Has there ever been a price-fixing case in which the alleged conspirators agreed to take less money for their product and simultaneously up their production and boost competition? The answer to that question may determine the success of the Justice Department‘s e-books antitrust suit against Apple and the two publishers that have not agreed to settle DOJ’s civil charges.
On Friday, Apple and three publishers filed reply briefs in their effort to win dismissal of the private antitrust class action that parallels the Antitrust Division’s case. Those filings, coming two days after the government brought suit, offer good hints at how defense lawyers for Apple and the publishers will counter the Justice Department’s allegations. (Interestingly, Hachette and Harper Collins — the two publishers that have reached a tentative $52 million settlement with 16 state Attorneys General — did not sign the joint publishers’ motion, which suggests that they may argue their AG deal resolves the class action plaintiffs’ damages claims.)
The essence of the government’s case (as well as the private class action) is that the publishers regarded Apple’s entry into the e-books market as a chance to break Amazon’s 90-percent monopoly. As part of that effort, the publishers allegedly conspired with Apple to change the e-books model from the wholesale pricing Amazon insisted upon to so-called “agency pricing,” in which publishers set prices and Apple received a commission for every e-book it sold. Both the class action and the government suit assert that Apple and the publishers engaged in what’s known as “per se” price-fixing, which means that plaintiffs must only prove there was a conspiracy to restrain competition and raise prices. The Justice Department and private plaintiffs claim the proof of the conspiracy is the rise in e-book prices after the publishers all signed agency-pricing deals with Apple, from $9.99 to $12.99 or $14.99 for new titles.
But the publishers have long argued that the price-fixing evidence doesn’t add up, since they actually make less money per book through Apple’s agency model than through wholesale pricing, in which they sold books directly to Amazon and received a percentage of that sale price. Before Amazon’s e-book reader, the Kindle, faced competition from the iPad and Barnes & Noble’s Nook, the publishers assert, Amazon regarded e-books as a loss leader to drive Kindle sales, so it was willing to pay relatively high prices to publishers. Nevertheless, according to the 24-page brief filed Friday by Penguin, Macmillan, and Simon & Schuster, the publishers were all so concerned about Amazon’s stranglehold on the e-books industry — and the risks that monopoly posed for sales of both e-books and traditional books — that they independently signed on with Apple. Independent decisions, even in parallel, don’t constitute price-fixing, the publishers contend.
The publishers’ motion to dismiss the class action relied heavily on the U.S. Supreme Court’s 2007 ruling, Bell Atlantic v. Twombly, which held that antitrust plaintiffs must show specific, detailed evidence of a conspiracy. That may be a less appealing defense against the Justice Department’s complaint, which includes the sort of specific allegations of meetings and e-mails that Twombly demands. Instead, when Apple and the publishers move to dismiss the government’s suit, I’ll expect to see an argument Apple raised in the 20-page brief its lawyers at Gibson, Dunn & Crutcher filed Friday in the class action. Apple asserted that the e-book case should be considered under the “rule of reason” standard articulated in the U.S. Supreme Court’s 2007 ruling Leegin Creative Leather v. PSKS. Under the rule of reason, as opposed to a per se price-fixing case, the plaintiffs have to prove the alleged conspiracy impacted the market.