Apple Inc. (AAPL) E-books Antitrust Appeal Sails Smoothly

Apple (AAPL)

Apple Inc. (NASDAQ:AAPL)’s e-books antitrust appeal court proceedings appear to be in favor of the Cupertino, California company. Department of Justice lawyer Malcolm Stewart endured tough questioning from the judges of the 2nd U.S. Circuit Court of Appeals in New York, under which jurisdiction Apple’s appeal is being heard. Circuit Judge Dennis Jacobs, who sees Apple’s agreements with major publishers as defeating a dominant market player’s pricing techniques, particularly asked why it is wrong for publishers to band together to break free from a “monopolist’s hold”. The “monopolist” being referred to in this case is Amazon.com, Inc. (NASDAQ:AMZN), which, prior to Apple’s entry to the e-books industry, has set e-books prices and held 90 percent share of the market.

A commentary in Fortune, quoting Roger Parloff, notes that  the appellate court seemed to be concerned that the 2013 decision by Judge Cote against Apple Inc. (NASDAQ:AAPL) have used the wrong standard, favoring the tech giant’s argument that the said decision is a “radical departure” from modern antitrust law. According to Judge Jacobs, Apple as a new entrant to the e-books industry would bring competition to the market, at a time when Amazon as a dominant player has fixed e-book prices at $9.99, which he sees as “predatory pricing”.

Apple (AAPL)Apple Inc. (NASDAQ:AAPL)’s entry into the ebook market in 2009, at a time it was launching the iPad,  provided a way for publishers to balance prices between e-books and print books, according to the Wall Street Journal. Apple’s “agency model” allowed publishers to set their prices, with Apple selling their e-books at 30 percent commission rate. In contrast, Amazon’s “wholesale model”, which it initiated through its Kindle, gave it a leeway to sell e-books at lower costs, as loss leaders, making publishers worried about its effect on the sale of their print books.

For its part, the government argues that Apple Inc. (NASDAQ:AAPL) has caused the rise of e-book prices from Amazon’s $9.99 to $12.99 or $14.99. Apple’s lawyer Theodore Boutrous contended that the company’s entry into the e-book market was in fact pro-competitive and innovative. To Apple’s advantage, Circuit Judge Debra Livingston sees it “troubling” that the company’s “perfectly legal” contracts with publishers have been subject to allegations of scheming. A favorable decision on the appeal would free Apple from paying the $450 million settlement cost charged against it by Judge Cote’s earlier decision. On the other hand, an adversarial decision would make the amount available for the 33 attorneys general and class consumer lawyers.

This article has been written by Nonito Guntan.

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