In a decision that could reshape how electronic books are sold on the Internet, a federal judge ruled that Apple Inc conspired to raise the retail prices of e-books, and ordered a trial on damages.
The decision by U.S. District Judge Denise Cote in Manhattan is a victory for the U.S. Department of Justice and 33 U.S. states that brought the antitrust case.
Cote said the plaintiffs presented “compelling evidence” that Apple violated the federal Sherman antitrust law by playing a “central role” in a conspiracy with five major publishers to eliminate retail price competition and raise e-book prices.
“Apple chose to join forces with the publisher defendants to raise e-book prices and equipped them with the means to do so,” the judge wrote in a 159-page decision.
“Without Apple’s orchestration of this conspiracy, it would not have succeeded as it did.”
The decision was not a total surprise, given that Cote had indicated before the 2-1/2 week non-jury trial began on June 3 that Apple’s defense might fail.
Apple and its lawyer did not immediately respond to requests for comment. The Justice Department had no immediately comment.
The alleged collusion began in late 2009 and continued into early 2010, in connection with the Silicon Valley giant’s launch of its popular iPad tablet.
Only Apple went to trial; the publishers settled for more than $166 million combined.
In morning trading, Apple shares were down $1.60 at $420.75 on the Nasdaq.
According to the plaintiffs, the conspiracy was designed to undercut online retailer Amazon.com Inc’s dominance of the fast-growing e-book market.
Amazon at one time held a 90 percent share of the market, buying e-books at wholesale and then selling them at below cost to promote its Kindle reading device.
Apple, in contrast, entered into so-called “agency agreements” in which publishers were able to set higher prices and pay commissions to the Cupertino, California-based company.
The federal government said this arrangement pushed Amazon into a similar business model, causing prices industrywide to increase.
Cote said the conspiracy resulted in prices for some e-books rising to $12.99 or $14.99. Amazon had been selling them for $9.99.
Evidence in the case included comments from Apple’s late co-founder Steve Jobs that he wanted to “create a real mainstream e-books market at $12.99 and $14.99.”
The publishers were Lagardere SCA’s Hachette Book Group Inc, News Corp’s HarperCollins Publishers LLC, Pearson Plc’s Penguin Group (USA) Inc, CBS Corp’s Simon & Schuster Inc and Verlagsgruppe Georg von Holtzbrinck GmbH’s Macmillan.
Apple had argued that it never conspired with the publishers to raise e-book prices, or even understood that publishers might have been talking among themselves about higher prices in advance of the iPad launch.
“There is no such thing as a conspiracy by telepathy,” Apple’s lawyer, Orin Snyder, said in closing arguments on June 20.
Cote also rejected Apple’s argument that it would be unfair to single out the company when Amazon and Google Inc, among others, entered similar agency agreements with publishers.
The decision allows the plaintiffs to seek injunctive relief to prevent further pricing conspiracies.
At trial, the Justice Department said it wanted to block Apple from using the agency business model for two years, and to stop the company from entering contracts that insure it will offer the lowest retail prices.
The case is U.S. v. Apple Inc et al, U.S. District Court, Southern District of New York, No. 12-02826.