This is no surprise, the judge is essentially constrained to rule this way, given the evidence.
Some people are arguing about amazon, but again, that is irrelevant legally.
As I wrote 43 days ago here:
"A finding about Amazon will be completely irrelevant to Apple's conduct in this case. The question is whether Apple committed horizontal price fixing. Amazon's possibly illegal conduct is going to be completely irrelevant in that, as horizontal price fixing is still per-se illegal. They could prove Amazon hurt the market a lot. They could prove whatever they like. As long as the DOJ proves they committed horizontal price fixing, it's game over. Now, the supreme court may, in the end, decide horizontal price fixing should be analyzed under the rule of reason instead of being a per-se violation, but that's completely irrelevant to the current state of the law, and in fact, Apple's behavior. SCOTUS is not going to change the doctrine because they think Apple did the right thing here, they will change doctrine because they think the doctrine was wrong in general. However, that doctrine is the current state of the law, and what this case, and the appeal, will be analyzed under."
This is exactly what happened.
From the decision:
"In sum, the Plaintiffs have shown not just by a
preponderance of the evidence, see Herman & MacLean v.
Huddleston, 459 U.S. 375, 390 (1983), but through compelling
direct and circumstantial evidence that Apple participated
in and facilitated a horizontal price-fixing conspiracy. As
a result, they have proven a per se violation of the Sherman
Act."
I think, sadly, there is a good chance the supreme court will change horizontal price fixing to be under the rule of reason, and then we will finally all be screwed (The rule of reason analysis is why you see so much vertical price fixing these days, since it is no longer a per-se violation)
Note that the judge, being prescient, also wrote part of the decision to explain why she believes Apple would also be guilty under the rule of reason (IE if it was not a per-se violation). This portion of the decision takes into account Amazon's conduct.
This was done so that if the supreme court declares horizontal price fixing to be subject to the rule of reason, they won't need a new trial.
Horizontal price fixing is when competitors in a market (like, say, the major book publishers) cooperate to control prices in that market.
Vertical price fixing is an entity at one level of the chain of production controlling prices at another level (typically, its a manufacturer dictating retail prices.)
The judge was absolutely correct to rule this way. Some people cry "miscarriage of justice", but you need to look back on what happened when the iPad and iBooks came out.
Amazon ruled the ereader/ebook marketplace, because it was the first company to offer both a reader and electronic books together, so you could order books right of the reader. A page from Apple's playbook, a la the iPod.
At the time, ebooks were sold like print books, where the retailer set the price. This is how most retail works, and let Amazon drastically discount their ebooks so they weren't taking any profit, just to move Kindles. The publisher had no say over the price of the book, so a Kindle owner could get ebooks cheaper than print (which, if you think about it, makes perfect sense). The publisher didn't make any less, so the only one paying the price was Amazon (and they took a hit on their stock for it, if I recall). The publishers were forced into this model by Amazon because there was no other resource for ebooks, and everybody loved their Kindles so to deny that market meant your competition would kill you if you didn't play along.
Apple came along with the iPad and that gave publishers an out. If you go back to that time and read the articles on this, Apple actively worked with publishers to change the model to one that was better for publishers and Apple, but worse for consumers. They created a new kind of contract that let the publisher set the price of the ebook, which is really unheard of in retail, except for maybe video game sales. At its heart, it's really an anti-competitive practice, though that may seem counterintuitive. Look at it this way: it's a great way to break into a marketplace controlled by a stronger competitor without really competing. You force your competitor to raise their prices and thus reduce the attractiveness of what they offer, and suddenly you have a share in the market without having to compete with better products or prices.
I also don't understand pro-Apple stance on this issue. I'm a huge fan of Apple products, but I was not a fan of this change in the ebook market. My guess is this opposition is coming from people that don't buy a lot of ebooks on either the iBook store or Amazon, or ever experienced the Kindle store prior to this change in the market. It used to be that ebooks on Amazon were priced around or less than the price of a paperback. Now they tend to cost the same or more than the hardbound edition. How is this a good thing for consumers? You now have publishers in control of the ebook market the same way they're in control of the video game market, through price fixing and predatory pricing models, and retailers have no say in the matter.
Maybe I'm daft, but it doesn't add up to me. Perhaps you can point out the flaw in my thinking? Apple already had a marketplace, the App Store, that let sellers set their own prices — Apple just wanted their hefty 30%, regardless of consumer price. It seems that was and is acceptable to the law and the world at large. In fact, before iBooks, publishers were already selling their books as stand alone apps under this model. When Apple created iBooks, they continued this existing model in their newly created ebook marketplace — that seems entirely natural and unprovocative. It can't be that the agency model is only illegal for books.
It seems to me if an offense was committed, it was committed by publishers in renegotiating their Amazon contracts, in unison, towards the agency model. How is Apple implicated?
> It can't be that the agency model is only illegal for books.
The agency model wasn't the illegal thing, it was just the one part of the mechanism of the used for the illegal price fixing conspiracy.
> It seems to me if an offense was committed, it was committed by publishers in renegotiating their Amazon contracts, in unison, towards the agency model.
The publishers were, indeed, charged with conspiring in the price fixing scheme. All of the charged publishers settled with the DoJ rather than going to trial. Apple wasn't singled out, it just seemed that way because they were the only defendant left when the trial started.
> How is Apple implicated?
Apple is implicated as a member of the publishers' horizontal price-fixing conspiracy who sought to advance, encourage, and profit from that conspiracy.
Well, why did all the publisher renegotiate their contracts in unison? Because they were all working together with Apple. You aren't allowed to fix prices amongst competitors, and you also aren't allowed to help competitors to fix prices as a third-party.
