Apple isn’t merely contesting allegations that it conspired with major book publishers to fix prices in the e-book industry, it’s disputing them vehemently. That much is clear based on a new filing from the company laying out its defense in the case.
“The Government sides with monopoly, rather than competition, in bringing this case,” Apple writes in the filing. “The Government starts from the false premise that an eBooks “market” was characterized by “robust price competition” prior to Apple’s entry. This ignores a simple and incontrovertible fact: before 2010, there was no real competition, there was only Amazon.”
The response is a counterpoint to the case laid out by the Justice Department in its lawsuit last month, describing an “aikido move” by Apple to team up with major publishers to fix prices and combat Amazon’s power by keeping it from deeply discounting e-books.
The Government’s Complaint against Apple is fundamentally flawed as a matter of fact and law. Apple has not “conspired” with anyone, was not aware of any alleged “conspiracy” by others, and never “fixed prices.” Apple individually negotiated bilateral agreements with book publishers that allowed it to enter and compete in a new market segment – eBooks. The iBookstore offered its customers a new outstanding, innovative eBook reading experience, an expansion of categories and titles of eBooks, and competitive prices.
The Government sides with monopoly, rather than competition, in bringing this case. The Government starts from the false premise that an eBooks “market” was characterized by “robust price competition” prior to Apple’s entry. This ignores a simple and incontrovertible fact: before 2010, there was no real competition, there was only Amazon. At the time Apple entered the market, Amazon sold nearly nine out of every ten eBooks, and its power over price and product selection was nearly absolute. Apple’s entry spurred tremendous growth in eBook titles, range and variety of offerings, sales, and improved quality of the eBook reading experience.
This is evidence of a dynamic, competitive market. These inconvenient facts are ignored in the Complaint. Instead, the Government focuses on increased prices for a handful of titles. The Complaint does not allege that all eBook prices, or even most eBook prices, increased after Apple entered the market.
The Government alleges that Apple conspired to eliminate retail price competition. This is absurd. Nothing Apple did reduced competition or fixed prices. As an agent, Apple did not set prices. Nor did Apple have an interest in higher prices for eBooks. Indeed, Apple negotiated two limits on Publisher pricing – maximum prices to make sure electronic books cost considerably less than physical books, and the right to require a publisher to match in the iBookstore a lower competitive price on new release titles being offered elsewhere. The price matching term allowed exceptions for promotions, was not rigidly self-executing, and encouraged, not discouraged, competition, as publishers’ respective titles could directly compete at retail against each other on the merits, including price.
Apple’s entry has benefitted consumers. Apple’s entry brought competition where none existed. Amazon still has a dominant share in eBook and physical distribution, with significant power it often leverages over the producers and consumers of books to the detriment of both. But prior to Apple’s entry, Amazon effectively stood alone and unchallenged. No longer.
Amazon is now forced to compete with Apple, Barnes & Noble, and others. And the pace of innovation has quickened, enticing more and more consumers to try eBooks. Apple introduced a number of innovative features, such as color pictures, audio and video, the read and listen feature, and fixed display (critical for graphics-intensive books like cookbooks, travel books, and textbooks, many of which were unavailable before Apple’s entry). As a result—as even the Government is compelled to admit—output has exploded. Consumers enjoy vastly increased choice. Amazon has had to compete and innovate beyond its small black and white eReader, enriching the experience for consumers across all platforms.
Apple offered any Publisher interested in the iPad platform and iBookstore the ability to sell its eBooks directly to consumers, rather than dealing only with a single dominant buyer, Amazon. It offered eBook consumers who had no interest in owning a Kindle eReader a new platform to obtain and read eBooks. Apple’s entry also provided new opportunities for self publishing and smaller publishing houses. Apple is not privy to Amazon’s motivations when it adopted the agency model, but enabling entry and introducing new competition, which is all Apple did, cannot be a violation of the antitrust laws.
The Supreme Court has made clear that the antitrust laws are not a vehicle for Government intervention in the economy to impose its view of the “best” competitive outcome, or the “optimal” means of competition, but rather to address anticompetitive conduct. Apple’s entry into eBook distribution is classic procompetitive conduct, and for Apple to be subject to hindsight legal attack for a business strategy well-recognized as perfectly proper sends the wrong message to the market, and will discourage competitive entry and innovation and harm consumers.