Supreme Court lets $450M judgment against Apple stand

Supreme Court lets $450M judgment against Apple stand
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The Supreme Court on Monday declined to hear Apple’s appeal of a $450 million judgment over e-book pricing, effectively forcing the company to pay the penalty.

A district court Judge in 2013 found Apple liable for conspiring with five book publishers as the company sought to break into the e-book market, which was then dominated by Amazon.

Apple came to a settlement years ago but continued to fight the charges in court, being rejected by the Second Circuit Court of Appeals last year and finally being denied by the Supreme Court on Monday. Monday’s decision means the earlier settlement will take effect.

“Apple’s liability for knowingly conspiring with book publishers to raise the prices of e-books is settled once and for all. And consumers will be made whole," the Justice Department said in a statement.

"The outstanding work of the Department of Justice team — working with our steadfast state attorney general partners — exposed this cynical misconduct by Apple and its book publisher co-conspirators and ensured that justice was done.”

The Justice Department and 33 states brought the charges in 2012 against Apple and five publishers — Hachette Book Group, HarperCollins Publishers, Holtzbrinck Publishers, Penguin Group and Simon & Schuster.

The book publishers previously settled the charges for $166 million, but Apple fought the antitrust charges in court, maintaining that it was in the right. 

A total of $400 million from Apple will go to consumers, while the rest of Apple’s payout will go to the states and attorneys. Amazon in a statement said it was eager to begin doling out the money to its customers.  

“We are ready to distribute the court-mandated settlement funds to Kindle customers as soon as we’re instructed to move forward,” Amazon said. 

Apple did not respond to a request for comment. 

The underlying facts present a slightly odd dynamic for an antitrust case, where Apple was sanctioned as it tried to break into an e-book market still in its infancy. Amazon, on the other hand, had a near monopoly on the industry at that time, with about 90 percent market share.

But Apple’s scheme with publishers eventually led to an increase in e-book prices and the charges of violating the Sherman Act. 

In filings with the Supreme Court last year, Apple unsuccessfully attempted to frame the ruling against it as a threat to emerging businesses. 

“This case also presents issues of surpassing importance to the Unites States economy. Dynamic disruptive entry into new or stagnant markets — the lifeblood of American economic growth — often requires the very type of vertical contracting and conduct that the Second Circuit’s rule would condemn,” Apple lawyers told the court. 

The charges stem from e-book deals negotiated in early 2010 as Apple rushed to secure the contracts ahead of the launch of the iPad. According to the courts, Apple was frustrated with Amazon’s $9.99 price for most e-books and saw that price point as a threat, according to the courts. 

Similar to the way the App Store operates, Apple used agency model contracts with publishers, which allowed the publishers to set book prices and Apple would collect a fee from each sale. This allowed the publishers to set higher prices, but Apple believed it would only work if Amazon used the model as well. 

Amazon had operated on a different model, in which Amazon purchased the e-books in bulk from the publishers and set its own prices, which allowed it to stick to that $9.99 price point.

The court found that Apple’s contracts encouraged publishers to renegotiate with Amazon. The arrangement allowed the publishers to quickly take control of their pricing away from Amazon and raise the prices throughout the market. 

According to the district court back in 2013, Apple’s conduct as a whole painted a “clear portrait of a conscious commitment to cross a line and engage in illegal behavior with the publisher defendants to eliminate retail price competition in order to raise retail prices.”

Updated at 1:45 p.m.