Apple Agrees To $450 Million Ebook Antitrust Settlement

An anonymous reader writes: Last year, a U.S. District Judge ruled that Apple conspired with publishers to control ebook prices in violation of antitrust laws. Apple launched an appeal which has yet to conclude, but they've now agreed to a settlement. If the appeal verdict goes against Apple, they will be on the hook for $450 million, most of which will go to consumers. If they win the appeal, they'll still have to pay $70 million. $450 million is much more than the other publishers had to pay, but much less than the expected penalty from a damages trial set for August (and still only about one percent of Apple's annual profit).

Comments

Fines don't mean anything to them!

[Anonymous Coward]

For a company which makes billions (and has probably made enough profit from this endeavour to justify the fine) fines like this mean nothing. Until people start getting jailed like normal people would do things like this will continue to happen. You can bet your ass if a CEO got 5 years in jail that company wouldn't set a single foot wrong after that for fear of it happening again.

Re:Fines don't mean anything to them!

[ShanghaiBill]

You can bet your ass if a CEO got 5 years in jail that company wouldn't set a single foot wrong after that for fear of it happening again.

Many murderers spend less than 5 years in jail. If we start jailing managers for bad decisions, you would hear a giant sucking sound as company HQs headed overseas, taking all the management and administrative jobs with them. There is always someone advocating the "iron fist" version of justice, but history shows that it really doesn't work well. We used to execute people for stealing bread, but people still stole bread. Punishment should be fair and proportionate.

Re:Fines don't mean anything to them!

[PopeRatzo]

Many murderers spend less than 5 years in jail.

I'm going to have to go ahead and ask for a citation on that one, bro.

Re:Fines don't mean anything to them!

[ShanghaiBill]

Many murderers spend less than 5 years in jail.

I'm going to have to go ahead and ask for a citation on that one, bro.

In 1987, the average time-served for 2nd degree murder in Florida was 6.8 years. That is more than five, but that is the average, so many murders served less time. Sentences are much more than that, but "time served" is, on average, only 60% of the original sentence, and in many cases, less than half. Plenty of other states have a reputation for more lenient sentencing than Florida, and more lenient parole boards.

Re:Fines don't mean anything to them!

[PopeRatzo]

In 1987, the average time-served for 2nd degree murder in Florida was 6.8 years [state.fl.us]. That is more than five, but that is the average, so many murders served less time.

Do you know how to read a graph?

If you look at the page you link to, you will see that the 6,8 year average for second degree murder was twenty years ago. The average by 2003 climbed to 21,6 years and the average murderer close to 27 years.

Now, since your original statement was in the present tense I'm still going to have to go ahead and call bullshit. The average SECOND DEGREE murder convictee will spend 21.6 years in the joint as of 2003, and the sentences were on the rise at that time. With all the mandatory sentencing laws going around, I will bet you that the average is higher today, ten years later.

Also, remember we're talking about Florida. If you're white and you kill a black guy in Florida, and you pay a $25 fine and get two tickets to a Marlins game and a coupon for more ammo.

So, there's still no indication that "many murderer spend less than 5 years in jail". You wanna hit up the Google and take another shot at it? I've got nothing to do tonight.

Cost of doing business

[dirk]

The thing I haven't seen addressed (and probably never will) is exactly how much money Apple was able to make from this. My guess is that they benefited far more than 450 million dollars from this. So if that is the case, why would they not do the same thing again since they came out ahead in the long run? You can't make the penalty less than what the company made by breaking the law, as it just becomes a cost of doing business at that point. If they don't get caught they make a boatload of money and if they do get caught they just make less money (but still make money).

Re:Cost of doing business

[Anubis IV]

My guess is that they benefited far more than 450 million dollars from this.

The entire eBooks market was only making $3 billion in revenue in each of 2012 and 2013. And I think we'll all agree that the market of today is much larger than it was back in 2010, when Apple and the iPad entered the scene with their combination of an Agency Model and Most Favored Nation clauses, which were deemed to be anticompetitive when used together.

  Apple's share of the market in 2010 was somewhere between 10% and 20%, depending on who you believe (most suggest it was 10%, but let's go with 20% for the sake of argument, since it'd mean they'd have made more money). So, if we use 2012's numbers (which, again, will be larger than 2010's actual numbers), their revenue would have only been $600 million at most during that time. I'll admit that I am not an accountant, so I may be misusing these numbers, but as I understand it, their 30% cut for the agency model would be taken out of the $600 million, meaning they'd receive roughly $180 million in a year.

