Apple warns: If it loses the ebook case, businesses will weep

Apple warns: If it loses the ebook case, businesses will weep

Summary: Apple claims there will be grave consequences if the tech giant doesn't have its way.

Credit: CNET

Apple, the alleged orchestrator of a price cartel on ebooks, has warned that losing the court case will have serious consequences for business competition and innovation.

As reported by Reuters, the tech giant said that an adverse ruling will have a "chilling effect" on businesses trying to crack open new markets, sending "shudders through the business community."

The company's lawyer, Orin Snyder, said on the last day of the trial that the "ordinary" negotiations firms undertake to enter new markets will become a thing of the past, and will set a "dangerous precedent" for the future.

The U.S. Justice Department accused the iPad and iPhone maker of working with five major international publishers to fix the prices of ebooks -- consequentially raising them for consumers and placing pressure on rival firms including Amazon over a year ago.

Macmillan, Penguin, Lagardere's Hachette Livre, News Corp.-owned HarperCollins, and CBS-owned Simon & Schuster (Note: ZDNet is also owned by CBS) are also being sued for their involvement with Apple’s claimed e-book cartel.

The department claims that Apple forced publishers to move to a model which not only harmed consumers, but demonstrates anti-competitive behavior on the tech giant's part. Known as an "agency" model, iBooks allows publishers to set the price for their work, whereas Amazon at the time set prices for ebook downloads at $9.99.

Some publishers believed the price for new and bestselling books was too low. At the time, Amazon claimed approximately 90 percent of the ebook market. When Apple's iBooks platform gave publishers the option of setting prices up to $12.99 and $14.99 in exchange for 30 percent commission, publishers were able to rely less on Amazon, which forced the online retailer to alter its business model in response.

As a result, industry prices rose across the board by nearly 10 percent. Justice Department lawyer Mark Ryan argues that only a "united industry front" could prompt this change.

During the trial's closing arguments, U.S. District Judge Denise Cote asked Apple if it "understood publishers were willing to work together to put pressure on Amazon." Snyder replied that there was "no evidence" to suggest publishers were conspiring together at the time of iBook's construction, and the tech firm was unaware of publishers meeting.

"There is no such thing as a conspiracy by telepathy," Apple's lawyer commented.

If Apple loses to the Justice Department, then the agency will seek an injunction to prevent Apple using the agency model for two years, in addition to a five-year prohibition against the use of price-parity contract clauses.

Topics: Apple, Government US, Legal

Kick off your day with ZDNet's daily email newsletter. It's the freshest tech news and opinion, served hot. Get it.


Log in or register to join the discussion
  • Oh Dear, How Sad, Never Mind

    Apple offered the publishers a chance to shore up sagging margins by fixing prices. Now the game is up, of course everybody implicated is claiming it'll be the end of the industry if they aren't allowed to get away with it.

    The reality is, business models come and go. I forget who said that, on the Internet, publishing is no longer a service anyone has to provide, it's just a button you click. It's not a crime to render old businesses obsolete. The world doesn't owe you a living.
    • I mostly agree with you here.

      But there are problems with publishing directly to the internet. Editors play a very important role, and I fear if we cut the publishers out of the equation entirely the overall quality of work may decrease.

      The same can be said about scientific articles. If you cut out the reviewers and editors you lose that peer reviewed status, which is crucial to the quality of papers/journalist articles. As a society we need to tread carefully in these situations.
      Sam Wagner
      • That's a different issue

        I've made my living in the publishing industry for more than 20 years, as an editor, publisher, freelancer, even as a layout designer. I agree: those roles each have their importance ... to a point. But they aren't strictly "necessary." The market has proven that: yes, many readers like stories that have been edited and massaged by professionals. But obviously, for many, responses from any two-bit hack on some random forum is fine ... if they're described solution works.

        The issue here, however, is whether Apple conducted itself in an anti-competitive manner. My view of the situation is that they offered publisher's an alternative model that happened to improve publisher's profits (and Apple's). But Apple has such a ridiculously small market share, that I can't imagine how the government can claim that Apple -- which had almost no marketshare -- somehow steered the entire industry. Sure, they had a different business model and the publishers saw a benefit to it -- isn't that what Apple or any company is supposed to do? Figure out ways to build a better mousetrap and make more money off it?
        • What was the mousetrap that was built?

          Collusion doesn't require huge marketshare to make something like this to happen. All it requires is someone to facilitate the talks and offer a way to make it happen. The publishers didn't really build a better mousetrap for consumers that would drive sales. All they did was find a way to collectively raise prices that would make it hard for companies competing against.

          The reality is that book publishers had discussions through Apple and they created a new pricing scheme that resulted in higher book prices. If someone were to ask of a good example of price fixing, this would be a good example.
        • Sorry. At the risk of invoking Muphry's Law, I'll just quote you.

          "20 years, as an editor"

          "if they're described solution works."
        • Someone with current zero market share can engauge in ...

          ...anti competitive practices, particularly where part of the proposed action will improve their position substantially.
    • You know, to the largest degree, your correct.

      All these price fixing scams have worked kind of the same way, to some degree or another not so far from this.

      Something gets a majority of the big players into a room with a closed door, so to speak. If its not with the express intent to fix prices from the word go, its at least something that gets them into the room together and the issue of pricing of their products comes up.

      Before it all draws to a close it becomes quit apparent that if it so happens they all charge the same price, than so be it, they all know what they are up against and its not going to be cheaper competition from the other big players in the room.

