Business

Apple violated antitrust law in e-book entry to upset Amazon: divided federal appeals court

AP

Apple violated antitrust laws by colluding with publishers to raise electronic book prices when it entered a market in 2010 that had been dominated by Amazon.com, a divided federal appeals court panel said Tuesday.

A three-judge panel of the 2nd U.S. Circuit Court of Appeals in Manhattan ruled 2-to-1 that a lower-court judge correctly found Apple Inc. violated the law to upset Amazon.com Inc.’s control of the market.

The appeals court also agreed that U.S. District Judge Denise Cote was right to order injunctive relief to ensure the Cupertino, California-based company didn’t commit additional violations of antitrust laws.

In a statement, Apple said the ruling did nothing to change the fact that it did not conspire to fix e-book pricing.

“We are disappointed the court does not recognize the innovation and choice the iBooks Store brought for consumers,” it said. “While we want to put this behind us, the case is about principles and values. We know we did nothing wrong back in 2010 and are assessing next steps.”

Cote ruled against Apple after a civil trial in summer 2013. She ordered the technology giant to modify contracts with publishers to prevent price fixing and appointed a monitor to review the company’s antitrust policies. The appeals court last month upheld the appointment of the monitor.

In a majority opinion written by Judge Debra Ann Livingston, the 2nd Circuit said Cote’s finding that Apple orchestrated a conspiracy among publishers to raise electronic book prices was “amply supported and well-reasoned.”

“We also conclude that the district court’s injunction is lawful and consistent with preventing future anticompetitive harms,” the appeals court said.

In a dissent, Judge Dennis Jacobs defended as “eminently reasonable” the actions Apple took as it fought to raise the price of e-books when Seattle-based Amazon had 90 percent control of the market selling the most popular books online for $9.99. Afterward, its share of the market dropped to about 60 percent.

He said it was a mistake by Cote and his fellow appeals judges to assume “competition should be genteel, lawyer-designed, and fair under sporting rules, and that antitrust law is offended by gloves-off competition.”

“Apple took steps to compete with a monopolist and open the market to more entrants, generating only minor competitive restraints in the process,” Jacobs wrote.

In the majority opinion, though, Livingston said it was “startling” that Jacobs would agree Apple intentionally organized a conspiracy among publishers to raise e-book prices and then say the company was entitled to do so because the conspiracy helped it become an e-book retailer.

“Fundamentally, the dissent’s theory — that the presence of a strong competitor justifies a horizontal price-fixing conspiracy — endorses a concept of marketplace vigilantism that is wholly foreign to the antitrust laws,” Livingston wrote. “By organizing a price-fixing conspiracy, Apple found an easy path to opening its iBookstore, but it did so by ensuring that market-wide e-book prices would rise to a level that it, and the publisher defendants, had jointly agreed upon.”

The U.S. Justice Department and 33 states and territories originally sued Apple and five publishers. The publishers all settled and signed consent decrees prohibiting them from restricting e-book retailers’ ability to set prices. Two publishers joined Apple’s appeal.

In a release, Assistant Attorney General Bill Baer of the Justice Department’s Antitrust Division said the government was gratified with the ruling.

“The decision confirms that it is unlawful for a company to knowingly participate in a price-fixing conspiracy, whatever its specific role in the conspiracy or reason for joining it. Because Apple and the defendant publishers sought to eliminate price competition in the sale of e-books, consumers were forced to pay higher prices for many e-book titles,” he said.