>There was one other important aspect to the agency model that Apple established with the publishers — it included a most-favored-nation (MFN) clause. An MFN provision will frequently appear in contracts between wholesalers and retailers and it ensures that the wholesaler will provide the retailer with the best wholesale price. But Apple adopted it in the agency model to require that the publishers adjust e-book prices in the iBookstore to match the lowest price offered by any other retailer — regardless of whether the publisher controlled the pricing in that retailer.
>This meant that the iBookstore would always have the e-book at the cheapest price. It also meant that if a retailer was offering the book for a cheaper price, the publisher would have to lower the retail price to match it. If that meant the price was below what it cost to produce, the publisher would take the loss, not Apple — they would still get their 30% cut.
>The traditional purpose of MFNs are used to protect a retailer’s ability to compete, ensuring that they aren’t disadvantaged by the wholesaler giving their competitors a better deal. The DOJ contends that the way this MFN works, it was designed to “protect Apple from having to compete on price at all, while still maintaining Apple’s 30 percent margin.” Those are strong words, but there is certainly a kernel of truth to that.
Speaking as someone who used to buy a bunch of books on Amazon, and now buy them on iBooks, I don't understand the "bad for consumer" angle. I don't tend to buy bestsellers, so maybe I'm not hurt as much by the higher prices for that category, but I do still see $12.99 prices on new books. However, and this is something that everybody seems to be ignoring, I'd much rather pay $12.99 for a new book than not be able to buy the book at all because the publisher is holding it back to promote hardcover sales (i.e. "windowing"). Also, what hardcovers are you buying that cost $12.99 or $14.99? I just looked up Amazon's prices for a book that came out 3 months ago that I pre-ordered (Blood of Dragons by Robin Hobb). I paid $12.99 for it in iBooks. Amazon's selling the hardcover for $20.86. I am much happier to pay $12.99 to read it in iBooks than to pay over $20 for a physical copy. And I wouldn't be surprised if the only reason I could do this at all is the anti-windowing agreement. In fact, another recent book by the same author, The Willful Princess and the Piebald Prince, is not even available in eBook format (I don't know who published that book but they must not be subject to the anti-windowing agreement). I'd love to read it, but I'm not paying $28.05 for Hardcover.
It's also worth pointing out that the publishers didn't change their prices. Amazon artificially lowered what the consumer was paying, but the publisher still got their $12.99 (or whatever they charged). It would not surprise me in the least if Amazon's long-term plan was to stop discounting books once they cemented their hold over the market.
> I don't tend to buy bestsellers, so maybe I'm not hurt as much by the higher prices for that category, but I do still see $12.99 prices on new books.
Interesting reason for the $12.99 books: the ones I see are from Random House and are being sold under the agency model still. You can tell because it says "price set by publisher". Random House was not part of the price fixing suit.
And yeah, generally speaking, this whole case was about bestsellers. No one cares about downlist stuff, they care about hurting the value of their NY Times bestselling hardcovers.
I'm honestly scared of Apple after learning of the abusive(?) manner by which they got Random House to adopt agency pricing for ebooks:
Random House, the largest publisher, resisted Apple's call to adopt the agency model in 2010. But the company capitulated a year later in order to get its books on the iPad.
"Apple decided to pressure Random House to join the iBookstore," Cote wrote. "As Cue wrote to Apple CEO Tim Cook, 'When we get Random House, it will be over for everyone.' Apple had its opportunity in the Fall of 2010, when Random House submitted some e-book apps to Apple’s App Store. Cue advised Random House that Apple was only interested in doing 'an overall deal' with Random House. By December, they had begun negotiations, and Random House executed an agency agreement with Apple in mid-January 2011. In an e-mail to [Steve] Jobs, Cue attributed Random House’s capitulation in part to 'the fact that I prevented an app from Random House from going live in the app store this week.'"
If you read the Steve Jobs mails, it's clear that Apple was trying to create a sustainable marketplace, while Amazon was, as you oddly imply at the end of your thought, controlling the marketplace by artificially setting prices lower than the cost. Of COURSE they would stop doing this after some time. This practice kept small players out of the game and while Apple could afford to play along, they knew it was a foolish game.
It's a dangerous precedent that a new player bringing new customers to a market, refusing to engage in monopolistic tactics, and refusing to sell above a certain price, is price fixing.
Price fixing hurts consumers by many sellers agreeing to artificially raise the price of something such as to avoid the pain of competing on price.
Apple convinced publishers to accept a lower price - nominally - and to sell at a reasonable market price, or they couldn't be stocked in their store. A brick and mortar retailer could never be faulted for refusing to sell products at a loss!!!
I'm not saying Apple is perfect, but in this case they behaved more responsibly and in the interests of content creators and consumers, in the long run, than all other parties involved.
The true price fixing was Amazon and the publishers, pre-iBooks, agreeing to sell some items as high as 24.99 for eBooks - something Steve Jobs refused to do. Average price higher, highest price lower.
I still buy books on Amazon instead of iBooks because my Kindle is handy as a dedicated reader and hey, I want to pay less out of self interest. I also got my Kindle for free.
But it must be clear this is surely fucking the authors.
Also, to those who think eBooks should be far cheaper than print, what do you think it costs to print a thousand page novel? You think the hardcover costs $10-15 more, or that it's a premium sell?
Apple wasn't trying to create any old sustainable marketplace. They were trying to create a marketplace where they didn't have to compete on price so they could win on a more favorable dimension (like platform integration). Therein lies the problem.
Can you give some examples of hardcovers being cheaper than kindle or ibooks versions? I can see isolated examples but when I look for hardcovers on the nytimes bestseller list on Amazon, kindle versions are uniformly cheaper than hardcovers.
I very seldom encounter books that are cheaper to buy (new) physically than electronically. I agree that the electronic versions should be even cheaper, but that's a separate story. The first order reason that ebook prices rose in response to Apple's entry into the market is simple -- competition. In this case, Amazon had a monopsony and dictated prices to publishers. Apple broke or offered the whiff of a break in the monopsony and the rest is history. What does this competition look like up close? A bunch of contract negotiations.