      Prices go up with some measure of uncanny symmetry, and when someone raises a red flag and asks, How did that happen just like that? They all kind of fumble around, looking at the ground and then the sky, mumbling something about, not being sure what your talking about, prices are what they are, no collusion here, its what the thing is worth and that's why it cost what it costs. Fingers point at others, usually only for a split second or so, at least at first, after quickly realizing that pointing to others in the deep end with them may prove to be a counter productive strategy.

      Of course, it actually starts to get a little Monty Pythonesque when they sometimes start to respond like a chorus, " NO PRICE FIXING HERE!".

      But ya. Its like they are all so shocked because they have never heard of such a thing. But they sound way to much like the last batch that caught doing it in some other industry.

      It would be funny if it wasn't so sad.

      "There is no such thing as a conspiracy by telepathy," Apple's lawyer commented

      Well, at least Apples lawyer cleared up one thing. The conspiracy didn't happen by way of telepathy.
  • Oh how unusual

    Woe is the world if we don't get our way.

    Not really trying to crack a new market so much as enter, control and change the new market.
    I actually don't agree with amazon charging below cost to control the market but for apple to enter the market and instantly prices rise by, on average, $3, that's far from right.

    They refused to compete on amazon's terms, not surprisingly as there was no money in it, and instead tried to modify the market to fit in with their 30% model.

    The main thing about this case is just how bad it makes apple look. They were the instigator of the plan and while the co-conspirators have now all accepted blame and settled, now all we have is apple warning the world of doom if they don't get their way. Pathetic.
    Little Old Man
    • Amazon's terms ...

      I grok the concern over Zon trying to control the ebook market, but how do you get "below cost" out of it? Since there's 0 (no, nada, nil, zip, zero) cost for manufacturing / printing, and virtually no cost for distribution, I'm pretty sure that 75% or more of the cost of "book publishing" just disappears into thin air with ebooks. Should publishers reap even more profit with ebooks? I don't really give a rat's azz if the publishers make any profit at all.
      Gravyboat McGee
      • Yes a celebration of money!

        Large publishers have overhead (buildings salaries ceo's retirement) etc so even a product that costs nothing to produce or distribute has a cost.
    • Amazon and Apple - how much do they make?

      There are costs involved in publishing eBooks. So Amazon selling below the price they purchased the books is just part of their lose. The Amazon store will have much the same costs as Apple's app, ibook, music etc stores. I believe these points are true.

      Apple charges 30% of the sale of music, video, ebooks, apps etc in its stores. All apps have to be vetted so that must be fairly cost intensive. Then there are the costs to manage, collect, salary, invoice etc. and what is left over is profit.

      One sells to make a profit and add value to its products, the other loses money but also adds value to its products (or name/brand).

      Regardless the strategy, the publisher gets the same profit either way it seems.

      I find the subject interesting but confusing. How does Amazon make any profit or even cover its costs?
  • What new market was Apple cracking open?

    That is some effin ego that these lawyers are putting on display. As if Apple came to the rescue of ebooks or broke open some brand new market for consumers to enjoy the 50% price increase Apples new form of "competition" brought.

    If that is what is going to be lost then good, it can't happen soon enough.
  • I don't bother

    To start with, I red "books". You know, like in paperback?
    Anyway, be it $9.99 or $14.99, FOR AN E-BOOK?
    Can buy the book (in paperback) for a lot less than that.
    But, hey, other people buy e-books.
    Not overpriced to them, I suppose.
  • It seem the 24/7 dystopic hype that is Apple did not help in this case

    Nothing more annoying than criminals crying.
  • A case that is no case

    New (physical) books sell for higher prices when they initially come out. Some time (often a month or so) after they've been out you can get those same physical books for 10, then after more time 15, then after more time 20+ % off. Ditto for DVDs. It's the business model that publishers have been using for decades. Stores that want to sell the media at a cost less than what it costs them simply can't do it - until the cost to them goes down.

    If the entire story is included in what we've heard about the case (doubtful, but if...) then there is simply no crime. No case. It's just an attempt at applying the physical agency model for physical media to online/digital forms. It is claimed that it "hurts" Amazon's business. So, Amazon wants to pay less, to allow it to charge its customers less - and they won't be able to do that until the cost to them drops. Same as for sellers of physical media. Again. No case. After the dust settles it will be obvious that people who really care about price will simply wait and get it later at the lower price. The high initial cost copies will appeal to some, but most will just wait.

    Personally, I think it's a business model that has had its day. Left to itself instead of creating a criminal case out of it, the market would have made it economically infeasible to use the agency model for online media, for very long.
    • Apple's MFN Clause is at the heart of the problem

      Read this to understand the situation better:

      It seems the DOJ is actually right on this one.
    • ebook pricing is whacked

      I saw game of thrones paperback at target the other day. 9.99, but target discounts 25% so it's 7.49.

      The eBook price? its 9.99.

      I've seen the same thing with dvd compared to iTunes pricing, etc. That market has been distorted. The problem is apple forced the industry into minimum pricing agreements.
    • Who said monopoly's are fair in any way or a model for business?

      Monopoly is not business it is the antithesis of business. The elimination of fair or market. Destruction of free enterprise. The end of competition.
  • Apple is too big to fail

    It looks like Apple had learnt a few tricks from those crooked bankers.

    No seriously... if book businesses cannot sustain themselves without price fixing, maybe they deserved to fail.
  • Apple wanted to make more than the book author

    Apple says it deserves the 30% but the very people that make the book make less. Why should Apple be allowed to profit of of content creators? I bet you Apple makes more than the book publisher or any one else.