E-books: Apple rails against DOJ and ‘monopolist’ Amazon

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.

Here’s an extended excerpt from Apple’s response, via Computerworld.

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.

  • Guest

    Govt should probably butt out on this one.

  • Bob

    I wish them luck. But I can’t imagine a clearer set of facts supporting the Government’s contention that Apple actively conspired and colluded with Amazon’s competitors, the net result of which was higher prices for consumers. Attacking the Government head on is ballsy, I’ll grant Apple that. I’m just not sure how intelligent it is. That’s the kind of arrogance in the face of superior fire power that ended up getting MS busted and broken a decade ago. And the facts then were much less clear,  and the harm to consumers more difficult to quantify.

    • Guest

      Because the Govt’s case is fundamentally flawed.  You (the publisher) don’t control the price in the amazon store.  Try offering a book for free on each store and see what happens.  The case attempts to prop up an intermediator rather than allowing disintermediation, which is ALWAYS in the long term financial interest of consumers. 

      • Bob

        Flawed or not (I disagree), arrogance and aggressiveness with the Government is rarely a winning strategy. Also, you (the manufacturer) don’t normally control the price in any retail store. At best, you set a MSRP; The retailer determines the final selling price. Why should ebooks be any different?

        That the case is about the Government propping up an intermediary is a straw man argument introduced by Apple that defies common sense or a cogent explanation for the Government’s motivation in doing so. The case is about whether Apple’s actions with Amazon’s competitors crossed the line of lawful competition and harmed consumers. I think the Government will have a relatively easy time shouldering their burden of proof. So Apple better come up with something better than bluster and baseless Government conspiracies.

    • Jerry

      The gov’t has superior fire power?  Have you seen Apple’s Balance Sheet vs. the Govt?  I’m betting on Apple, literally, I own their stock!

      • Guest

        Jerry, Apple’s balance sheet is in dire straits. Tim Cook considers it his mission to give away Apple’s record cash pile: he’s been paying dividends to shareholders, giving extra money to employees, and building nicer dorms for employees of Chinese subcontractors (subcontractors!). He’s done this while effectively ceasing development of iPhone 5, iTV, MacBook Touch, and other products that are meant to keep Apple in a dominant market position, while prioritizing such trainwrecks as iPad mini.

        Our government is pretty bad at spending money, but Tim Cook? Worse.

        • Guest

          “Apple’s balance sheet is in dire straits”

          Thanks for the laugh.

      • Bob

        Yes, by a large margin. Yes. Did MS’s superior balance sheet protect it from the DOJ a little over a decade ago? Ans: No.

        Their stock going up is a good bet. Them winning this, not so much.

  • Adamjk

    Whenever I read one of Apple’s legal statements, I always add a stern southern accent of outrage. It’s adds more dimension and sense to the verbiage.

  • Realist

    Amazon sets the price of ebooks, not publishers, and they insist on the right to change a price, even to $0, at any time, pretty much without recourse. Apple let publishers set their own prices. Even in cases where Amazon doesn’t officially set prices, they have a very heavy hand on product pricing. When Amazon suggests you a price or a price change, they’re careful to say it’s your decision and they usually imply they didn’t make the suggestion they just made, but it’s obvious they’re in control. And what Amazon has done with the “free app of the day” for Android is very well documented.

    Who is the monopolist here?Apple has certainly done other things that are monopolistic. The lock on apps for iPhone and iPad (copied by both Amazon and Microsoft), the requirement to use iOS in-app purchase and block anything, even a URL, that might cause a purchase outside of it (also mostly copied by Amazon), the inability to dynamically download or generate code on iOS, which inhibits a fast third-party browser, the rules for the Mac App Store, etc.If the DoJ has decided they want to go after Apple for some reason, they should at least look at those practices, not anything they did with ebooks.

    • Guest

      So does Walmart. Famously so. Nothing illegal about it.

      Trying to make inroads against a competitor by colluding with its suppliers and explicitly dangling a price increase to consumers as the carrot? Well, that’s something else entirely. Which probably explains why Apple is now in the DOJ’s crosshairs and not Amazon, at least currently.

      But I agree that Apple has done many other things that should have resulted in a DOJ inquiry previously, at least if the criteria applied to MS a decade ago were being enforced with any kind of consistency.

      • Guest

        there’s a HUGE difference between walmart setting prices and amazon setting prices.

        Walmart pays a wholesale price and sells for whatever they want. If Walmart lowers the sale price, it comes out of their profit.

        Amazon pays a percentage of sales price as does Apple. If Amazon unilaterally lowers the sale price, 70% of that comes out of the publisher’s revenue.

        Apple takes 30% of revenue from anyone that wants to write an app for their device. This is worse than what Microsoft did with internet Explorer.