That loud noise you heard from a court case earlier this week (no, not the one in Florida playing incessantly on national TV), was the sound of e-books being metaphorically slammed shut in front of Apple.
The technology behemoth was found guilty of conspiring with publishers to fix the price of e-books.
U.S. District Judge Denise Cote didn’t mince words in her ruling (available at: http://goo.gl/An6E3).
It “explains how and why the prices for many electronic books … rose significantly in the United States in April 2010,” she wrote, and also, that “Apple conspired to raise the retail price of e-books.”
In this column, back in March 2012 (“Throwing the book at Apple”, http://goo.gl/0KAGU), I had laid out details of the government’s complaint and argued for vigorous prosecution despite the fact that I am a huge fan of many Apple products.
As expected, both sides were able to hire some of the best economic experts, among them Orley Ashenfelter, professor of economics at Princeton University (for the government) and Kevin Murphy, professor of economics at the University of Chicago (for Apple).
The resulting fireworks in the trial materials and exhibits are like Christmas for those (few?) among us who love economics and like to read court opinions.
However, it was difficult for Apple, which plans to appeal, to make the almost overwhelming factual evidence go away, much of which was found in subpoenaed email and telephone records.
Some of the quotes in the opinion have already been reported. One of the most memorable was this tidbit:
At some point after the iPad had been released with the new iBookstore, a reporter asked Steve Jobs why people would buy books on iTunes for $14.99 when the same book sold at Amazon for $9.99, Jobs answered: “Well, that won’t be the case” and, after another question, “The price will be the same … Publishers are actually withholding their books from Amazon because they are not happy.”
As a result, the general counsel of one publisher wrote to an executive (quoted on page 85 of the court’s opinion) that she could not “…believe that Jobs made the statement” and that she “… considered it ‘[i]ncredibly stupid.’”
All of this was laid out in fine detail before the court. The government’s case was likely also helped by the settlements it had achieved with many of the publishers involved in the price-fixing scheme that Apple had initiated.
Moreover, although the Judge used many complimentary phrases to describe Apple (“one of America’s most admired, dynamic, and successful technology companies” and “brilliantly played its hand”), she was harsher when it came to Apple’s point-man in the negotiations: Eddy Cue, senior vice president of Internet software and services at Apple.
In one footnote, the judge bluntly concludes: “In this and several other aspects of Cue’s testimony, regrettably, he was not credible.”
Now, it is up to the publishers, Apple and Amazon to write a new chapter in the e-book market and for consumers to rejoice. Amazon will face scrutiny if it attempts to abuse its monopoly. Apple will have to compete on price, something it wanted to avoid at all costs.
Of course, it may be paying in other ways, too. As Judge Cote’s opinion stated: “A trial on damages will follow.”
“Bam.” There’s that sound again.
Dr. Michael Reksulak has taught economics and public finance in Georgia Southern University’s College of Business Administration. Contact him at mreksula@georgiasouthern.edu.