Apple has been found guilty of price fixing in the ebook market, something it has consistently denied, even after the booksellers that it colluded with gave up the case and agreed to pay $166 million in damages.
Because Apple is so litigious, and because it sits across so many media markets, and also because it forced the court go through with the case, instead of holding its hands up after evidence discovery, the court may choose to make an example and could triple the kind of damages that Apple has to pay. It might make it in line with the profit that Apple may have made on device sales, as well as ebook sales, due to the fact that Amazon was forced to agree to keep its prices above the $10 mark, at a time when it was ready to annex the entire ebook market.
We don’t think that damages in the order of $500 million to $600 million would be at all unlikely. Other technology cases in history where for instance DRAM pricing was fixed, involved penalties in the order of $300 million. There is no reason why the European Commission and legal bodies on other continents, will not pursue further payments for the damage done to consumers over the two years for which the price fixing was in play.
Other remedies may be that Apple has to have its contracts inspected and corrected and it may have to consent to further inspection in other markets and sign a consent decree to never do this again, all of which will weigh heavily on the senior management, already troubled by a sagging share price and a complete absence of recent successful innovation.
The judge said, ‘The Plaintiffs have shown that the Publisher Defendants conspired with each other to eliminate retail price competition in order to raise e-book prices, and that Apple played a central role in facilitating and executing that conspiracy. Without Apple’s orchestration of this conspiracy, it would not have succeeded as it did in the Spring of 2010.’
The price fixing was seen as a way of bringing Amazon to heal on pricing, and to prevent the market going under the $9.99 prevailing price charged by Amazon for many e-book versions of New York Times bestselling books. If it had been allowed to continue physical book sales would have declined faster and it would likely have an even greater market share in ebooks.
Apple met with publishers in mid-December 2009, and assured them that it was willing to work with them to raise prices, suggesting prices such as $12.99 and $14.99 (a 50% enforced price hike for a less expensive version of the book) and Apple launched the iBookstore on the back of the agreements it signed with each of the largest US book publishers. It achieved all this by introducing an agency model, where the publisher sets the retail price and the retailer sells the e-book as its agent. The caps were introduced of $12.99 and $14.99 for many books then being sold at $9.99 by Amazon.
There will be an almost automatic appeal by Apple which will put off remedies being declared for a year or so, but the appeal is unlikely to change the course of events, just slow them up.