By Joe Palazzolo
The U.S. government on Monday faced aggressive questioning from
judges reviewing a finding last year that Apple Inc. conspired with
publishers to raise the price of electronic books as it prepared to
enter the market in 2010.
Amazon.com Inc., though not a party in the case, cast a long
shadow over the arguments at the Second U.S. Circuit Court of
Appeals in Manhattan. The company held 80% to 90% of the market
before the iPhone maker decided to get into the book business, and
at least one of the three judges on the appellate panel suggested
that Apple's negotiations with publishers spurred competition by
"breaking the hold of a monopolist."
"It's like all the mice getting together to put a bell on the
cat," said Judge Dennis Jacobs.
Malcolm Stewart, one of the Justice Department's top appellate
lawyers, said antitrust officials were aware of Amazon's grip on
the market but regarded the company's aggressive discounting, $9.99
for most best sellers, as "a good thing for consumers." A
spokeswoman for Amazon didn't immediately respond to a request for
comment.
The Justice Department sued Apple in 2012, alleging civil
antitrust violations. After a three- week trial, U.S. District
Judge Denise Cote in Manhattan ruled last year that Apple,
Cupertino, Calif., helped publishers that were fed up with Amazon's
discounts, over which they had no control, change the marketplace.
Apple's agreements handed publishers power to set their own prices.
Some of the publishers had suggested the arrangement in meetings
with Apple executives, according to evidence presented during the
trial.
A key provision of the Apple contacts required publishers to
offer in Apple's store the lowest sale price in the marketplace.
That, in turn, ensured publishers would force Amazon to change its
business model, otherwise they would suffer heavy losses matching
Amazon's discounted prices, according to Judge Cote. Prices on many
e-books increased immediately.
Theodore J. Boutrous Jr., a lawyer for Apple, said Judge Cote
ignored the benefits consumers realized after Apple's entry into
the market. The iPad maker increased competition by diminishing
Amazon's power, he argued. Some new e-book prices increased, but
average prices across the market decreased, and the number of
available titles increased dramatically.
Apple agreed to pay $450 million in the wake of Judge Cote's
decision, most of it to e-book consumers, as part of a settlement
with private plaintiffs and 33 states that joined the Justice
Department's 2012 lawsuit against the company.
But Apple only has to pay if it loses its appeal. The publishers
also reached a settlement with authorities, paying a total of about
$160 million.
Write to Joe Palazzolo at joe.palazzolo@wsj.com
Access Investor Kit for Amazon.com, Inc.
Visit
http://www.companyspotlight.com/partner?cp_code=P479&isin=US0231351067
Access Investor Kit for Apple, Inc.
Visit
http://www.companyspotlight.com/partner?cp_code=P479&isin=US0378331005
Subscribe to WSJ: http://online.wsj.com?mod=djnwires