Shutterstock_122546788Apple settles

Apple has settled up to $841 million of antitrust claims by state attorneys-general and a nationwide class of consumers who bought e-books from Apple and its publisher co-conspirators.

The pact comes almost a year after U.S. District Judge Denise Cote in New York held Apple civilly liable for conspiracy to fix prices, a violation of section 1 of the Sherman Act. The United States brought the case, primarily for injunctive relief. Judge Cote entered a final judgment on September 5, 2013.

Before the trial, Apple had rejected a settlement offer by the Deparment of Justice before trial because, according to Apple's CEO Tim Cook, "we're not going to sign something that says we did something that we didn't do".

Amount unclear

We don't know how much Apple will pay. Its maximum exposure to the class and the states totaled $840,763,122, three times the plaintiffs' estimate of actual overcharges for e-books ($280,254,374 — a number that reflects a 17 percent inflation of e-book prices as a result of the conspiracy).

The Wall Street Journal weighs in

Should we feel sorry for Apple? The Wall Street Journal thinks so. It absolves Apple and the publishers for engaging in what criminal law would deem a felony. It points its finger of blame instead at the Department of Justice and Judge Cote.

What did they do, you ask? Instead of "letting the market decide whether the wholesale model [which Amazon preferred] or agency model [which the conspirators agreed to adopt] should prevail", Judge Cote "dictated the outcome by ruling against Apple."

Issing-may the oint-pay

But the "market" never had a chance to decide which model to use precisely because Apple and the publishers perverted the market through collusion.  They did so to drive up the prices they could charge. Worse, in the absence of the Apple-publisher cartel, the market plainly would have chosen the wholesale model that Amazon preferred. The squelching of competition by means of an illegal agreement — not the actions of the court or the DOJ — dictated the outcome.

Astonishingly, the WSJ purports to regard Apple and the publishers as innocent of wrongdoing. It asserts that Apple simply "offered e-book publishers the same [agency model] deal" and that they all coincidentally accepted the offer. But the evidence showed hard-core collusion — the kind involving secret CEO-only luncheons in private rooms of fancy restaurants and ensuing lock-step increases in prices — not indepedent action. As Judge Cote noted in her post-trial opinion on liability:

The question in this case has always been a narrow one: whether Apple participated in a price-fixing scheme in violation of this country's antitrust laws. Apple is liable here for facilitating and encouraging the Publisher Defendants' collective, illegal restraint of trade. Through their conspiracy they forced Amazon (and other resellers) to relinquish retail pricing authority and then they raised retail e-book prices. Those higher prices were not the result of regular market forces but of a scheme in which Apple was a full participant.

United States v. Apple Inc., No. 12 Civ. 2826 (DLC), slip op. at 158 (S.D.N.Y. July 10, 2013).


The WSJ's claim that Amazon's share of e-book sales "has soared" as a result of the DOJ's win is a combination of argle-bargle and mumbo-jumbo. The reasons that the paper cites for the supposed wind beneath Amazon's wings have nothing to do with breaking up the Apple-publisher cartel.

On the contrary. There is no discernible connection between the facts that Barnes & Noble "pulled back on its Nook", that "Sony and Samsung exited the e-reader market", and that Apple "seems focused elsewhere" and the breakup of the cartel. And Amazon's market share didn't "soar". It simply went back to where it was before the unlawful conspiracy. See id. at 14 ("Through 2009, Amazon dominated the e-book retail market, selling nearly 90% of all e-books.").

Prices should have risen

The WSJ ends by urging that antitrust enforcers should "stand aside and let the market determine winners and losers." That's all well and good, but if the WSJ is right that the DOJ has quashed competition, ebook prices would have soared in the last couple of years, right?

Just the opposite has happened As the leading authority on e-book prices said this on April 30, 2014:

In the nearly two years Digital Book World has been measuring the average price of a best-selling ebook, the tend has been unmistakable: down.

Best-selling ebooks cost more two years ago than they do now. Two years ago, many of the best-selling ebooks were agency priced, meaning that publishers determined the price of the books and the price was usually $10 and up.

Today, no publishers price their own books and retailers have generally lowered prices to compete with each other and sell more units.

Despite all that, L. Gordon Crovitz, who wrote the WSJ piece, preaches "humility" to Judge Cote and the DOJ. He might want to look in the mirror.

A challenge

The Second Circuit has Apple's appeal before it now. Argument will likely take place by year-end, and a decision will follow in due course.

In the meantime, Blawgletter issues this challenge to Mr. Crovitz: When the Second Circuit rules, we'll each write about it and explain how we either got it right or got it wrong.

Blawgletter can hardly wait.