Rare Book Monthly

Articles - April - 2016 Issue

Supreme Court Finally Puts an End to Long Running Apple-Amazon Price-Fixing Case

U.S. Supreme Court brings an end to e-book price-fixing case.

After almost half a decade in court, the price-fixing case against Apple concerning cheap e-book prices has finally come to a conclusion. Apple is guilty as charged, they have to pay all settlements earlier reached with consumers, and accept a certain amount of monitoring of their behavior. The Supreme Court brought Apple's final appeal to a close in the quiet manner it frequently does with appeals. It simply declined to hear it.

 

This long-running case goes back to the early days of electronic books. Amazon cornered the retailing end of the e-book business by selling them cheaply, often at cost or even less. It made it impractical for others to enter the field. Amazon has long had a strategy of selling products very cheaply to corner a market, worrying about profits later.

 

Apple has no such give-away strategy, but wanted to sell e-books too. So, instead of matching Amazon's prices, it told several book publishers it would not sell their e-books unless they set retail prices at a higher level, rather than allowing their customers to set their own prices. This is legal, provided the publishers do not have an agreement among themselves all to set prices higher. That is price fixing, and this is what they did (they did not admit to it, but agreed to pay a hefty settlement). The question was whether Apple, as a retailer rather than another publisher, colluding with the publishers to set prices, also was guilty of price fixing.

 

That subtle difference is known as vertical rather than horizontal collusion. Horizontal means between equal players – in this case, fellow publishers. Vertical refers to different locations in the food chain - in this case, wholesaler versus retailer. Such collusion between horizontal players is automatically considered to be illegal price fixing. Lower courts had ruled in this case that such vertical collusion was automatically illegal too. Apple appealed based on other cases that indicated that in the case of alleged vertical collusion, a "rule of reason" must be used to determine whether this should be considered illegal. Apple has long maintained that their involvement was beneficial to competition, rather than harmful to it, because with higher prices, it made it possible for competitors to enter the field. They cited the fact that Amazon's share of the e-book market, once over 90%, has dropped to somewhere around 60%. E-books may be more expensive today, but by eliminating a virtual monopoly by Amazon, it prevents them from at some future date substantially raising prices to consumers as they are the only game in town.

 

Interestingly, some commentators believed Apple would win on appeal. The Appeals Court had upheld the District Court judgment against Apple on a 2-1 margin, with the dissenting judge citing the differences between vertical and horizontal collusion. They thought the Supreme Court would have a hard time ignoring those arguments. However, the Supreme Court acted as it frequently does. They get a great many appeals from the nine circuit courts, far more than they can handle. The result is they simply decline to take many of them on. They neither confirm nor reject the lower court decision, they simply allow it to stand. The Appeals Court verdict becomes the final verdict. So has it happened in this case between Apple and the Department of Justice, which brought this suit. It's over. The consumers who were alleged to have overpaid get their refunds, and Apple must pay for them. However, it should be noted that publishers may set the retail prices of their e-books wherever they like, should they so choose, as long as they do not conspire with each other to do so. Many now do set prices higher, meaning their prices are more than they were back in the day when Amazon controlled the market virtually alone.

Rare Book Monthly

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