Did Apple "orchestrate a conspiracy" to raise ebook prices? That's another question altogether. The video of Jobs saying prices won't be higher simply indicates he knew about the "most favored nation" contracts. I couldn't be bothered reading through the entire judgment, but certainly followed coverage pretty closely and I just don't see a case.
Could someone explain how they came to this judgement? It doesn't make any sense to me. For example:
>>"The U.S. Department of Justice said this conspiracy was designed to undercut online retailer Amazon.com Inc's (AMZN.O) dominance of the fast-growing e-books market."
How can they undercut Amazon's dominance by charging more?? It might make them look better to publishers but not consumers. From my perspective Apple looked at the market (Amazon), realised their pricing wasn't sustainable, and agreed to a more sustainable model with publishers. I could understand the problem if Apple tried to raise prices and had a monopoly on ebooks but the fact consumers could just download the Kindle app to an iOS device and get the lower prices (and Apple was new to the market) rules out that argument.
A chief stumbling block to raising e-book prices was the Publishers’ fear that Amazon would retaliate against any Publisher who pressured it to raise prices. Each of them could also expect to lose substantial sales if they unilaterally raised the prices of their own e-books and none of their competitors followed suit. This is where Apple’s participation in the conspiracy proved essential. It assured each Publisher Defendant that it would only move forward if a critical mass of the major publishing houses agreed to its agency terms. It promised each Publisher Defendant that it was getting identical terms in its Agreement in every material way.
...
Without the collective action that Apple nurtured, it is unlikely any individual Publisher would have succeeded in unilaterally imposing an agency relationship on Amazon.
It sounds like the stumbling block was a horizontal monopoly in retail held (or nearly held)[1] by Amazon.
You can argue whether or not Amazon is participating in predatory pricing now, but should Amazon end up raising prices (not entirely obvious that will happen)[2][3], then this case could end up being pointed to in the future as a lost opportunity to let the market correct itself.
You can't break the law just because you think someone else is breaking the law. The judge doesn't have the option of deciding that Apple was not guilty because Amazon deserved it.
The fact that this could very well prove to be a Pyrrhic victory I think is actually extremely relevant to this case, since the fundamental guiding principle here is "is this in consumer's best interest."
Paying more for eBooks because Apple didn't want to compete on price is not in the consumer's best interest.
The fundamental import of Apple's actions was that it significantly increased prices for eBooks without fundmentally altering the value proposition (i.e., eBooks before Apple's price-fixing are no different than eBooks post-price-fixing). The difference in price is the "harm" that consumers have suffered--it represents the increased prices they have to pay over the prices they would have paid had Apple not colluded to artificially increase prices in a way the market did not support.
>eBooks before Apple's price-fixing are no different than eBooks post-price-fixing
That's not true. Apple eliminated windowing. I.e. pre-Apple some ebooks were being delayed for some time after their print releases. Apple's scheme guaranteed they'd be released at the same time. That's a major difference and a major value-add.
That's not entirely accurate; the publishers already knew windowing was stupid and a short term measure. Not every publisher was using windowing. You can read about it on page 25 of the Judje's report.
Not really. Apple was going in the other direction with music. They would make a list of demands to each music publisher like requiring them to offer music on a per-track basis with $0.99 being the standard price. The music publishers were balking at offering their music at such low prices while also giving Apple a cut.
In this ebook deal, Apple was negotiating the prices up with multiple parties so that they could get their cut and the publishers would still make the same or more than they did from Amazon.
The difference is, if you are in negotiations with multiple publishers (read: conspiring) to raise prices, that's bad for consumers. As an analogy, imagine if Exxon, Shell, BP, Total, et al. somehow colluded to sell gas for 50 cents more per gallon. If all the major oil companies did it, none of them would lose very much business.
The only part I'm missing is how this is as bad as my analogy, because consumers could still choose to buy from Amazon. There are even Kindle apps for almost every device including iOS devices.
> From my perspective Apple looked at the market (Amazon), realised their pricing wasn't sustainable, and agreed to a more sustainable model with publishers.
Working something out with all the big publishers is pretty much the definition of an illegal cartel.
"People of the same trade seldom meet together, even for merriment and diversion, but the conversation ends in a conspiracy against the public, or in some contrivance to raise prices."
This is classic, slam dunk antitrust, no need to spin elaborate economic theories, just prove to the court's satisfaction that consumers were harmed by an overt conspiracy to raise prices.
If Amazon was selling $12 wholesale ebooks at a loss of $2 a piece for a retail price of $9.99, it seems Apple would also have to sell them at a loss, to prevent book prices from increasing. Even if Apple had sold them at cost, with 0% margin, prices would have inescapably gone up, anyway. It seems that this standard for antitrust is reliant upon predominant pricing already being sustainable.
Well, no. The point was that Amazon was willing to make the investment (the loss per sale) to increase the market for eBooks (and its share of said market), but Apple was not. Apple never even tried to compete at the retail model, and instead attempted from the beginning to impose the agency model.
Important here is that the agency model would only have gone into effect if the publishers jointly succeeded in changing their Amazon contracts. They were able to do so because their joint Apple negotiations geave them the leverage to jointly renegotiate their Amazon contracts.
Joint negotiations aren't always an antitrust issue. But when the result is to increase prices or otherwise burden the market, it's usually (as here) indicative of antitrust activity.
Wow. Did Apple dictate that publishers change their Amazon contracts? If so, then I completely agree, Apple is clearly in the wrong. However, this is the first I've heard this. Can you lead me to supporting evidence?