To say the least, you'd have a hard time making the case that the $180 million they made was somehow $450 million or more greater than the amount they'd have made had they not engaged in anticompetitive practices. Though, if I recall correctly, treble damages were being pursued, so that may explain a large chunk of the discrepancy. Even so, it is highly doubtful Apple benefitted by anywhere even in the ballpark of the amount they are being fined.

Re:Cost of doing business

[Anubis IV]

He's partially correct. A large part of the issue was that they were accused of colluding in this regard. Another part, however, was that they combined Most Favored Nation clauses and the Agency Model for doing business. Neither of those latter two are considered illegal, in and of themselves, but together with the each other and the collusion that was alleged (e.g. there's a story about the execs from the publishers and Apple all getting together at a boathouse to talk), they were considered a form of price fixing. Effectively, the case made against them alleged that the publishers were being told, "You all get to control your own prices. All we demand is that you make sure we have the lowest price, or else that you jack up other's prices to match ours. Oh, and *nudge nudge* you're all making these decisions at the same time as each other."

Negotiating en masse isn't illegal, nor are MFN clauses or an agency model. But combining them all together, particularly if you suggest to the folks on the other side of the table that they work together for their mutual benefit? You run into some issues doing that.

Re:Cost of doing business

[TheRaven64]

Those numbers don't tell the whole story. iBooks doesn't exist to make a profit selling books, it exists to make the iPad seem like a plausible platform for reading books. Similarly, Amazon gets a significant benefit from locking people into the Kindle ecosystem. The $180M in cash that Apple gets is nice, but it's nothing compared to having a load of people who have bought books that will only work on an Apple device.

Opportunity cost

[KamikazeSquid]

You don't have to eliminate all possibility of profit for the fines to be an effective disincentive ... you just have to reduce profit to the point where engaging in different kinds of business or modifying business practices becomes more profitable than the alternative.

Fine them the same as infringement cases...

[Kookus]

So what does that come out to?
They sell something like 800 million books a year:
http://www.digitalbookworld.co...

Multiple that by 9,000 per infringement:
http://blogs.wsj.com/law/2012/...

A conservative estimate would have them owing:
7,200,000,000,000

Or if you don't want to count the 0's: 7.2 trillion dollars.

I think they should fork over the 7.2 trillion; that'll teach them a lesson.

Jobs' aggressiveness

[Tablizer]

It appears that one key to Apple's rocketing "success" under Jobs was that he knew he was dying soon and burned bridges left and right in order to grab as much early-mover market-share as possible to gain leveraging power for Apple.

People couldn't blame his bad moves on Apple itself because the dude behind it would be worm-bait when it all came out such that the reputation of the company wouldn't take such a huge hit. He was a voluntary shock-absorber.

We also have the employee "poaching" situation in addition to this Ebook move. I bet more will come out someday.

One has to give Jobs credit for using every weapon at his disposal, including death. His slimebaggery was masterful chess (except maybe for ignoring doctors).

Re:Jobs' aggressiveness

[Tablizer]

I read the Isaacson biography, and it was pretty clear that money was NOT Job's main motivator; it was a means to an end to him. He really wanted to build "insanely great" things and see his ideas transform the future.

He almost went broke in some cases by funneling his own money into projects. Somebody who values money wouldn't part with it that long for a gamble.

He was driven to see his concepts turn into products people wanted badly. In his mind, the future was his orchestra to conduct his way.

One can arguably compare him to great movie directors who drive those around them insane trying to put their vision on screen in careful detail. It gave us masterpieces like 'Odyssey 2001, but many of the project "minions" used up their Excedrin (or 60's equiv).

"Greed" is not quite the right word. "Obsession" is more like it. Maybe there is a word or phrase that means "obsession to the point of harming others"?

Perhaps in his mind, progress is more important than comfort, a kind of social darwinism where struggle for survival is a "necessary evil" to be a viable species. Or it may merely be narcissism, or a combo: those who don't aggressively scrape to be at the very top spot "deserve" to be stepped on: A+ or death.

Re:Jobs' aggressiveness

[Tablizer]

Isaacson did not paint a rosy picture of Jobs. Isaacson's indirect conclusion was that Jobs was a complex personality that a displayed wide range of traits and emotions.

As far as him allegedly firing employees because he didn't like the way they looked, perhaps Isaacson couldn't substantiate the rumor and that's why he didn't included it (IIRC). But, there are plenty of OTHER stories of him being a jerk, including parking in the handicap zone with a bogus/missing license plate. (A joker employee put up a sign in that spot saying, "Park Different".)

