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The U.S. Court of Appeals for the Second Circuit today upheld a 2013 decision that found Apple guilty of conspiring with publishers to raise the prices of e-books, reports The Wall Street Journal. Apple is now expected to pay a $450 million fine originally set in July 2014 to settle the case, with a majority of that settlement earmarked for consumers as part of a class action lawsuit.

Apple filed the appeal in the antitrust case in December 2014, and the outcome was originally expected to favor the iPhone maker, although federal judge Debra Ann Livingston ultimately determined that the company colluded with publishers to fix the prices of e-books. The decision was finalized by a 2-1 ruling in the Second U.S. Circuit Court of Appeals in Manhattan on Tuesday.
"We conclude that the district court correctly decided that Apple orchestrated a conspiracy among the publishers to raise e-book prices," wrote Second Circuit Judge Debra Ann Livingston. The conspiracy "unreasonably restrained trade" in violation of the Sherman Act, the federal antitrust law, the judge wrote.
The Wall Street Journal has shared the full-length court document for the decision.

Article Link: Apple Loses Appeal in E-Books Price Fixing Lawsuit, Ordered to Pay $450 Million Fine
 
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GreenPixel

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Aug 21, 2014
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Good. Maybe this will discourage them from trying to force out free music streaming tiers from the market, as well.
 
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alexgowers

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Jun 3, 2012
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How does Amazon get away with it then? They sell and sold books at under he market value short changing the authors. I'm far more on the side of over charging for creative content than under. In the USA it seems the consumer being charged a fair rate for goods is more important than companies being ripped apart by allowing them to price fix and undercut. That competition is good but not at the expense of the people who create that medium. I'm sure apple are guilty but not for doing the wrong thing in my eyes they stabilised the prices and brought down prices to realistic levels for all.
 
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bibigon

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Aug 29, 2011
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How does Amazon get away with it then? They sell and sold books at under he market value short changing the authors. I'm far more on the side of over charging for creative content than under. In the USA it seems the consumer being charged a fair rate for goods is more important than companies being ripped apart by allowing them to price fix and undercut. That competition is good but not at the expense of the people who create that medium. I'm sure apple are guilty but not for doing the wrong thing in my eyes they stabilised the prices and brought down prices to realistic levels for all.

Two issues with the bolded:

1) Amazon doesn't set e-book prices. That's why Apple got his with this price fixing lawsuit. Apple got the publishers to agree to move to an agency model, where the publishers set e-book prices.

2) Apple didn't bring down prices - Apple raised them. From the point of view of antitrust, and economics, we want goods and service sold at the price dictated by the intersection of supply and demand. The idea of "ruinous competition" is basically discredited at this point. The consensus of most economists is that lower prices for the consumer are a good thing. Antitrust law seeks to protect consumers first and foremost.
 
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BaldiMac

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Jan 24, 2008
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Two issues with the bolded:

1) Amazon doesn't set e-book prices. That's why Apple got his with this price fixing lawsuit. Apple got the publishers to agree to move to an agency model, where the publishers set e-book prices.

Amazon does set eBook prices ever since the publishers settled with the DOJ. The also did set eBook prices before Apple entered the market.

2) Apple didn't bring down prices - Apple raised them.

Apple didn't raise prices. Under the agency model, the publishers set prices, not Apple.

From the point of view of antitrust, and economics, we want goods and service sold at the price dictated by the intersection of supply and demand.

And yet before Apple entered the market, eBook prices were set almost entirely (90%) by Amazon. Not market forces.

The idea of "ruinous competition" is basically discredited at this point. The consensus of most economists is that lower prices for the consumer are a good thing. Antitrust law seeks to protect consumers first and foremost.

No. Antitrust law seeks to protect competition first and foremost. It is recent enforcement that seeks to put consumers over competition.
 
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bibigon

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Aug 29, 2011
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Amazon does set eBook prices ever since the publishers settled with the DOJ.
Can you source this? My understanding is that Amazon is still on the agency model.

Apple didn't raise prices. Under the agency model, the publishers set prices, not Apple.
The DOJ accused (and proved) that Apple orchestrated a hub-and-spoke conspiracy, with Apple acting as the hub between the publishers for the collusion. Apple was a key part of the publishers raising prices according to the DOJ.

And yet before Apple entered the market, eBook prices were set almost entirely (90%) by Amazon. Not market forces.
Amazon is subject to market forces, even with a 90% e-book share. They negotiate against the publishers, without collusion (to our knowledge). They likewise (to our knowledge), have not been (credibly) accused of anti-competitive tying, bundling, or exclusive dealing in furthering their market position.