The agreements also included a price parity provision, or Most-Favored-Nation clause (“MFN”), which not only protected Apple by guaranteeing it could match the lowest retail price listed on any competitor’s e-bookstore, but also imposed a severe financial penalty upon the Publisher Defendants if they did not force Amazon and other retailers similarly to change their business models and cede control over e-book pricing to the Publishers. As Apple made clear to the Publishers, “There is no one outside of us that can do this for you. If we miss this opportunity, it will likely never come again.”
Welp, I just spent an embarrassingly long while reading the 160 pages of the findings. I'm now of the opinion that Apple is probably guilty of antitrust violation. Judge Cote admits (on page 157) there's nothing inherently wrong with MFN clauses, simultaneous negotiation, price caps, or any of Apple's contracts. It's even plausible Apple could have escaped culpability, were it not for evidence that Eddie Cue and Steve Jobs knew that the publishers already wanted to raise prices, and willfully provided them the opportunity. An MFN clause was meant to protect Apple, but, because of Amazon's artificially low prices, it also had the effect of tending to indirectly trigger an industry wide switch to the agency model with increased prices, and Apple expected this. It was this expectation that apparently elevated the act to conspiracy.
Despite that, I must admit, I feel ambivalent about the ruling. Amazon's below-cost retail pricing appeared to have otherwise prevented Apple from even attempting to enter the market, at all, unless they came up with some way to profit. I guess they picked the wrong way.
So what if Apple didn't have wads of cash laying around, and felt that it could not afford to take a loss to grow the market. Would they be unable to enter the market. This sounds like if Walmart was busy undercutting all the small business in a town but one decided to keep prices a profitable level, and then Walmart sued that small business for price fixing.
I don't think that analogy is at all close. Try this: Target, which wants to enter this market, conspiring with the companies that supply them and Walmart to raise the latter's wholesale prices, and various relevant governments suing all of the former for their conspiracy to harm consumers (in this case, from glancing at the beginning of the decision it was the Feds and some state governments). The suppliers all plead guilty and settle, but for some reason Target thinks they can win in the courtroom.
(The "some reason" would appear to be a hope they can get the Supreme Court to change the law.)
Consumers couldn't get a lower price from Amazon (or others) because the colluding parties had an agreement to set the prices for all retailers. That's the crux of the case.
MSRP is an agreement between Rayban and each of their retailers. If someone wants to sell Raybans, they have to agree to sell at MSRP. But as a retailer, there are plenty of other sunglass makers, who might not have the same requirements. So it's not like you have to sell sunglasses at $100 or anything.
Now imagine that one day, all the sunglass makers come to you at once, and say, you have to sell at MSRP, and it's $100. Since you are in the sunglass selling business, this sucks but what choice do you have? That's why this is also generally illegal, for competitors to collude in setting prices.
Well, then it's not a "real" MSRP if the manufacturer and the retailer are the same. There aren't two parties, so it's just the price and they have complete control over their own pricing.
my gf is an optometrist at Lenscrafters (owned by Luxottica), they have times during the year when they can get any galsses/sunglasses at 50% off for first pair, and 60% off for next 10. the markup, especially on their own brands is through the roof.
I think, also, that such agreements can only apply to the retailers advertised pricing- which is why online stores often say something like "Add to Cart for Price" or "Price too low to advertise", because they have an agreement with the manufacturer as to a Min Advertised Price. Retailers can thus sell Raybans for less, they just can't advertise it. At least, that is my understanding of the situation.
How can Ray Ban charge unfairly for their prices when you have literally 100's of other non Ray Ban options in any sunglasses store? If brand is that important to you that you feel like you have to buy them and you then overpaid for them I would say that's some pretty sweet branding at your expense.
I have no idea if that's true or not but assuming it is then it's not really a Ray Ban discussion. It's a "state of health of the sunglasses market" discussion.
Apple (Jobs) were bullying publishers into contracts and abandon Amazon.
The best part is how Apple decided that the Publisher sets the price, and Apple gets 30% regardless of profit margin. Apple also stated that they were able to price match anyone who undersold them, and they STILL get 30%, pushing losses onto the Publisher. At least with Amazon, they ate the loss due to their price fixing.
The bullying by Apple of publishers was generally about fixing the price caps lower than the publishers wanted ($12.99 for NY Times bestsellers rather than $14.99.)
Apple didn't have to bully the publishers in general, because this deal was a big win for them.
Jobs' scare tactic was that Amazon would eventually take a larger commission.
Jobs even admitted that Amazon would profit Publishers more in the short term, essentially admitting that Apple was going to make Publishers eat losses by price matching Amazon. Then, once Amazon was forced to increase prices in order to make a profit because they've been squeezed out of their Monopoly position, then the profit starts rolling in.
Very illegal, and also leaves Apple unscathed because they don't take any losses. You can understand how bullying would be required in order to get some reluctant Publishers to conform.
Wow you have a warped view of how business works today. These aren't cute, innocent little children.
If Apple comes to them and tells them they are the saving grace of the publishing industry it isn't a scare tactic. It's just meaningless bluster. Microsoft, Google, Amazon et al would be saying exactly the same thing. It doesn't mean anyone has to listen.
Ironically, the three companies you mentioned have all failed trying to succeed independently over and over again, rather than standing on the shoulders of others.
I don't think you understand the concept of price fixing - The intent is that Apple is making the decision for the Publisher's by proposing an offer that isn't in the sense of "pros vs cons", but rather "right vs wrong". Of course most Publishers agreed because it was for the greater good of their company, and the only one hung up with the bad rep is their ring master.
"You can either join us, or we'll collectively squash you."
> Apple (Jobs) were bullying publishers into contracts and abandon Amazon.
Not really. He was certainly encouraging them, but both the charges and the findings here are that the publishers themselves were actively colluding and looking for pretty much exactly what Apple offered before Apple offered it. The conspiracy didn't start with Apple, it was just that Apple's active, enthusiastic involvement was necessary for it to move forward.
