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United States v. Apple, Inc. | 791 F.3d 290 (2015)
In two thousand seven, to promote its new Kindle e-reader, Amazon priced new releases and bestsellers at nine dollars and ninety-nine cents, a price equal to or lower than the wholesale price. This threatened the publishing industry, which sold print books at significantly higher prices. Consequently, when Apple offered a means of regaining price control, the publishers joined forces. In United States versus Apple, Incorporated, we explore whether the arrangement violated antitrust law.
Apple planned to launch the iPad in twenty ten and wanted to simultaneously launch iBookstore, an e-book marketplace. Matching Amazon’s pricing would prevent profitability. But Apple knew that the six largest American publishers, known as the Big Six, were unhappy with Amazon’s pricing and willing to work together to regain control.
When Apple approached the Big Six, it proposed an agency model. Publishers would set retail prices, subject to certain caps, and then pay Apple a fixed commission on each sale. Apple’s proposed distribution agreements also contained a most-favored-nation clause, requiring publishers to set iBookstore prices no higher than prices elsewhere, such as on Amazon. The clause insulated Apple from price competition. And because Apple made clear that each publisher was offered the same terms, the arrangement also assured that publishers would be jointly motivated to regain pricing control from Amazon.
Five publishers contracted with Apple. After iBookstore launched, they collectively threatened book delays to force Amazon into agency agreements. They then increased e-book prices. And because iBookstore’s caps were tied to print prices, they increased those too.
The United States government and various states sued Apple and the publishers for antitrust violations. The publishers settled, but Apple went to trial.
The district court held, among other things, that Apple’s conspiracy with publishers to fix e-book prices constituted a per se violation of federal antitrust law. Apple appealed to the Second Circuit.
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