By Chad Bray, Joe Palazzolo and Ian Sherr
Apple Inc. colluded with five major U.S. publishers to drive up the prices of e-books, a federal judge ruled Wednesday in a stern rebuke that threatens to limit the technology company’s options when negotiating future content deals.
The ruling—which follows Apple’s high-stakes gamble to go to trial even though the publishers settled similar charges—exposes the tech company to as-yet undetermined damages and opens the door for the Justice Department to take a closer look at its other business lines. In settling, the publishers denied wrongdoing.
At issue are the steps Apple took to gain a foothold in e-books for its iTunes online store. The iTunes store is a strategically vital area that accounts for about 10% of Apple’s revenue and faces fierce competition from rivals—in particular Amazon.com Inc.
Justice Department prosecutors argued that Apple used publishers’ dissatisfaction with Amazon’s aggressive e-book discounting to shoehorn itself into the digital-book market when it launched the iPad in 2010. Apple’s proposal: Let publishers set prices themselves. That led to Amazon losing the ability to price most e-book best sellers at $9.99, causing prices to rise.
In her ruling, U.S. District Judge Denise Cote in Manhattan said the evidence was clear that Apple, despite its claims that it negotiated fiercely and separately with each publisher, was at the center of the conspiracy.
“Understanding that no one publisher could risk acting alone in an attempt to take pricing power away from Amazon, Apple created a mechanism and environment that enabled them to act together in a matter of weeks to eliminate all retail price competition for their e-books,” she wrote in a 160-page decision.
(Published July 11, 2013, in The Wall Street Journal.)