> How can they undercut Amazon's dominance by charging more?? It might make them look better to publishers but not consumers.
Right. Which is why it took an illegal horizontal price-fixing scheme with notional competitors (the publishers) conspiring to raise prices to do that. Apple was a member of the conspiracy who sought to profit from it, but really the principal wrongdoing here was the conspiracy among the publishers.
Apple looks like they were singled out because they were the only one that went to trial, but that's just because they were the only participant in the conspiracy that didn't settle with the Justice Department prior to trial; the involved publishers were all charged along with Apple.
> I could understand the problem if Apple tried to raise prices and had a monopoly on ebooks
How about if many of the biggest publishers, together controlling significant market power in the ebook market, got together and conspired to raise prices, with Apple as willing and necessary co-conspirator (since they needed a retailer with a platform with instant mass reach so that they could have a credible threat of jointly abandoning Amazon if Amazon didn't match the terms they got from the new retailer.)
Because that's what was charged, and that was what the judge found the evidence supported. Its not about what Apple did on their own.
Under the law, you cannot discuss prices with ANYONE you are competing against. Once you do this, regardless of your reasoning, you are in violation of anti trust laws.
I'm shocked, SHOCKED, that a company that was colluding with competitors to suppress their workers' wages[1] would also collude with publishers to rig the ebook market.
At least in California, I was under the impression that there was really no question--they're totally unenforceable unless you plan to pay your employee full wages for the entire duration that they're not allowed to work for the competition.
But this wasn't about no-compete clauses, this was about the companies having an off-the-books agreement not to give unsolicited job offers to the competitors' employees.
Apple is absolutely wrong with Most Favored clause. Even if they did not conspire with publishers directly, publishers effectively had the same opportunity and re-did their contracts with Amazon.
The most concerning thing is that current law is granting amazon an unequivocal monopoly status. Lossleader strategy is employed to the extreme by amazon. Laws need to address that. At some point Amazon will raise prices. Current situation is essentially a loss for consumers and publishing industry.
There are plenty of other companies that can check Amazon. Consider Google. They make they can easily out-discount Amazon, they're also cross-platform and... and now that the Google Books scanning cases are turning in their favor they may soon have an huge new asset Amazon (and others) will have some trouble matching or beating.
I'm sure other cash rich companies can mimic amazon strategy. Apple,google, microsoft, samsung certainly can. That is not good for industry though. Startups will have unbelievably tough time competing with Amazon. I cant remember any startup in recent times that ventured into ebook sales. Innvoation from other startups in ebooks creation, consumption is hard to come by, when amazon is playing a lossleader strategy forever.
First, no one has proven that Amazon was ever playing a true loss-leader strategy in ebooks, as opposed to losing money on bestsellers and making it up on the backlist.
Second, the existing DoJ settlement specifically allows publishers to police this. One of the terms the settling publishers are allowed to insist on is "no losing money on my catalog overall". That's more than enough to prevent truly anti-competitive discounting.
Third, yes, startups will have a hard time. But they had a hard time with the agency model too - which restricted their maneuvering room in significant ways. For instance, with a publisher-specified price you weren't just forbidden from charging "too little", you couldn't charge "too much" either. That means models where startups charged a premium for ebooks in order to support other services their target readers wanted were no longer possible.
What I find highly annoying about this trial is Judge Cote had already formed her opinion prior to trial... in a statement to reporters she essentially said she thought Apple was guilty before hearing any evidence.
This is, essentially, a sham trial in which the USG was always going to win.
A trial by judge is very different than a trial by jury. In a jury trial, the only evidence that exists is the evidence that is presented in open court. Making a decision before the courtroom phase of the trial would be irresponsible.
But in a non-jury trial, the judge studies all the evidence independently, and the courtroom phase is just supplemental. You don't need someone to testify to the facts in their report if you can just read the report, right? The courtroom phase is also quite expensive, which is why a judge would indicate that based on the evidence she had seen, it probably wasn't worth doing it. To save everyone the effort.
It wasn't a statement to reporters, it was a statement in a preliminary hearing. It was basically the judge telling the parties: "look, this is where I think it's going to go" so the parties could use that information in settlement talks and possibly avoid the expense of a trial.
"Asked during a preliminary hearing Thursday to share her thoughts about the Department of Justice's case against Apple (AAPL) in the long-awaited e-book antitrust trial, U.S. District Judge Denise Cote said this, according to Reuters..."
In bench trials, where the judge is making the decision anyway, the judge does not sit as a tabula rasa absorbing the evidence until the very end of the trial. Like anybody would do, they read the materials in the pleadings and some of the evidence and form an initial opinion. It is not uncommon for them to share this opinion with the parties as the case progresses so that the parties can settle before things go any further.
in a statement to reporters she essentially said she thought Apple was guilty before hearing any evidence.
The judge had received a preponderance of evidence both in pre-trial and related rulings before making that statement. Pre-trial opinions are specifically designed to inform the two parties of the judge's current temperament.
> in a statement to reporters she essentially said she thought Apple was guilty before hearing any evidence
Are you talking about this[1]? The statement wasn't to reporters. It was a tentative in-court statement in response to an inquiry by one of the lawyers. Hardly the basis for a serious accusation of misconduct against a federal judge.
This happens all the time in court cases. When I sued a home builder for fraud, after reading the pleas and within 20 minutes of being in court the judge said to the Defendant, "Look. I'm finding 300bps to be a credible witness. I have another case I have to go to now. There's a room over there, I suggest you settle with him." They ended up settling with me.
In Apple's case, every conspirator involved except Apple settled with the government. Apple are the only ones that chose to go to court. The "tentative view" that Judge Cote formed by reading the pleadings was a way to tell the Defendant: you sure seem guilty based on the evidence you and the government provided. If you want to save yourself some money, I suggest settling.
