Rare Book Monthly

Articles - August - 2015 Issue

Apple Loses Its Legal Appeal (No Pun Intended) – Will Pay Ebook Buyers $450 Million

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Apple has lost its appeal.

Apple Inc., the computer/iPhone maker that is now the world's most valuable company, lost its appeal of a lower court ruling that it had engaged in price fixing of electronic books with five publishers. The result means that Apple will be distributing $450 million to purchasers of ebooks who paid more for their books because of the agreement between Apple and the publishers. In accordance with an earlier compromise between Apple and the plaintiffs (the U.S. Government and numerous states), Apple has agreed to pay this amount even if it decides to appeal the Appeals Court decision to the Supreme Court.

 

This case dates back to early 2010 when Apple, on the verge of releasing its newest device, the iPad, decided it wanted to go into the business of selling electronic books. The iPad was suitable to provide competition for Amazon's market leading Kindle e-reader. There was one problem. Amazon was selling ebooks for little mark-up, sometimes even at a loss. It wanted to sell its Kindles and wanted to dominate the ebook market before anyone could offer serious competition. While Apple wanted to provide competition, it did not want to lose money. Amazon built its business on thin margins, but not Apple. Apple wants to eat its cake and have it too, that is, come to dominate a market but still make large profits in the process. Amazingly, it is very good at doing both at the same time.

 

However, this time, the court determined, Apple stepped over the line. Apple and the publishers conducted numerous phone calls, and when all was said and done, the publishers revised their pricing schedule. Instead of charging a fixed wholesale price for their books, and letting retailers determine at what price they would resell them (even if for a loss), the publishers would set the price at which all retailers had to sell their ebooks. The retailers, in turn, would buy them at a wholesale price that would give them a fixed profit margin. The mandatory retail prices the publishers set were mostly higher than what Amazon had been charging. Ebooks Amazon sold for $9.95 would now mostly be priced at $12.95 or even $14.95.

 

Apple maintained it never conspired with the publishers to fix prices. It said it merely informed them what sort of pricing structure was necessary for them to enter the business. This is legal. What is not legal under antitrust law is for multiple companies to agree to set prices together. In this case, the lower court ruled that Apple had worked with the publishers together to set prices. The lower court even went so far as to conclude Apple was the ringleader in getting the publishers to agree to all change their pricing structure.

 

This was the claim that was appealed. Did Apple lead the publishers into setting new prices, or did they just tell them what they needed and the publishers, whether independently or in concert with each other, decided to set the new prices on their own? In looking at phone records and various statements made by company executives, the lower court concluded this was a conspiracy spearheaded by Apple. Now, the Appeals Court, on a 2-1 vote, has agreed.

 

Apple also argued that rather than being anti-competitive, the new arrangement opened the door to new competition. Previously, with Amazon's low to below-cost pricing, no one else could afford to enter the market. You almost had to buy your ebooks from Amazon. They controlled 90% of the market. Under the new pricing model, where Amazon could no longer use its power to viciously undercut competitors, lots of new ebook sellers entered the market. The Appeals Court quickly shot down the "benefit" of that type of competition:

 

"Plainly, competition is not served by permitting a market entrant to eliminate price competition as a condition of entry, and it is cold comfort to consumers that they gained a new ebook retailer at the expense of passing control over all ebook prices to a cartel of book publishers — publishers who, with Apple’s help, collectively agreed on a new pricing model precisely to raise the price of ebooks..."

 

After the verdict was announced, a spokesperson for Apple indicated they were considering their next step. They can appeal to the Supreme Court. The spokesperson indicated Apple wanted to put the case behind them, but reiterated that Apple had done no wrong and that there were principles involved. That is all that is left, because Apple had earlier agreed to pay the ebook buyers $450 million if they lost this appeal. Even if the Supreme Court finds Apple as pure as snow and overturns this decision, Apple will still have to pay the $450 million. The parties settled on this figure (about half of what plaintiffs wanted) to set a predetermined amount of damages to Apple in case of a loss, rather than letting the court pick a price which might be more or less, or giving Apple a chance to reverse the decision on further appeal. Exactly how this money will be broken out and paid remains to be determined. Based om an earlier settlement with the publishers, the time frame for purchases to qualify for refunds is likely to be April 1, 2010 – May 21, 2012.

 

One more thing – no need to cry for Apple. The company is worth over $700 billion. The $450 million is mere pocket change to Apple. On the day the judgment was announced, Apple's stock jumped almost $1, raising the company's value by another $5 billion.

