just a short summary for anyone who missed it:

  • Printed books are sold on a “traditional” model by which the publishers sets a wholesale price and then retailers decide how much to charge customers (and thus their profit or even loss margin.) Amazon and company adopted this for e-books.
  • Apple made a deal with six major publishers to switch to its preferred “agency” model where the publisher sets a fixed retail price and the retailer takes a fixed percentage. The publishers then said they’d stop dealing with Amazon unless it also used the agency model.
  • The government decided this was unlawful collusion that amounted to price-fixing because all retailers would be charging the same price. The publishers agreed to a settlement while Apple contested the case and lost the trial and subsequent appeals which is why everyone now uses the traditional model for ebooks. Apple is on the hook for $450 million in financial penalties.

Having run out of appeal options on the facts of the case, Apple’s only chance now is for the Supreme Court to examine the case in the wider context of a significant dispute over the law itself. It was on a deadline to make such an appeal before paying the fines, but has now formally requested 30 more days to do so. In that formal request it sets out the basis of the argument it would make in the Supreme Court.

As Fortune explains, the general principle in antitrust cases is that a court must consider the wider context. It can conclude that even though a company or companies have done something that could have a harmful effect on competition, it may be legal if that’s outweighed by other positive effects on competition. Deciding that is known as a rule-of-reason analysis.

However, in cases of alleged horizontal price-fixing, there’s no such exemption: it’s automatically judged unlawful. Horizontal price-fixing is where the parties involved all play the same role in a market: in this case, the publishers were all wholesale suppliers.

Apple argues that this rule was wrongly applied in its case. It says that while the six publishers have a horizontal relationship, its involvement with them is a vertical relationship (it was a retailer and they were suppliers.)

The government’s argument is that this is irrelevant: by doing a deal with multiple publishers, Apple should be treated as part of the horizontal relationship.

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