Once upon a time, the US Department of Justice, along with 30 US States, commenced litigation against Apple and 5 major publishers alleging price-fixing of ebooks. Four years on and the litigation has come to an end with Apple’s petition to the US Supreme Court being denied by the Court on 7 March 2016.

Apple had requested the US Supreme Court review the decision by the US Court of Appeals for the Second Circuit in 2015 which upheld the initial trial decision delivered by the New York District Court in 2013. As a result of the US Supreme Court denying Apple’s request, the decision of the New York District Court at first instance stands.

The New York District Court’s decision was the subject of our previous post. That Court held that Apple had ‘conspired to restrain trade’ by engaging in vertical agency models with 5 publishing competitors (Hachette, HarperCollins, Simon & Schuster, Penguin and Macmillan) in violation of the Sherman Antitrust Act, 15 U.S.C. § 1. The District Court rejected Apple’s argument that its entry into the ebook market which, at the time was monopolised by Amazon, was procompetitive, and ruled that Apple had violated federal antitrust law by playing a central role in a coordinated conspiracy with the publishers, with the clear purpose of eliminating retail price competition of ebooks.

At the time of the District Court’s decision, Apple was the only remaining defendant, as the US Department of Justice had reached settlement agreements with all 5 publishers prior to trial.

As a result of the proceedings, Apple is to pay $400 million to ebook consumers, $20 million to the US States and $30 million in legal fees. Further, Apple was ordered to:

  • stagger future negotiations with publishers;
  • avoid simultaneous agreements;
  • not include most-favoured nation clauses that affect competitive pricing; and
  • be monitored for its development of antitrust compliance programs.

A parallel plot line

The European Commission investigations, also based on price-fixing allegations, resulted in Apple, along with the 5 publishers (Hachette Livres, HarperCollins, Simon & Schuster, Penguin Random House and Georg von Holtzbrinck Verlagsgruppe), all reaching settlement agreements prior to trial. Now the European Commission is investigating Amazon for anti-competitive conduct allegations also in relation to its ebook agreements with publishers.

The moral of the story

So, they did not all live happily ever after.

There are important lessons to be learnt about vertical arrangements and their potential to constitute anti-competitive conduct. Vertical arrangements can be beneficial due to their promotion of efficient distribution channels and cost reduction. However, where these benefits are outweighed by negative impacts, such as reducing competition among firms already in the market or preventing new firms from entering the market, these arrangements may raise competition concerns.