Wednesday, December 3, 2014

Eddy Cue on Apple’s E-book Price Fixing Appeal

Roger Parloff:

Still, the issues are perplexing, and Apple has a fighting shot. Did prices go up because of price-fixing? Or did they go up, rather, because once Apple entered the market, the publishers finally had an alternative to selling through Amazon on whatever terms it demanded?


In this case, though, given the Picholine dinners and the “double delete” email, Judge Cote inferred that the publishers had “synchronized their windowing strategies.” But she went further: She found that Cue—who at this point had still never spoken to a single publisher— somehow knew they were colluding. “Before Apple even met with the first publisher-defendant in mid-December,” she wrote, “it knew that [they] were already acting collectively to place pressure on Amazon to abandon its pricing strategy.” She cited only the fact that newspapers had reported each windowing announcement. (Cue says he never heard of the Picholine dinners until after the government sued in April 2012.)


So when Cue sent out the actual draft contracts, he replaced that term with a “most favored nation” clause, or MFN. It gave Apple the right to match the price at which any new-release ebook was being sold by another retailer. (Cote acknowledged that MFNs are ordinarily legal.)


Though the original, ill-conceived clause was replaced by the MFN, Judge Cote wouldn’t let Apple off the hook. Rather, she found that it was “never rescinded,” and lived on as an unwritten, wink-wink term in the conspiracy.

The government also argued—and Cote agreed—that under the unique circumstances of this case, the MFN was also illegal, because it “sharpened the publishers’ incentives” to switch to agency.

John Gruber:

The key question is who needs antitrust protection here. The DOJ chose to “protect” e-book buying consumers from higher retail prices. Apple’s argument is that it’s the publishers who needed protection from Amazon. Parloff makes clear that the publishers had no negotiating leverage with Amazon until after the iBooks Store was announced.

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