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Case 16.1
UNITED STATES OF AMERICA V. APPLE INC.
United States District Court for the Southern District of New York
952 F. Supp. 2d 638; 2013 U.S. Dist. LEXIS 96424 [July 10, 2013]
FACTS:
The Publisher Defendants conspired together to raise the prices of their e-books.
They shared a common motivation; the elimination of the “wretched” $9.99 retail prices that
Amazon, the chief distributor of their e-books, choose for many of their New Releases, including
New York Times (NYT) Bestsellers.
From late 2008 through 2009, the Publisher Defendants collectively tried (through a variety of
means) to pressure Amazon to raise the prices of e-books. Their efforts proved futile.
Then, through agency agreements that each Publisher Defendant executed with Apple over the
course of just three days in January 2010, and with Amazon (and other e-retailers) in the weeks
that followed, the Publisher Defendants simultaneously switched from a wholesale to an agency
model for the distribution of their e-books.
When the iPad went on sale and the iBookstore went live in early April 2010 each of the Public
Defendants used their new pricing authority to substantially raise the prices of their e-books
overnight.
This price-fixing conspiracy would not have succeeded without the active facilitation and
encouragement of Apple. Apple not only willingly joined the conspiracy, but also facilitated it.
The Plaintiff brought this suit alleging a horizontal price-fixing conspiracy in violation of the
antitrust law, the Sherman Act.
PROCEDURE: This is the first hearing on this matter.
ISSUE: Whether Apple Inc.’s coordination of competitive restraints constituted a horizontal price-fixing
conspiracy in violation of the Sherman Act?
RULE: Section 1 of the Sherman Act, “outlaws every contract combination, or conspiracy, in restraint
of trade or commerce among the several states. To establish a conspiracy in violation of Section 1,
then, proof of joint or concerted action is required. In particular, plaintiffs must show (1) a
combination or some form of concerted action between the least two legally distinct economic entities
that, (2) constituted an unreasonable restraint of trade either per se or under the rule of reason.”
REASONING:
1. Apple convinced the Publisher Defendants that Apple shared their goal of raising e-book prices, and
helped them realize that goal.
competition.
3. Unless a Publisher Defendant followed through and transformed its relationships with Amazon and
other resellers into an agency relationship, it would be in significantly worse financial shape as a
result of its agency contract with Apple.
ADDITIONAL INFORMATION:
Even though Apple had told the Big Six in December that it needed all of them to sign on in order to
open its e-bookstore, on January 21 it learned that Random House, the largest publisher, would not
sign an agency agreement.
The Publisher Defendants raised the prices of New Release e-books and some of their New Release
hardcover books in order to move the e-book version into a higher price tier.
All of the Publisher Defendants raised the prices of their blacklist e-books, which were not
governed by the Agreement price tier regimen.