No. Antitrust law seeks to protect competition first and foremost. It is recent enforcement that seeks to put consumers over competition.
This is incorrect. Antitrust law has been concerned solely with consumer welfare for ~40 years now. (I am an antitrust attorney).
 
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ArtOfWarfare

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Nov 26, 2007
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Time to appeal this to the Supreme Court now, right?

And if Apple loses that, too, they can always resort to standing in the doorway (equaivalent to a DoS attack?)
 
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Oletros

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Jul 27, 2009
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How does Amazon get away with it then? They sell and sold books at under he market value short changing the authors

This is not true, they sell and sold SOME books at a loss, like every other industry

At least EU is looking at Amazon.

Yap, like they looked at Apple and the publishers. And I expect that the case goes like the former and Amazon changes policies like the publishers and Apple did
 
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BaldiMac

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Jan 24, 2008
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Can you source this? My understanding is that Amazon is still on the agency model.

The publishers settlements dissolved all agreements that restricted retail price competition.
http://www.wired.com/2012/04/doj-terms-settlement-ebook/

See Amazon's current pricing if you need additional confirmation.

The DOJ accused (and proved) that Apple orchestrated a hub-and-spoke conspiracy, with Apple acting as the hub between the publishers for the collusion. Apple was a key part of the publishers raising prices according to the DOJ.

The DOJ didn't "prove" that Apple orchestrated the conspiracy. The district court didn't even find that Apple was aware of the conspiracy! The court did not even find that any of the actions that Apple took were illegal.

Cote: "If Apple is suggesting that an adverse ruling necessarily implies that agency agreements, pricing tiers with caps, MFN clauses, or simultaneous negotiations with suppliers are improper, it is wrong. As explained above, the Plaintiffs have not argued and this Court has not found that any of these or other such components of Apple’s entry into the market were wrongful, either alone or in combination."

Cote: "It is also not illegal for a company to adopt a form “click-through” contract, negotiate with all suppliers at the same time, or share certain information with them."


This was a civil case with a minimal burden of proof. The DOJ was able to meet that burden as confirmed by both the district court and the appellate court in reasonable decisions. I simply disagree with them. :)

Amazon is subject to market forces, even with a 90% e-book share.

What market forces? A significant raise in wholesale pricing couldn't even get them to raise their retail prices.

They negotiate against the publishers, without collusion (to our knowledge).

So when 90% of the market "negotiates", that's okay. But when 40% of the market (five publishers) negotiates, that's bad. And if the number one and two publishers merge to control 30%+ of the market, that's okay.

Seems pretty arbitrary to me.

They likewise (to our knowledge), have not been (credibly) accused of anti-competitive tying, bundling, or exclusive dealing in furthering their market position.

I completely disagree here. Monopsony power, vendor lock in with the kindle format, and below cost pricing for new and bestselling eBooks was unquestionably a barrier to entry for new competition.

This is incorrect. Antitrust law has been concerned solely with consumer welfare for ~40 years now. (I am an antitrust attorney).

https://www.ftc.gov/tips-advice/competition-guidance/guide-antitrust-laws
 
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bibigon

macrumors member
Aug 29, 2011
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The DOJ didn't "prove" that Apple orchestrated the conspiracy. The district court didn't even find that Apple was aware of the conspiracy! The court did not even find that any of the actions that Apple took were illegal.

What part of the ruling is confusing to you:

From Judge Cote:

“The plaintiffs have shown that the publisher defendants conspired with each other to eliminate retail price competition in order to raise e-book prices, and that Apple played a central role in facilitating and executing that conspiracy, [...]. Without Apple’s orchestration of this conspiracy, it would not have succeeded as it did in the spring of 2010.”

From the Second Circuit today:

"We conclude that the district court’s decision that Apple orchestrated a horizontal conspiracy among the publisher defendants to raise e-book prices is amply supported and well‐reasoned, and that the agreement unreasonably restrained trade in violation of [Section] 1 of the Sherman Act,"

I completely disagree here. Monopsony power, vendor lock in with the kindle format, and below cost pricing for new and bestselling eBooks was unquestionably a barrier to entry for new competition.

Again, antitrust law isn't concerned with helping competitors. We're concerned with helping consumers. Selling good below cost is good for consumers - it leads to cheaper books! Monopsony power isn't inherently bad for consumers either.

I don't understand why you think linking to the FTC site helps your claim. Do you want me to quote you the Supreme Court case explaining this? I linked you an article explaining how our antitrust laws are applied.
 