Sometimes cases are so clear cut that it is just not right for it to proceed to a full trial. That's where things like tentative views and Summary Judgments come in.
> An MFN provision will frequently appear in contracts between wholesalers and retailers and it ensures that the wholesaler will provide the retailer with the best wholesale price. But Apple adopted it in the agency model to require that the publishers adjust e-book prices in the iBookstore to match the lowest price offered by any other retailer — regardless of whether the publisher controlled the pricing in that retailer.
That last sentence means that publishers basically had to force Amazon onto the agency model, or else lose money selling on Apple's store. And their intention was clearly to force Amazon onto the agency model causing Amazon's consumer prices to increase.
Yet another miscarriage of justice. The entire line of logic seems to have been that because Apple's actions led to increased prices it must be a conspiracy.
Amazon was, and is, the monopolist using classic monopolist tactics (lock-in, undercutting prices, etc.) to retain a monopoly. Of course once their monopoly was ensured they'd pivot to make a true profit if pesky Apple hadn't interfered: http://www.nytimes.com/2013/07/05/business/as-competition-wa...
I can't help but feel that this was driven by politics/optics (to your average person, of course lower prices is better).
Put Apple to the side for the moment and just look at the publishers. Did they conspire? I think it is obvious that they did.
At the time of the agency switch it was obvious something fishy was going on with the whole Amazon v MacMillan "buy button" battle. The DoJ's investigation uncovered plenty of evidence about what that was: a conspiracy among publishers to force Amazon to the agency model. And all the publishers settled before getting to trial, which certainly supports the strength of the DoJ's evidence and case.
Now consider a publisher conspiracy. The DoJ's argument against Apple is that they were the enforcer that made the publisher conspiracy possible. You may agree or disagree with the judge about whether or not the evidence supports that argument, but it is a serious, carefully-thought-out line of logic either way.
> Yet another miscarriage of justice. The entire line of logic seems to have been that because Apple's actions led to increased prices it must be a conspiracy.
No, the line of logic was that because there was specific evidence of them conspiring with the Publishers, it was (to the standard required in civil cases, which is far from "must be") apparent that there was a conspiracy.
> Amazon was, and is, the monopolist using classic monopolist tactics
Whether or not Amazon is a monopolist (or even illegaly leveraging a monopoly) might be relevant in an anti-trust trial of Amazon, but it really doesn't have any relevance to an alleged price-fixing conspiracy involving several of Amazon's suppliers and one of their competitors.
> Amazon was, and is, the monopolist using classic monopolist tactics (lock-in, undercutting prices, etc.) to retain a monopoly.
1. Being a monopoly isn't illegal. You don't say this, but using the word monopolist makes it seem like you think that such a thing alone is criminal enough.
2. Lock-In? What part is the lock in? The fact that I can buy a Kindle and never purchase anything from Amazon? The fact that the DRM used for ebooks from Amazon are optional and decided by the publisher?
Even if Amazon never got into selling ebooks, Apple would have wanted the same terms: a 30% cut of the sale price, and sane pricing for ebooks. It matches their terms for music[1] and they take the same 30% cut for apps.
I wonder what would have happened if Apple never mentioned or alluded to Amazon in licensing discussions. It seems like mentions of Amazon are included in all of the damning evidence.
[1] I don't know about TV shows and movies, but I imagine it is the same for them as well.
I think as long as they were acting as the conduit for pricing information and plans between competitors they were in a risky position (or were at least putting the competitors in a risky position). The talk about their ability to raise/increase prices looked fairly incriminating to my eyes.
What I wonder is if they could have achieved the same result with less explicit talk about what the other publishers were doing and without discussing it as an opportunity to raise prices but to set whatever prices they wanted.
"At trial, the Justice Department said it wanted to block Apple from using the agency business model for two years, and to stop the company from entering contracts that insure it will offer the lowest retail prices."
Does anyone know if this just applies to ebooks? Or might this ruling impact their ability to apply agency model and "most favored nation" contracts across all their content marketplaces?
From the ruling, it appears Apple is in trouble for knowingly and actively providing a venue for conspiring publishers to conspire, which is illegal. Interestingly, the judge points out there's no evidence that Apple wanted to raise prices at all. But there wasn't anything inherently wrong with the agency model or MFN clauses, except in relation to the publishers intent to increase prices.
That's one of the issues that's still up in the air. If this verdict holds up, Apple is going to have some sort of antitrust compliance program, but I don't think anyone has a handle on what that might look like yet.
Random House, the largest publisher, resisted Apple's call to adopt the agency model in 2010. But the company capitulated a year later in order to get its books on the iPad.
"Apple decided to pressure Random House to join the iBookstore," Cote wrote. "As Cue wrote to Apple CEO Tim Cook, 'When we get Random House, it will be over for everyone.' Apple had its opportunity in the Fall of 2010, when Random House submitted some e-book apps to Apple’s App Store. Cue advised Random House that Apple was only interested in doing 'an overall deal' with Random House. By December, they had begun negotiations, and Random House executed an agency agreement with Apple in mid-January 2011. In an e-mail to [Steve] Jobs, Cue attributed Random House’s capitulation in part to 'the fact that I prevented an app from Random House from going live in the app store this week.'"
For a second I thought I was reading about Bill's Microsoft not Steve's Apple.
The biggest tactical difference between Bill's Microsoft and Steve's Apple was always in the level of market power each could exert at any given point in time.
I don't like price rigging but reading the material around the case I don't think it was unfair of Apple to try and charge more with its partners through their own venue.
I'm gonna play armchair legal analyst here and say this is a smack down by the government because Apple didn't want to settle and pay the fine. Because they thought they were in the right. I tend to agree.
