Apple loses appeal in e-books antitrust case - Part 2

This is the second in a series of comments on the Second Circuit’s June 30 decision in the Apple e-books antitrust case.

The Second Circuit has upheld a federal trial court finding that Apple, together with five of the so-called "Big Six" publishing companies, fixed prices for e-book editions of new issues and New York Times best sellers. The e-book reader market had been (and continues to be) dominated by Amazon's Kindle platform, first introduced in 2007; Kindle is an e-bookstore, an e-book format (including a digital rights management system), a cloud-based storage system, and a suite of e-readers. When Apple introduced its more general purpose iPad in 2010, it commenced competing with Amazon's Kindle across all these dimensions. Importantly, Apple sought to distribute e-books and so required access to the major publishers' catalog.

Amazon had been selling most new release and New York Times bestseller e-books below cost, attracting legions of readers to the Kindle ecosystem with its $9.99 pricing. Apple cleverly upset Amazon's $9.99 pricing policy by positioning itself as a sales agent (and not a retailer) of e-books, taking a 30% commission on sales. Apple thus generally restored retail pricing authority to the publishers. Apple's agency contracts, however. required e-book retail prices on iPad to match those offered on Amazon. This 'most favored nation' obligation drove the publishers to renegotiate their distribution deals with Amazon. Collectively (and with Apple playing an active coordinating role), the book publishers placed Amazon on an agency basis as well. The publishers then immediately raised e-book retail prices across both platforms - a surprising result in a market that appeared to be growing more competitive through the introduction of the iPad.

Apple loses appeal in e-books antitrust case

This is the first of a series of comments on the Second Circuit’s June 30, 2015 decision in the Apple e-books antitrust case.

Through a series of spectacular commercial moves, Apple succeeded in disrupting the e-book space upon its 2009 release of the iPad, sweeping away Amazon Kindle’s popular $9.99 pricing for new releases and for New York Times best-sellers. The iPad brought meaningful competition to Amazon’s wildly successful Kindle as an e-book platform; the emergence of this new distribution channel raised e-book prices, whether purchased on iPads or Kindles, seemingly defying an economic law of gravity. It was a coup that only a Steve Jobs could pull off. The e-book price shift attracted the attention of federal and state antitrust authorities. In 2012, the government brought a civil antitrust action against Apple and five major publishers. The book publishers settled, and the government proceeded in a price fixing claim against Apple. On June 30, a panel of the Second Circuit Court of Appeals upheld a federal trial court’s finding that Apple violated Section 1 of the Sherman Act.