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BaldiMac

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What part of the ruling is confusing to you:

From Judge Cote:

“The plaintiffs have shown that the publisher defendants conspired with each other to eliminate retail price competition in order to raise e-book prices, and that Apple played a central role in facilitating and executing that conspiracy, [...]. Without Apple’s orchestration of this conspiracy, it would not have succeeded as it did in the spring of 2010.”

From the Second Circuit today:

"We conclude that the district court’s decision that Apple orchestrated a horizontal conspiracy among the publisher defendants to raise e-book prices is amply supported and well‐reasoned, and that the agreement unreasonably restrained trade in violation of [Section] 1 of the Sherman Act,"

As I said, it's a completely reasonable conclusion in the context of the case. However it is not based on evidence that Apple was aware of the alleged collusion between publishers. I've read the district court ruling, and I cannot think of a way that Apple could successfully enter the market without falling to logic used by the district court to prove this case.

Again, antitrust law isn't concerned with helping competitors. We're concerned with helping consumers.

:D I didn't say competitors. I said competition.

Selling good below cost is good for consumers - it leads to cheaper books!

Then why is predatory pricing illegal?

Monopsony power isn't inherently bad for consumers either.

i didn't claim that it is. I claimed that it was bad for consumers in combination with the other factors that I listed.

I don't understand why you think linking to the FTC site helps your claim. Do you want me to quote you the Supreme Court case explaining this? I linked you an article explaining how our antitrust laws are applied.

i'm probably just splitting hairs here. My view is that the antitrust laws are designed to maintain competition in order to protect consumer welfare. Not to protect consumer welfare at the expense of competition.

For example, the goal should be efficient pricing, not lower pricing. Otherwise, why would the DOJ allow any pricing over free? Free is better for consumers! :)
 
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bibigon

macrumors member
Aug 29, 2011
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Let me correct that: The consensus of most us american economists, which the rest of the world considers utterly mad
That's not really true with respect to antitrust economics. The U.S. is pretty mainstream in this respect. Our fines are a bit smaller than the EC's, but we are broadly in line.
 
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bibigon

macrumors member
Aug 29, 2011
79
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As I said, it's a completely reasonable conclusion in the context of the case. However it is not based on evidence that Apple was aware of the alleged collusion between publishers. I've read the district court ruling, and I cannot think of a way that Apple could successfully enter the market without falling to logic used by the district court to prove this case.
Fair enough. I think the evidence was pretty unambiguous, and so did the DOJ, the Southern District, and two of three judges on the Second Circuit, but I suppose reasonable minds can differ.

:D I didn't say competitors. I said competition.
I don't know what that means. Neither does anyone else for that matter. That's why the Supreme Court adopted the current "consumer welfare" approach - there was a general realization that "competition" could mean anything. To make it concrete however - the things you mentioned are broadly legal.

Then why is predatory pricing illegal?
Selling below cost is legal. Selling below cost, AND then raising prices can be illegal. That's what makes something predatory pricing. This is extremely rare however (as the FTC points out).

Your competitor can sell below cost, run you out of business, and until they raise prices above market levels, nothing illegal has happened.

i'm probably just splitting hairs here. My view is that the antitrust laws are designed to maintain competition in order to protect consumer welfare. Not to protect consumer welfare at the expense of competition.
Antitrust laws don't protect consumer welfare at the expense of "competition", but they do often protect consumers at the expense of competitors. As I noted above (as as the Wright article I linked earlier discusses, "competition" is a very broad term that can mean anything, which is why courts have narrowed the inquiry onto consumer welfare.

For example, the goal should be efficient pricing, not lower pricing. Otherwise, why would the DOJ allow any pricing over free? Free is better for consumers!
This really isn't that complicated. From the perspective of antitrust law (and mainstream economics), "efficient" pricing is whatever is reached by competitors without agreement between each other. This means pricing can go so low as to run all but one competitor out of business, and that's fine if it's done in response to consumer demand.

The DOJ and FTC don't get involved in setting or regulating prices (with limited exceptions). They're not trying to enforce low prices. They're trying to enforce market prices - i.e., prices reached by sellers acting independently. If the publishers had independently moved to the agency model, then there would be no issue. It's the fact that they had an agreement to do it that caused the issue. This really isn't that tough a burden. Don't agree on business models or price with you competitors, and don't facilitate such agreements.
 
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Dranix

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Feb 26, 2011
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That's not really true with respect to antitrust economics. The U.S. is pretty mainstream in this respect. Our fines are a bit smaller than the EC's, but we are broadly in line.

Don't think so. I'm pretty sure the us would get mad over our nice fixed book prices in Germany.

And european anti-trust-laws are targeted to protect competition not consumer-prices. Their duty is to enable a fair competition.
 
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