Rare Book Monthly

  • <b>Swann Auction Galleries Mar 8:<br>Early Printed, Medical, Scientific & Travel Books</b>
    <b>Swann Auction Galleries Mar 8:</b> Caius Julius Hyginus, <i>Poeticon Astronomicon,</i> first illustrated edition, Venice, 1482. $15,000 to $20,000.
    <b>Swann Auction Galleries Mar 8:</b> Giovanni Botero, <i>Le Relationi Universali... divise in Sette Parti</i>, Venice, 1618. $3,000 to $5,000.
    <b>Swann Auction Galleries Mar 8:</b> <i>L'Escole des Filles</i>, likely third edition of the first work of pornographic fiction in French, 1676. $8,000 to $12,000.
    <b>Swann Auction Galleries Mar 8:<br>Early Printed, Medical, Scientific & Travel Books</b>
    <b>Swann Auction Galleries Mar 8:</b> Illuminated Book of Hours in Latin on vellum, Flanders, early 16th century. $6,000 to $9,000.
    <b>Swann Auction Galleries Mar 8:</b> Johannes Regiomontanus, <i>Calendarium,</i> Venice, 1485. $8,000 to $12,000.
    <b>Swann Auction Galleries Mar 8:</b> Pedro de Medina, <i>Libro d[e] gra[n]dezas y cosas memorables de España,</i> Alcalá de Henares, 1566. $3,000 to $5,000.
    <b>Swann Auction Galleries Mar 8:<br>Early Printed, Medical, Scientific & Travel Books</b>
    <b>Swann Auction Galleries Mar 8:</b><br>Luis de Lucena, <i>Arte de Ajedres,</i> Salamanca, circa 1496-97. $10,000 to $15,000.
    <b>Swann Auction Galleries Mar 8:</b> Andrés Serrano, <i>Los Siete Principes de los Ángeles, válidos de Rey del Cielo,</i> Spain, 1707. $800 to $1,200.
    <b>Swann Auction Galleries Mar 8:</b> Johannes de Sacrobosco, <i>Sphaera mundi,</i> first illustrated edition, Venice, 1478. $15,000 to $20,000.
  • <b>Bonhams, Feb. 11:</b> A Rare 3-rotor German Enigma I Enciphering Machine. $70,000 to $90,000
    <b>Bonhams, Feb. 11:</b> Important collection of correspondence between Werner Heisenberg and Bruno Rossi. $40,000 to $60,000
    <b>Bonhams, Feb. 11:</b> Walt Whitman Autograph manuscript containing his thoughts on death. $20,000 to $30,000
    <b>Bonhams, Feb. 11:</b> David Roberts. <i>Holy Land</i>. Six volumes. 1842-1849. First edition. $15,000 to $25,000
    <b>Bonhams, Feb. 11:</b> Extensive collection of Ray Bradbury's primary works, most signed or inscribed. $15,000 to $20,000
    <b>Bonhams, Feb. 11:</b> Peter Force. Declaration of Independence. $12,000 to $18,000
    <b>Bonhams, Feb. 11:</b> Steinbeck. <i>Grapes of Wrath</i>. A fine copy of the first edition. $10,000 to $15,000
    <b>Bonhams, Feb. 11:</b> Lewis & Clark. <i>Travels to the Source of the Missouri River</i>... First English edition, extra-illustrated. 1814. $10,000 to 15,000
    <b>Bonhams, Feb. 11:</b> Manuscript document signed by Nuno de Guzman relating to Hernan Cortes, 1528. $8,000 to $12,000
    <b>Bonhams, Feb. 11:</b> “Nos los inquisidores..." The first book in English printed West of the Mississippi. [1787]. $5,000 to $8,000.
  • <b>Dominic Winter, March 9:</b> Collection of 131 Herbert Ponting gelatin silver contact prints of Antartica, £6000-8000
    <b>Dominic Winter, March 9:</b> One of several lots of Henri Cartier-Bresson gelatin silver prints, £200-300
    <b>Dominic Winter, March 9:</b> Vintage gelatin silver print of Diego Rivera by Leonard McCombe, £300-500
    <b>Dominic Winter, March 9:</b> Albumen print portrait by Julia Margaret Cameron of Sir John Herschel (April, 1867), £30,000-50,000
    <b>Dominic Winter, March 9:</b> Albumen print by Julia Margaret Cameron, Love, 1864 (from the Norman album), £1000-1500
    <b>Dominic Winter, March 9:</b> Albumen print by Lewis Carroll of Twyford School Eleven (Summer Term, 1859), £1000-1500
    <b>Dominic Winter, March 9:</b> Albumen print portrait by Lewis Carroll of Xie Kitchin as 'Dane' (Oxford, 1873), £500-800
    <b>Dominic Winter, March 9:</b> Calotype print (c1845) by Hill & Adamson of Lady Elizabeth (Rigby) Eastlake, £3000-4000
    <b>Dominic Winter, March 9:</b> Group of 12 waxed paper negatives of Scottish scenes by Thomas Keith, mid-1850s, £3000-5000
    <b>Dominic Winter, March 9:</b> One of 15 lots of Roger Fenton salt prints of his work in the Crimea, mid-1850s, £400-600
    <b>Dominic Winter, March 9:</b> Quarter plate ambrotype (c.1860s) with ethnographic portrait of a woman seated at a table, £400-600
    <b>Dominic Winter, March 9:</b> Rare whole plate thermoplastic union case of the Landing of Columbus (c.1858),part of the John Hannavy collection, £1500-2000
  • <b>19th Century Shop:</b> Charles Darwin on sexuality and the transmission of hereditary characteristics: Autograph Letter Signed to Lawson Tait. Down, 17 January [1877].
    <b>19th Century Shop:</b> MILTON, JOHN. <i>Paradise Lost. A Poem written in ten books.</i> London: 1667. A very rare example with the contemporary binding untouched and with a 1667 title page.
    <b>19th Century Shop:</b> Hamilton secures the ratification of the Constitution: <i>The Debates and Proceedings of the Convention of the State of New-York, assembled at Poughkeespsie, on the 17th June, 1788.</i>
    <b>19th Century Shop:</b> The social contract “Man is born free, and everywhere he is in chains”: ROUSSEAU, JEAN-JACQUES. <i>Principes du Droit Politique [Du Contract Social]</i>. Amsterdam: Michel Rey, 1762
    <b>19th Century Shop:</b> “The first English textbook on geometrical land-measurement and surveying”: BENESE, RICHARD. <i>This Boke Sheweth the Maner of Measurynge All Maner of Lande…</i>

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