Judge Comes Down Hard on Publishers, Apple in E-book Case

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In a strongly worded opinion, US District Judge Denise Cote rejected requests by Apple and five book publishers to throw out a class action suit that accuses them of price-fixing.

Citing ongoing state, federal and international antitrust investigations, Cote turned down arguments that Apple and the publishers had acted independently when they changed the pricing model for e-books. (For more details on the case, see “Everything you need to know about the DOJ lawsuit in one post.”)

Cote’s opinion is at times remarkable for the emphatic language in which she decries the alleged conspiracy. It is also noteworthy for citing the late Steve Jobs on several occasions to suggest that Apple was at the center of it:

(MORE: E-book Price-Fixing: Finding the Best Model for Publishers — and Readers)

“In short, Apple did not try to earn money off of eBooks by competing with other retailers in an open market; rather, Apple ‘accomplished this goal by [helping] the suppliers to collude, rather than to compete independently.’

[…]

Finally, Jobs’ prescient prediction at the iPad launch that the prices consumers would be paying for eBooks would all ‘be the same’ and the other quotations from Jobs, Murdoch and Sargent, combine to provide ample evidence that the Publisher Defendants had agreed with each other to undertake collective action to raise eBooks’ prices and that Apple intentionally and knowingly joined that conspiracy.”

Apple has argued that its entry to the e-book marketplace was pro-competitive at a time when Amazon controlled 90 percent of e-book sales. The company has also stated that it had no motive to raise e-book prices at a time when it was looking to attract content onto its new iPad tablet.

Cote said Apple had the motive to act as the hub of a conspiracy:

“Finally, the fact that Apple might have had different motivations for joining the conspiracy, and was involved in only a portion of it, does not undermine the existence of the conspiracy itself or Apple’s role as a participant.”

Cote does not address what may have been the plaintiffs’ strongest argument for an Apple conspiracy — that Jobs conspired with the publishers in order to slow Amazon’s rise into the tablet market.

What it means in the bigger picture

Judge Cote’s ruling came in response to a request by Apple and five publishers to dismiss the case. It does not mean that the companies are liable for price-fixing, but rather that the class action lawyers can go forward in bringing the case to trial.

Cote’s strong language, however, reinforces that Apple and the publishers may be in a deep hole. Three of the publishers (Hachette, Harper Collins and Simon & Schuster) have already settled an antitrust lawsuit with the Department of Justice and agreed to change their pricing practices.

(MORE: How Apple’s Steve Jobs and Book Publishers Cost Consumers Millions)

The three publishers are also in negotiations with state governments under which they are likely to pay tens of millions in consumer restitution. In plain English, this means that people who bought an e-book in the last few years may receive a small settlement payment.

The publishers appear to have entered negotiations with the states (led by Connecticut and Texas) in order to escape the clutches of the class action lawyers. Any settlement would largely excuse them from having to pay again in the class action suit.

That leaves two publishers — Penguin and Macmillan — as holdouts. Both Macmillan CEO John Sargent and Penguin CEO John Makinson have stated that their companies did nothing wrong.

Apple is unlikely to budge, in part because the pricing system it used with the publishers (in which takes a 30 percent commission) is the same one it uses with providers of other types of content. In the past, Apple has been anything but shy about litigating.

Here’s a copy of the opinion (note: Thanks to Porter Anderson for noting that highlighting in a previously-posted complaint obscured the text. I’m posting an unmarked version instead. Apologies for the inconvenience) :

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