And his storied relationship with his daughter could be for a lot of reasons, not just money. Based on interviews with friends and family, speculation was given that Jobs felt abandoned by his genetic parents and this somehow left a deep psychological scar on him which he may have projected onto his daughter. Some suggest that this feeling of abandonment is partly what drove Jobs to "prove to the world" that he was worthy of "real parents".

He was not materially externally flashy most of the time (relative to his wealth), although he was interested in custom designing a big-ass yacht when he found out he was dying. He was quoted as saying he picked that big personal project partly to distract him from his pain and approaching death, if I remember correctly. He needed goals to keep his mind off stuff he didn't want to think about; another clue to his drive.

But yes, he was cheap at times. But being cheap is not "greedy" in the usual sense, except maybe as a symptom of greed. Some say it was a game with him to test the limits of what he could get a way with. Thus, it wasn't the money itself, but the pleasure of successfully manipulating using money. He did seem to get pleasure in toying with people, which his pranks with Woz fed in to.

From a personal level, yes, most would consider him a "big jerk". But genius is not measured in personal popularity.

Re:LMAO

[whoever57]

Yeah, much better to let Amazon to run all the book publishers out of business. :rolleyes:

Yes, the DOJ should totally prosecute the theoretical future anti-trust actions by Amazon, while ignoring the actual increase in prices brought about by market manipulation of Apple. :rolleyes.

Re:Fanbois

[Noah Haders]

I'll bite... this whole ebook antitrust issue is a joke. the whole point of Apple's ebook efforts was to provide a bulwark against the Amazon Ultron-like eater-of-worlds mopolistic behavior. It was a last ditch effort from apple and the publishers to try and prevent Amazon from eating and owning the entire author and book industry, from writing books to editing them to printing them to selling them.

the irony of course is that Amazon is the one that pushed the DOJ in the first place, and that an "independent" lawyer involved on the plaintiff's side does a lot of work for amazon and even works out of Amazon's building.

this whole ebooks trial is like DOJ partnering with M$ to crush OS/2. Welome to the monoculture, I hope your book industry shaped exclusively on five star reviews.

Hachette?

[rsborg]

Yeah, much better to let Amazon to run all the book publishers out of business. :rolleyes:

Yes, the DOJ should totally prosecute the theoretical future anti-trust actions by Amazon, while ignoring the actual increase in prices brought about by market manipulation of Apple. :rolleyes.

The future is here: http://www.slate.com/articles/...

Re:Fanbois

[rahvin112]

Regardless of what you think of Amazon and them being a monopoly, Apple colluded with publishers to raise the price of ebooks. It was anti-competitive at it's core and it's illegal under US law. Not to even mention that it cost the average US buyer $5 per book.

The only joke was that it took them more than 5 years to sue over it because everyone buying ebooks at the time noticed the dramatic $5 price increase in all books. After the Apple deal there were many ebooks that cost MORE than the paper book.

Re:LMAO

[Anubis IV]

Setting aside Apple for the moment, there's nothing "theoretical" about Amazon engaging in actions of this sort. They've been doing it as long as Apple has, at least.

Using most favored nation clauses and the agency model, which is exactly what got Apple in trouble: http://www.selfpublishingrevie...
Leveraging their near-monopsony to try and gouge the publishers: http://www.teleread.com/ebooks...
Making hard-to-implement immediate demands when the publishers pushed back: http://www.thepassivevoice.com...
Delisting multiple publishers during re-negotiations: http://time.com/110412/amazon-...
Jacking shipping times from a few days to 3-5 weeks: http://www.washingtonpost.com/...
The author's guild is outright accusing Amazon of violating the Sherman Antitrust Act: http://bits.blogs.nytimes.com/...

Spend 30 seconds Googling around. You'll be shocked at what all Amazon has already done when it comes to this industry, and it's only been getting worse in recent years. It's like looking inside the door at a sausage factory: you'd have wished you never looked.

Re:LMAO

[mbourgon]

Technically, anti-trust cases ARE usually retroactive. And if they can compete with higher prices, more power to them. But I'm willing to bet right now Hachette would much rather have competition than be bent over by Amazon. The fact that Hachette did it to themselves (via their insistence on DRM) just makes the schadenfreude pie even more delicious.

Re:LMAO

[alexander_686]

Is there any evidence that Apple cared about the price?

No, but that misses the point. Apple wanted into the book market. The publishers wanted to break Amazon's hold on the market so they could jack the prices up. Thus the collusion began. Apple was a knowing participant in this collusion – that was their price of entry into the online book market.

Amazon using its market power to set prices is no a market failure......

