Claims Against Apple, Publishers for "E-book" Pricing Survive Motion to Dismiss

This posting was written by Jeffrey May, Editor of CCH Trade Regulation Reporter.

Purchasers of electronic books plausibly alleged that Apple, Inc. and five of the six largest U.S. publishing companies took part in a per se unreasonable conspiracy to raise prices for “e-books,” the federal district court in New York City has ruled.

It was reasonable to infer that the defending publishers had agreed among themselves to adopt a joint strategy to force an increase in the price of e-books.

The allegations of parallel conduct—including the publishers’ rapid and simultaneous switch from a wholesale or retail distribution model with e-book retailers to an agency model of distribution—raised a suggestion of preceding agreement, the court explained.

Each defending publisher’s decision to sign its particular agency agreement with Apple and to demand that online marketplace Amazon accept the agency model would have contravened the defendant’s self interest in the absence of similar behavior of its rivals. The complaining purchasers claimed that the agency agreements emerged from a horizontal agreement among the defending retailers in order to raise prices.

While allegedly coordinating a series of substantively-identical vertical agreements with the publishers, Apple purportedly made clear to its vertical partners that it was offering each of them "the first" deal. While allegedly coordinating a series of substantively-identical vertical agreements with the publishers, Apple purportedly made clear to its vertical partners that it was offering each of them a similar deal..

Although the purchasers did not claim that Apple had an interest in higher retail prices, they plausibly alleged that Apple had an interest in limiting retail competition. The agency agreements included clauses that granted Apple "most favored nation" pricing guarantees--to eliminate price competition among e-book retailers.

Even though the defendants' motive for joining the conspiracy might have been different, the complaining purchasers plausibly alleged that each of the defendants shared the twin purposes of raising the price of e-books and eliminating retail competition.

The court rejected the assertion that a hub-and-spoke conspiracy was not plausibly alleged because Apple Inc. (the alleged hub) was not a dominant firm. A hub was generally a dominant purchaser or supplier, but it did not have to be.

The court also rejected Apple's contention that its agency agreements with the publishers should be found lawful under a rule of reason analysis because they were simply agreements by a principal to set the price charged by its agent.

Regardless of the nature of the specific terms of the vertical agency agreements when examined in isolation, complaining e-book purchasers plausibly alleged a horizontal agreement among the publishers, furthered by Apple, to raise the prices of the e-books and eliminate retail competition in per se violation of the Sherman Act.

The decision is In Re: Electronic Books Antitrust Litigation, 2012-1 Trade Cases ¶77,889.