July 10, 2013, 11:01 AM — Apple violated antitrust laws when it colluded with publishers to set prices of e-books, a U.S. district court judge has ruled.
"The plaintiffs have shown that the publisher defendants conspired with each other to eliminate retail price competition in order to raise e-book prices, and that Apple played a central role in facilitating and executing that conspiracy," wrote Judge Denise Cote of U.S. District Court, Southern District of New York, in a 160-page ruling issued Wednesday. "Without Apple's orchestration of this conspiracy, it would not have succeeded as it did in the spring of 2010."
As a result, Apple and the publishers violated Section 1 of the Sherman Antitrust Act, the judge ruled. Cote's ruling comes less than three weeks from the trial's closing arguments.
"Companies cannot ignore the antitrust laws when they believe it is in their economic self-interest to do so. This decision by the court is a critical step in undoing the harm caused by Apple's illegal actions," the U.S. Department of Justice said in a statement issued Wednesday.
In 2012, the DOJ brought a lawsuit charging that Apple and five of the largest book publishers in the U.S. conspired to raise prices in the e-book market in 2010, in an effort to stop Amazon from pricing their best-selling electronic books at $9.99.
In 2010, Apple had signed deals with five of the six largest book publishers -- Hachette, HarperCollins, Macmillan, Penguin and Simon & Schuster -- to sell electronic books in an agency model. Under such an agreement, the publishers would set the prices of e-books, chosen from a set of pricing tiers Apple formulated. Apple got a fixed 30 percent cut of each sale through its iBookstore, which would debut on the about-to-be-launched iPad.
Apple also stipulated that publishers would give Apple "Most Favored Nation" pricing, which would guarantee that the publishers would sell e-books to Apple at a wholesale rate of 70 percent of the lowest retail price of that book, thereby guaranteeing that Apple could offer the books at the same cost of its competitors.
Immediately after the contracts took effect in April 2010, and publishers moved all their retailers to the agency model and prices of e-books offered by both Amazon and Barnes & Noble increased almost immediately.
"Apple executives hoped to ensure that its e-book business would be free from retail price competition, causing consumers throughout the country to pay higher prices for many e-books. The evidence showed that the prices of the conspiring publishers' e-books increased by an average of 18 percent as a result of the collusive effort led by Apple," the DOJ stated.