Apple Likely To Face More Lawsuits After E-Books Loss

Mark Patterson in Investors Business Daily, July 10, 2013

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Apple's (AAPL) loss in the U.S. government's e-book price-fixing case opens the door for more lawsuits and antitrust inquiries into the tech giant, legal experts say.

A federal judge ruled Wednesday that Apple conspired with five book publishers to raise retail prices on e-books in violation of U.S. antitrust law. This resulted in consumers paying millions of dollars more for e-books because pricing power was taken away from e-book retailers like Amazon.com (AMZN) and Barnes & Noble (BKS), the Justice Department said.

"I believe this is only the beginning of inquiry by the Justice Department and other countries to look at Apple more closely," said Jerry Reisman, a partner in the Garden City, N.Y., law firm Reisman Peirez Reisman & Capobianco. "It will be interesting to see what the EU does."

The European Union has been more aggressive than America when it comes to investigating perceived anti-competitive business actions, he says.

The ruling is likely to spark private lawsuits against Apple as well, now that the evidence has been laid out, Reisman says.

U.S. District Judge Denise Cote in Manhattan sided with the Justice Department and 33 state attorneys general after a three-week civil trial. She called for a hearing on damages and remedies. Apple says it will appeal.

Apple was accused of colluding with the publishers beginning in late 2009, when the Cupertino, Calif.-based firm prepared to launch its iPad tablet. The Justice Department said the conspiracy was designed to undercut Amazon, which dominated the fast-growing e-book market with its Kindle e-readers and online bookstore.

The publishers that earlier reached settlements with the government are CBS Corp.'s (CBS) Simon & Schuster, News Corp.'s (NWS) HarperCollins, Lagardere's Hachette Book Group, Pearson's Penguin Group and Macmillan Publishers.

The case against Apple looked strong from the start, says Mark Patterson, a professor at Fordham Law School who specializes in antitrust matters. He's say it's clear Apple orchestrated a new pricing scheme for e-books with its iPad in mind.

Now Apple wants to paint itself as the "wronged, oppressed innovator," he said.

Apple says it busted Amazon's near monopoly in e-books, but that doesn't justify anti-competitive collusion among rival content suppliers, Patterson says.

"Apple has a lot more fighting to do," said S&P Capital IQ analyst Scott Kessler. Apple will take its case next to the 2nd Circuit Court of Appeals.

The Apple Appeal Aim

Apple wants to save face, Gartner analyst Allen Weiner said: "Apple doesn't want to lose in the court of public opinion.

"The judge's decision, he said, makes Apple look like a "bully.

"The stock market shrugged off the verdict because e-books are a small part of Apple's business, Kessler says, and Apple should be able to absorb any fines easily. Shares fell a fraction.

"Apple did not conspire to fix e-book pricing, and we will continue to fight against these false accusations," company spokesman Tom Neumayr said in a statement. "When we introduced the iBookstore in 2010, we gave customers more choice, injecting much needed innovation and competition into the market, breaking Amazon's monopolistic grip on the publishing industry."

Evidence at trial showed e-book prices from the conspiring publishers rose by an average of 18% as a result of the collusive effort led by Apple, Assistant Attorney General Bill Baer said in a statement.

"This result is a victory for millions of consumers who choose to read books electronically," he said.

Judge Cote said the conspiracy resulted in prices for some e-books rising to $12.99 or $14.99, whereas Amazon had sold them for $9.99.

In her 160-page decision, Cote said, "Without Apple's orchestration of this conspiracy, it would not have succeeded as it did in the spring of 2010."