Let me clarify since people are already down voting because they disagree: What if Walmart told Hasbro that it could sell its GI Joe action figures for $5 more than K-Mart could? Then they went to negotiate an agreement to purchase as many as possible. Would it not be in Hasbro's best interest to sell as many as possible through Walmart? When K-Mart comes to negotiate it will have to make a justification for why it can't charge more, that's how markets work. K-Mart will either convince Hasbro to still sell the items for cheaper or it will have to renegotiate.
Now throw in the fact that these were not real-life items. There is no limitation on how many items each retailer can acquire. The number is infinite.
Does it really seem so terrible now? Try not to appeal to emotion when making the decision.
The most favored nation clauses and the subsequent agency deals that were pushed on competing ebook sellers by the publishers make it clear it wasn't just Apple and partners working in their own venue to raise prices. It was a tactic to use the iPad's launch as a moment of uncertainty that would allow the publishers to raise prices across the entire industry.
Edit: To address your added analogy, I agree. Your proposed example does not seem terrible. It is also not at all close to what happened with Apple and the book publishers. It wasn't one company increasing prices successfully at one store and then shopping the new deal to other stores. It was nearly the entire industry swiftly pushing new deals designed to increase prices and break Amazon's position of power in the industry. The increased prices weren't due to the success of the prices in the iBookstore, but the legally binding clauses and assurances from Apple and the other publishers that they would present a united front. If Hasbro, Mattel, and every other major toy manufacturer raised prices to K-Mart at the same time due to suggestions from Walmart, I would object on intellectual and emotional levels. And I am sure the DoJ would too.
The modify your hypothetical so it fits the Apple facts:
Hasbro then threatens to withdraw all GI Joes from Kmart. KMart can no longer sell any GI Joes--even if acquired from third party resellers. Walmart knows this, and indeed suggested this negotiation strategy to Hasbro.
Of course, this has happened before. This is why the MSRP is now only a "suggested" price and why a retailer is free to sell at whatever price it chooses, however such price affects its own margins.
I don't like price rigging either, but then again, I also don't like sushi, yet I don't approve of the government using violence to restrict sushi restaurants. I just don't buy sushi.
This angle of "why prosecute Apple when Amazon has the monopoly" is just lazy. Monopolies, which Amazon does not even have and is unlikely to gain, aren't illegal. Conspiring to raise prices is illegal. Amazon just has the potential to abuse consumers (maybe, possibly, in the future) due to their entirely legal success. Apple already did abuse consumers.
To be fair, any book a publisher wants sold DRM-free, Amazon sells DRM-free. Many publishers insist on DRM as a condition of sale. Your beef is with them, not Amazon.
And by the way, DRM is at the heart of this ebook conspiracy. One of the publishers' fears was that too many readers would be trapped in Amazon's ecosystem by DRM, giving Amazon too much leverage. The correct response to that problem is to drop the pointless, self-inflicted DRM (as some have started doing in response to the antitrust cases). Instead, the publishers chose to work with Apple to try and limit Amazon's power...
"Nous avons rencontré [Amazon] recemment pour comprendre cet ajout de DRM sur nos titres et en quoi consitait cette DRM un peu spéciale. [...Elle] embarque également une couche software qui active les fonctionnalités de l’ecosystème Amazon. La liste est variée mais passe du “Text to Speech” au “Facebook Connect” et toutes les prochaines évolutions d’Amazon. Et croyez moi, elle vont être nombreuses dans les mois à venir."
Quick translation: we (the publisher bragelonne) have met with amazon to understand why they added DRM to our books without our consent and what purpose this DRM served. [...] It contains a software part that enables various amazon features such as Text-to-speech or facebook connect as well as the many future evolutions.
Well, if the government will predictably use legal methods to prevent and even break up monopolies, that's indistinguishable from "monopolies being illegal" even if there is no explicit law that says that.
> Well, if the government will predictably use legal methods to prevent and even break up monopolies, that's indistinguishable from "monopolies being illegal" even if there is no explicit law that says that.
It is illegal to take certain acts that would form a monopoly (which is why the government blocks or puts terms on, e.g., some mergers) and it is illegal to use monopolies in certain ways to advance market power in other markets (one of the remedies for which may be breaking up the monopoly which was illegal leveraged.)
But simply gaining and maintaining a monopoly is not illegal, so long as you don't gain it by illegal methods or do illegal things with it.
A naturally earned monopoly is perfectly acceptable, because it is the result of market forces.
The DOJ only opposes mergers and acquisitions which would substantially alter market conditions to increase prices faced by consumers in a way that market forces would not normally support. For example--Verizon and AT&T could never merge, because their combined market power would effectively let them set whatever price they wanted for nationwide cell+data plans. On the other hand--Sprint and TMobile could merge, because without the merger both companies are in danger of failing but as a result of a merger could theoretically compete with Verizon and AT&T.
I'm not seeing the distinction between "market forces" and whatever other forces you're talking about. If Verizon and AT&T merged, how would that not be the result of market forces? Of course, that's a bad example, because there's already not a whole lot of market forces in telecoms since the government controls access to the airwaves.
Amazon found a way to compete before anyone else did, so that makes it excusable for illegally orchestrated price fixing to attack their legal approach?
Sorry, but this isn't the "Think Different" approach the customers deserve.
Interestingly, the decision PDF says that originally Amazon's $9.99 was not below wholesale cost. The publishers raised the wholesale cost above $9.99 thinking it would force Amazon to raise their prices, but Amazon decided they would rather take a loss:
"With a digital book discount, Amazon’s $9.99 price point roughly matched the wholesale price of many of its e-books. " ... "One of the strategies that they [publishers] employed was the elimination of the existing discount on wholesale prices of e-books. This meant that the wholesale price for e-books would equal the wholesale price for physical books, and as a result, the wholesale price that Amazon paid for an e-book would be set at several dollars above Amazon’s $9.99 price point. This tactic, however, failed to convince Amazon to change its pricing policies and it continued to sell many NYT Bestsellers as loss leaders at $9.99.9"
Lose money on one book, earn it on three others because you have customers that are bought into your ecosystem. Also, prices subsidized by Kindle sales.
