Apple is pulling out all the stops in its bid to overturn a ruling that it fixed ebook prices. In a new filing to the Supreme Court, the company insists the federal government and a lower court made a crucial legal error, and warns the result could be a “long shadow” on the digital economy.
The filing is part of a long-running saga in which the Justice Department says Apple organized a plot by book publishers to fix prices and wrest control of the ebook market away from Amazon. After losing in the lower courts, Apple (AAPL) is slated to pay a $450 million penalty under a settlement with class action lawyers—unless the Supreme Court steps in and reverses the case. Apple initially petitioned the top court in October.
Apple’s latest argument, which it put before the Supreme Court on Friday, is pretty technical but it boils down to this: even if Apple did participate in the publishers’ conspiracy, the lower court should not have found the company to be automatically liable. The reason is that Apple was not part of a horizontal conspiracy involving competitors, but instead was part of a vertical agreement involving suppliers. (Apple’s role was to hatch a deal in which publishers could set their own price in the ebook market and put a stop to Amazon’s discounting).
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The federal government’s own submission to the Supreme Court is wrong, Apple says, because it makes the legal mistake of classifying Apple as a horizontal competitor. The right legal test, according to the company, should involve looking at whether Apple’s activity actually harmed competition; Apple insists it did not, and that its entry into the ebook market helped shake up a monopoly controlled by Amazon:
Apple’s recognition of the publishers’ concerns regarding Amazon’s unchallenged power was a critical means of generating publisher interest in the new platform. […] Organizing a critical mass of publishers was a business necessity for Apple, as was telling the publishers about the required critical mass so that suppliers understood the needs of the new platform they were being asked to support.
In the filing, Apple also insists that it knew nothing about the “most damning facts” involving the book publishers’ conspiracy, including a notorious series of dinners in which publisher CEOs met in high-priced restaurants to discuss prices.
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For Apple, the case appears to be less about business concerns than principle since ebooks today are a very marginal part of its operations. Likewise, the prospective $450 million penalty is relatively insignificant to a company of Apple’s size.
Apple instead appears to be seeking vindication for a long and bruising fight with the Department of Justice. The Supreme Court’s decision whether or not to hear the case will likely come in the next few weeks. Here’s a copy of Apple’s reply brief if you want to read it yourself (I’ve underlined some of the key bits)
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