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Default Apple Found Guilty of Ebook Price Fixing

July 11th, 2013, 03:46
The title says everything that needs to be said. This is the second strike agaisnt them as last year a judge ruled the Steve Job patent null and void.

Cote described how Apple struck agreements with each of the five publisher defendants—who settled the case before trial—in order to push e-book rates higher than Amazon's. The negotiations happened in the seven weeks leading up to the January 27, 2010 announcement of the iPad.

Publishers told Apple they were unhappy with Amazon's standard price of $9.99. Although they received the full wholesale value of each book sold by Amazon, publishers didn't want $9.99 to catch on as the new default price for e-books, especially since this was so much lower than hardcovers. One strategy they used to keep revenues up was to delay the release of e-book versions of new books, but Apple told publishers it opposed this tactic in its then-forthcoming e-books store. HarperCollins wanted to flat-out charge as much as $18 or $20 for e-books, but Apple Senior VP Eddy Cue also made it clear that this was unrealistic. Apple was more amenable, however, when HarperCollins suggested using an "agency model" instead of the wholesale model used by Amazon.

With a wholesale model, Apple would purchase e-books and resell them at a price of its choosing, whereas with an agency model "a publisher sets the retail price and the retailer sells the e-book as its agent." Apple would become the agent selling the books, taking a 30 percent commission on each sale, just as it does with its App Store.

But Apple did not want to open an e-book store at all unless it was profitable, Cote wrote, and in order to make it work, the company had to deal with Amazon. Apple had even considered proposing a partnership with Amazon, "with iTunes acting as 'an e-book reseller exclusive to Amazon and Amazon becom[ing] an audio/video iTunes reseller exclusive to Apple,'" Cote wrote.

"Apple realized, however, that in handing over pricing decisions to the Publishers, it needed to restrain their desire to raise e-book prices sky high," Cote wrote. "It decided to require retail prices to be restrained by pricing tiers with caps. While Apple was willing to raise e-book prices by as much as 50 percent over Amazon’s $9.99, it did not want to be embarrassed by what it considered unrealistically high prices."

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