The point is that Publishers weren't losing.
But, Amazon is not notorious for making profits, and I can understand how them dominating a market may be a bad thing. Doesn't justify Apple's tactic though.
Amazon's customer service (especially with respect to books) second-to-none, by a large margin. Consumers are doing far better than zero.
And I wouldn't hold my breath waiting for that ebook monopoly. Even if Microsoft/B&N and Apple both decide to bow out (not at all likely they both care too much about content for mobile devices to do that), Amazon still would have Google and Kobo/buy.com/Rakuten (aka "the Amazon of Japan") to contend with both of which are more than capable of fighting a price war.
Amazon has built its empire on undercutting the competition in price. If there was a real competition in prices, Amazon's e-book offerings would stomp the paper publishers and Apple alike.
No matter what, price-fixing or not, Amazon can do just fine. The only way they don't completely win is if they're forced to keep prices on e-books high and at identical level to dead tree ware and the glitzier Apple brand. And that's just what happened, thanks to collusion between Apple and the publishers.
Amazon sells ebooks for the sake of selling ebooks - to make a profit.
Apple sells music as a tie-in for its hardware offerings - it has no reason to "squeeze out" competitors in this space.
Don't disagree with your point on Apple but worth saying if Amazon's goal is to make a profit it's doing remarkably badly.
On a turnover of around $60bn it makes a profit of about $90m. Given that it's nearly 20 years old and beyond the point where it should be struggling to break even either it's doing a very bad job of being profitable or being profitable isn't the companies primary goal right now.
To me it looks like they're managing profit to zero to continue the land grab.
Now that may be legal and fair and in the short term it's good for consumers, but in the longer term I'm not sure it's good for the market (and therefore for consumers) given that most of it's competitors have shareholders who probably do expect profits.
Amazons goal has to be profit eventually, or there is no point being in business.
That they make razor thin margins now, is just evidence they are still undercutting the smaller competition until they're the only player and can set prices to what they want.
Sure there are a number of competitors, but iTunes still dominates when it comes to dollar share of music purchases. Regardless of their intention, Apple has certainly "squeezed out" most of the competition, and remains the dominant platform for purchasing music.
Similarly, there are still options outside of Amazon when it comes to eBooks. There's Nook, Kobo, iBooks, Google Books, Sony, and others. So Amazon's desire to make profit hasn't completely wiped out the market.
So this argument does not really hold in either direction...
>Amazon sells ebooks for the sake of selling ebooks - to make a profit.
No, Amazon sells ebooks for the sake of selling Kindles first and foremost (or did, before the launch of the iPad). Before the switch to the agency model, Amazon sold many ebooks at a loss. They sold ebooks at $9.99, less than what they paid publishers per copy for popular books.
Hold on. Apple has huge incentives to push content competitors off of iOS. It dramatically increases the switching costs to other platforms (see: video in particular).
And while pushing competitors off of iOS technically might not be squeezing them out of the space, it is still awfully damaging - especially when backed up by something like agency ebook pricing.
I would think a lot of those online music stores get sales by selling at a lower price than Apple. If Apple had the same kind of MFN clause that they had for books, that wouldn't have been possible. Apple probably thinks it was a bad idea to leave that hole open for the music stores, which is why they closed it for books.
It's generally acceptable to describe Microsoft as a "convicted monopolist" (despite there not having been a criminal case). One wonders if people will also accept the labelling of Apple in such a manner when the dust finally settles.
What is this kind of reply, they've been convicted of monopoly behavior. Stop rooting for companies like they are a sports team.
Here, Apple: convicted monopolist. Done. That was easy. I own a mac mini, macbook pro, ipad, iphone5, 4s, etc.. and I'm a member of the developer program to demonstrate my bias and proclivity to the platform. Doesn't mean I'm pathologically tied to it (pathos in the debate sense).
Well, since this case, while it was anti-trust, did not involve Apple having or illegally leveraging a monopoly (that is one kind of anti-trust violation, but not the kind here, which was Apple being a member of an illegal price-fixing conspiracy), Apple hasn't been found to be a monopolist at all, so that labelling would be inappropriate in a way which it was not for Microsoft.
The idea that Steve Jobs ever spent a single day at Apple where he didn't play extremely hard to win is kind of funny. He just overstepped the line here.
Some people are arguing about amazon, but again, that is irrelevant legally.
As I wrote 43 days ago here:
"A finding about Amazon will be completely irrelevant to Apple's conduct in this case. The question is whether Apple committed horizontal price fixing. Amazon's possibly illegal conduct is going to be completely irrelevant in that, as horizontal price fixing is still per-se illegal. They could prove Amazon hurt the market a lot. They could prove whatever they like. As long as the DOJ proves they committed horizontal price fixing, it's game over. Now, the supreme court may, in the end, decide horizontal price fixing should be analyzed under the rule of reason instead of being a per-se violation, but that's completely irrelevant to the current state of the law, and in fact, Apple's behavior. SCOTUS is not going to change the doctrine because they think Apple did the right thing here, they will change doctrine because they think the doctrine was wrong in general. However, that doctrine is the current state of the law, and what this case, and the appeal, will be analyzed under."
This is exactly what happened. From the decision:
I think, sadly, there is a good chance the supreme court will change horizontal price fixing to be under the rule of reason, and then we will finally all be screwed (The rule of reason analysis is why you see so much vertical price fixing these days, since it is no longer a per-se violation)Note that the judge, being prescient, also wrote part of the decision to explain why she believes Apple would also be guilty under the rule of reason (IE if it was not a per-se violation). This portion of the decision takes into account Amazon's conduct.
This was done so that if the supreme court declares horizontal price fixing to be subject to the rule of reason, they won't need a new trial.