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From Antitrust Law Daily, September 17, 2015

Apple seeks Supreme Court ruling on eBook price-fixing case

By Jody Coultas, J.D.

Apple filed a request with the U.S. Supreme Court for a 30 day extension of time for filing a petition for writ of certiorari, signaling that it will appeal the ruling handed down by a federal district court in New York City that Apple orchestrated a conspiracy among five major publishing companies to raise the prices of electronic books and that the conspiracy unreasonably restrained trade (Apple Inc. v. U.S., September 16, 2015).

In November 2009, Apple Inc. was set to release a new tablet computer, the iPad, and saw an opportunity to sell electronic books (“e-books”) on the device. Apple entered into functionally-identical agreements with five publishers—Hachette Book Group Inc., HarperCollins Publishers L.L.C., Simon & Schuster Inc., Penguin Group (USA) Inc., and Holtzbrinck Publishers, LLC — to distribute e-books through its “iBookstore.”

As a result of the negotiations, the industry moved to a new sales model for e-books known as the “agency model,” under which publishers sold titles to consumers directly at prices set by the publishers with retailers serving as the publishers’ “agents” and receiving a percentage of each sale as commission. The agency agreements that Apple and the publishers executed also included a price parity provision, or Most-Favored-Nation clause (MFN). The MFN permitted Apple to match the lowest retail price listed on any competitor’s e-bookstore and imposed a penalty upon a publisher if it did not force other retailers to switch to the agency model.

In April 2012, the U.S. Department of Justice Antitrust Division and 33 state attorneys general brought actions against Apple and the five publishers for conspiring to fix the sales prices of e-books, in violation of Section 1 of the Sherman Act and state antitrust laws. All five of the publishers settled the federal and state charges and signed consent decrees with the U.S. Department of Justice (DOJ).

In July 2013, following a bench trial, the district court determined that, in order to induce the publishers to participate in the iBookstore and to avoid competition over the retail price of books, Apple orchestrated a conspiracy among the publishers to raise the price of e-books. In September 2013, the district court entered a final judgment on the liability finding and issued an injunction preventing Apple from signing agreements with those publishers that restrict its ability to set, alter, or reduce the price of e-books and requiring Apple to apply the same terms and conditions to e-book applications sold on its devices as it does to other applications. Apple appealed. Simon & Schuster, Inc. and Holtzbrinck Publishers, LLC joined the appeal, arguing that the portion of the injunction relating to Apple’s pricing authority unlawfully modified their consent decrees.

The appeals court affirmed the district court’s judgment and order, preventing Apple from signing agreements with those publishers that restrict its ability to set or alter electronic book prices.

In its filing, Apple asserts that the Second Circuit’s ruling highlights a significant question of law on which district courts are divided. At issue, according to Apple, is whether and when per se liability under the Sherman Act may apply to a firm’s vertical conduct. The application for extension notes that if the case had been brought in the Third Circuit, the conduct at issue would have been assessed under the rule of reason. Apple argues that market innovation and entry require the type of vertical contracting at issue in this case.

The case is No. 15A-301.

Attorneys: Seth P. Waxman (Wilmer Cutler Pickering Hale and Dorr LLP) for Apple Inc.

Companies: Apple Inc.

MainStory: TopStory Antitrust

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