I will point out that it was the publishers, not Amazon, which set the wholesale prices. When Amazon lowered its retail price below the wholesale price Amazon had to eat that loss. Which leads us too.

In what way is illegal price fixing worse than an illegal monopoly?

When customers get a better deal. Let's strike the illegal part. In America monopolies are illegal if they hurt the customer. There is nothing illegal in running a business with zero to no profits to grab market share, which is what Amazon was doing. If they were screwing around with their competitors or their customers - whole different story. (Needless to say this get subtle and complicated fast, dealing which market structure, etc.)

Re:Fanbois

[Anonymous Coward]

the whole point of Apple's ebook efforts was to provide a bulwark against the Amazon Ultron-like eater-of-worlds mopolistic behavior.

It was replacing one monopoly with another, in fact the Apple case was worse because it was Apple setting the baseline price and forcing publishers to sell at or above that price, Amazon did not collude with publishers to create a cartel like Apple tried to do.

The Amazon situation is bad, but Apple's cartel was worse.

Re:LMAO

[whoever57]

With the exception of the smashwords issue, all of those articles relate to Amazon fighting with publishers. Not one of those articles alleges (apart from the smashwords issue) that Amazon is forcing up the prices at other retailers.What does Wallmart do every day: negotiate with suppliers to get the best deal for itself. What is Amazon doing here?

Yes, there is a risk that Amazon may be so dominant that it can push up prices, but that is mostly a theoretical risk (smashwords excepted).

So, perhaps an investigation is warranted, but, in no way does that mean the Apple should not be fined for its actions.

Re:Fanbois

[Namarrgon]

Sadly for you, the "facts" are on Amazon's side here. Apple was being legally outcompeted, and resorting to illegal collusion needs to be smacked down, regardless of how much they hated seeing their potential marketshare slipping away. Maybe they should have tried to compete by lowering prices further, rather than raising them? Would be a better outcome for consumers.

Re:Fanbois

[Noah Haders]

the difference is Amazon is dumping ebooks on the market at a price that is impossible to compete. 100% guaranteed they will sell books for 99 cents until all other parties are dead, then jack up the price while freezing the publishers out. This is how monopolies operate.

Re:Fanbois

[farble1670]

the whole point of Apple's ebook efforts was to provide a bulwark against the Amazon Ultron-like eater-of-worlds mopolistic behavior. It was a last ditch effort from apple and the publishers to try and prevent Amazon from eating and owning the entire author and book industry, from writing books to editing them to printing them to selling them.

so your whole argument is that it was okay for apple to commit a crime to thwart amazon from becoming more successful? if amazon ended up breaking laws, so be it, and let them stand accountable at that point.

apple isn't some angel coming down from on high to protect the poor little ebook authors. they were simply trying to thwart a competitor from becoming dominant in the field. they wanted a (larger) piece of the pie, and they broke the law trying to get it.

the irony of course is that Amazon is the one that pushed the DOJ in the first place, and that an "independent" lawyer involved on the plaintiff's side does a lot of work for amazon and even works out of Amazon's building.

i don't think you understand what irony means.

Re:Fanbois

[Noah Haders]

not too much perhaps. how hard is it to write a book, how hard is it to edit a book, how hard is it to curate the book industry so the most promising books recieve support and funding, how hard is it to build an industry that supports authors so they can live and work and be professionals, so the entire publishing industry doesnt devolve into 99 cent fan fic? pretty darn hard.

Re:Fanbois

[Richard_at_work]

Damn right an Apple monopoly was the worse situation - I can read my Kindle books on Android, iOS, Windows Phone, Windows and a whole load of other platforms. Where can I read my Apple iBooks? Uhm... iOS.

Re:Fanbois

[nyctopterus]

Having done this twice, I can say that it's trickier than you'd think if you want to do anything but a long string of text. The tools for publishing ebooks are in the stone-age, and files still require a lot of manual tweaking (first time out I gave up on automated tools and wrote the entire thing by hand to the spec). Then you have the various rules of distributers and their buggy validators, which means the process can be very time-consuming.

Re:Fanbois

[SB2020]

Same as all software. AmIRight?

Re:Fanbois

[hairyfeet]

Uhhh..spin it how you want but the emails showed beyond a doubt that Apple was price fixing and sorry, that is illegal. Also if you think Apple was price fixing "for good of the people"....BWA HA HA HA HA, that is damned funny, it was to increase their share and make sure no competitor could undercut them, again going against free market competition.

Of course they could always do like Amazon and take less profit per sale...ha ha ha, who am I kidding, Apple take less? never!