In a major rebuke, a federal judge has ruled that Apple violated antitrust laws when it conspired with book publishers to raise the price of ebooks. The 160-page opinion, delivered by U.S. District Judge Denise Cote, finds that Apple "brilliantly played its hand" as the ringleader of an attempt to re-engineer the entire ebook industry.
Had Apple gotten away with it, the plan could have resulted in the rest of us paying significantly more for electronic literature. But the case was never really about Apple. To understand how and why this played out like it did, we need to start with Amazon. Here goes, in six bullet points:
- At the turn of the decade, Amazon was selling ebooks for as low as $9.99 a pop -- a fantastic deal for consumers, but not so much for publishers who were used to charging more.
- Amazon was actually losing money on ebook sales, but it didn't care. The long-term goal was to get people to buy Kindle e-readers.
- Publishers never expected Amazon to sell their books at a loss, but there wasn't anything they could do about it because of the way they'd set up their deal with the Internet company.
- The publishers worked with Amazon under what's called a "wholesale" model, where book makers sell products to retailers for a certain, agreed-upon price but then relinquish price-setting authority at retail.
- With Amazon's aggressive pricing, the publishers reasoned, the Internet company might grow so powerful as to be able to drive down prices for all books, even the hardcovers sold in mom-and-pop stores. Amazon might even begin to negotiate directly with authors and cut out the publishing houses altogether.
- That's when Apple arrived on the scene. Recognizing a chance to capitalize on publishers' Amazon jitters, Apple proposed a new business model that would let publishers retain control over the retail price of their ebooks. Apple would be the publishers' agent, taking a 30-percent cut.