Final Page Closes on eBook Pricing Scandal

Apple has lost a federal appeal against a ruling that it conspired to keep e-book prices artificially high. The verdict means it will have to pay $450 million in penalties and compensation.

It marks the ending of a case dating back to 2012 based around two different models of pricing for electronic books. Amazon, which dominated the market before Apple started selling ebooks, uses the same model as with print books: the publisher sets a wholesale price and then the retailer decides how much to charge customers.

Apple instead pushed for the "agency model" in which the publisher decides how much customers will pay and then the retailer takes a fixed percentage, which is the same method it uses for iPhone apps. The big difference from Amazon's preferred model is that retailers can't compete with one another on price.

Apple Worked With Publishers To Fix Prices

The Department of Justice alleged that Apple got together with most of the major book publishers and agreed that all would switch to the agency model and then refuse to deal with Amazon, unless Amazon also agreed to this pricing system. It produced several internal Apple documents that supported its assertion that Apple acted deliberately, knowing that the agreement with the publishers would bump up prices.

The book publishers eventually reached a settlement with the government over the allegations and agreed to stop using the agency model. However, Apple chose to fight the battle in court and eventually lost that case in 2013.

Late last year Apple agreed to the terms of paying fines and compensation to the Department of Justice, 33 states and some private individuals who had all brought similar cases.

Court Confirms 'Horizontal Conspiracy'

Apple made clear that this settlement would only apply if it failed in an ongoing appeal against the court verdict. That appeal has now failed, with the United States Court of Appeals agreeing that there was clear evidence Apple "orchestrated a horizontal conspiracy among the publisher defendants" and that doing so "unreasonably restrained trade." (Source: nytimes.com)

Apple still insists it has done nothing wrong and is "assessing [its] next steps." However, the appeal verdict ends any further debate about the facts of the case and there doesn't seem any obvious wider issues about interpretation of law, so Apple appears to have no option but to pay up. (Source: wsj.com)

What's Your Opinion?

Do you think Apple acted unfairly in making the deal with publishers? Should it be publishers or retailers who decide the price charged to customers? Is it fair that Amazon can now set its own prices and sell ebooks as a loss leader?