Apple found guilty of price fixing

Apple illegally conspired with publishers to raise the price of e-books, a federal judge ruled on Wednesday.

After a three-week trial, Judge Denise Cote determined that Apple "played a central role in facilitating and executing" a conspiracy to stifle competition from Amazon and raise the price of most e-books by two or three dollars. A separate trial will determine damages.

Apple vowed to appeal the ruling, insisting it did "nothing wrong."

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"Apple did not conspire to fix e-book pricing, and we will continue to fight against these false accusations. When we introduced the iBookstore in 2010, we gave customers more choice, injecting much-needed innovation and competition into the market, breaking Amazon's monopolistic grip on the publishing industry," Apple spokesman Tom Neumayr said.

The Justice Department filed antitrust charges last year against Apple and five publishers — Macmillan, Penguin Group, Hachette, HarperCollins and Simon & Schuster. All of the publishers settled with the Justice Department, leaving Apple as the only company to fight the charges in court.

Bill Baer, the head of the Justice Department's Antitrust Division, called the ruling a "victory for millions of consumers."

“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," he said.

In her ruling, Cote wrote that the publishers and Apple were frustrated with Amazon's $9.99 price for most e-books. In early 2010, with Apple's coordination, the publishers all agreed to switch from a wholesale model where booksellers set prices to an "agency model," where the publishers set the prices and the bookseller acts as an agent, Cote determined.

"Apple and the Publisher Defendants shared one overarching interest — that there be no price competition at the retail level," she wrote.

She said Apple "seized the moment and brilliantly played its hand" by taking advantage of the publishers' fear of Amazon's pricing and using the opportunity created by its new iBookstore. The companies all needed to act collectively because any individual publisher would be vulnerable to retaliation from Amazon.

"Without Apple’s orchestration of this conspiracy, it would not have succeeded as it did in the Spring of 2010," Cote wrote.

Amazon initially resisted the pricing change but ultimately relented when the online retailer realized it would lose access to most popular books.

In her opinion, Cote cited emails from the late Apple CEO Steve Jobs to publishing executives discussing plans for e-book pricing.

In a January 2010 email, Jobs urged James Murdoch, the deputy chief operating officer of News Corp., which owns HarperCollins, to "throw in with Apple and see if we can all make a go of this to create a real mainstream ebooks market at $12.99 and $14.99."

At the launch of Apple's iBookstore, Jobs told a reporter that he wasn't worried about Amazon's prices because they would soon all "be the same."

"Apple has struggled mightily to reinterpret Jobs’s statements in a way that will eliminate their bite," Cote wrote. "Its efforts have proven fruitless."

The Justice Department settled the charges with the publishers when they agreed to abandon their agency-pricing agreements and promise not to enter into similar arrangements for about two years. The agency is expected to push for similar terms in an injunction against Apple.

The injunction would likely give Cote the authority to monitor Apple's business deals for years to come. 

Attorneys general in 33 states have brought their own charges against Apple and are seeking monetary damages.

David Balto, an antitrust attorney and former Justice Department official, said that he doesn't expect Cote to delay an injunction or a damages trial to wait for Apple's appeal. He noted that while an appeals court could theoretically overturn Cote's verdict, the Justice Department almost never loses civil antitrust cases on appeal.

"Apple's chances of winning are sort of like Lindsay Lohan winning an Academy Award," he said. 

Balto praised the Justice Department for aggressively cracking down on the companies.

"Antitrust enforcement under the Obama administration is much more vital and strong than it's been under previous administrations," he said.

— This report was published at 10:02 a.m. and has been updated.