The link below is to an article that looks at ebook reader cases that look like old books.
The Court of Appeals in the US has ratified Apple’s guilt in the e-book case. It was a two-to-one decision by the three judges on the Court. And it provides two lessons for Australia.
First, when industries are being disrupted, incumbents may collude with entrants to prevent competition.
Second, those who are calling for changes to our competition laws need to read the dissenting judgement. It shows how easy it is to confuse protecting competition and protecting competitors.
Before 2010, Amazon dominated e-books. It set the price at US$9.99 per book, which was less than the wholesale price that Amazon paid to the publishers. The reason was simple. Amazon was loss leading on the e-books in order to encourage consumers to purchase its Kindle reader.
Amazon had achieved a significant market share, selling around 90% of all e-books in the US. But the publishers hated the Amazon model. Cheap e-books meant that the publishers sold fewer (highly profitable) hard and soft backs. The publishers also feared that Amazon could evolve as a peer-to-peer platform that would “allow authors to publish directly with Amazon, cutting out the publishers entirely” (Court of Appeal at 14).
When Apple entered, it offered a different business model. The publishers controlled the retail price of each e-book on the ibookstore, with Apple taking a 30% cut. This is not unusual. Apple uses a similar model for Apps. And by itself, Apple’s agency model was not illegal.
However Apple and the publishers also agreed to a ‘most favoured customer’ clause. Under this clause, the publishers had to ensure that the price they set on the ibookstore was no more than the price for the same e-book on any other site – such as Amazon. Effectively this meant the publishers had to go to Amazon and require that Amazon raise its prices. And the data shows that prices went up.
The agreement between Apple and the publishers breached the anti-collusion laws in Section 1 of the US Sherman Antitrust Act.
The incumbents fight back
When industries are disrupted, whether by Amazon, Uber or Airbnb, the incumbents will fight back.
In the case of Uber, this has been through existing taxi laws, labour laws and government assistance.
In June 2015 the California Labor Commission ruled that an Uber driver should be treated as an employee. Uber is appealing. But fear of both labour and taxation laws have led a number of peer-to-peer providers, such as Shyp (a packing and shipping service) and Instacart (a grocery delivery company) to shift informal contract workers to full time employees.
On May 1, 2015, the Uber offices in Guangzhou, China, were raided and closed down. The municipal government then announced plans to launch its own online taxi App which would cover incumbent taxi services.
For Airbnb, the incumbents have fought back through zoning laws and takeovers. Hyatt hotels revealed in May 2015 that it is investing in Onefinestay, a competitor to Airbnb. Similarly, Wyndham hotels has invested in Love Home Swap, a UK home swapping site.
The Apple case illustrates how incumbents can fight back by using dirty competitive tactics. Fortunately, in the Apple case, the competition regulators were ready to act. But we can expect incumbents in other sectors to similarly push the legal boundaries to protect their profits.
Protecting competitors or protecting competition?
The Apple case also highlights the problem of leaving the interpretation of abuse of market power laws to the Courts.
The US Sherman Act provides little guidance to the Courts. However, the US has a long history of sorting out ‘good’ behaviour from ‘bad’ behaviour. The ‘rule of reason’ approach adopted by the US Courts is similar to the approach under Australia’s current abuse of market power laws. In Australia, a firm with market power only breaks the law if it ‘takes advantage’ of that power. The US Courts similarly ask whether or not the impugned conduct is really pro-competitive, not anti-competitive, behaviour. Both approaches try and ensure the law fosters competition rather than protecting individual, potentially inefficient, competitors.
Unfortunately, the recent Competition Policy Review recommended changing our laws. The new laws will take out the ‘take advantage’ test and leave it to the Courts to sort out the behaviour. But even in the US, with more than 100 years of legal cases, the Courts can get this wrong.
The dissenting judgement in the Apple decision illustrates the confusion. The dissenting judge concluded that Apple’s behaviour, that raised prices for e-books, was unambiguously and overwhelmingly pro-competitive. By raising prices, the cartel made it easier for new businesses to enter the market!
On this basis, all cartels would be good. If you raise prices and profits then the businesses benefit. This encourages new entry, but harms consumers. It is the classic confusion between competition (which benefits consumers) and collusion (which benefits businesses but hurts consumers).
Fortunately, two judges in the Apple case avoided this confusion. But protecting competitors can be tempting for a court – particularly when the industry is rapidly changing through innovation and disruption. In the Apple case it was tempting enough to have one judge dissent. And in Australia, we risk throwing the courts in at the deep end, if the legal changes recommended by the Competition Policy Review go ahead.
Apple(s appl) has finally bowed out of a high stakes legal battle over ebooks and agreed to a settlement that could soon see the tech giant paying out millions to customers who purchased titles at online retailers like Amazon(s amzn) and Barnes & Noble(s bn).
According to a letter to the court filed in New York, and embedded below, Apple has reached an agreement with class-action lawyers and state attorneys general that will see the parties cancel a damages trial set for July.
The settlement is under seal for now and must be approved by the court, but is likely to be worth hundreds of millions of dollars. The money will come on top of the $160 million or so that the five publishers agreed to pay as a result of settlements reached last year.
Apple will, however, continue to appeal a jury verdict from last year in which U.S. District Judge Denise Cote…
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Google(s goog) has won a resounding victory in its eight-year copyright battle with the Authors Guild over the search giant’s controversial decision to scan more than 20 million books from libraries and make them available on the internet.
In a ruling (embedded below) issued Thursday morning in New York, US Circuit Judge Denny Chin said the book scanning amounted to fair use because it was “highly transformative” and because it didn’t harm the market for the original work.
“Google Books provides significant public benefits,” Chin wrote, describing it as “an essential research tool” and noting that the scanning service has expanded literary access for the blind and helped preserve the text of old books from physical decay.
Chin also rejected the theory that Google was depriving authors of income, noting that the company does not sell the scans or make whole copies of books available. He concluded, instead, that Google…
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After weeks of back-and-forth between the Department of Justice and Apple (s AAPL), the federal judge overseeing the ebooks antitrust case issued an injunction against Apple in a filing released Friday. The Department of Justice will be happy, because the final injunction contains a lot of what it had asked for.
In July, Judge Denise Cote found Apple liable of conspiring with publishers to set ebook prices at the launch of the iBookstore.
“Apple did not conspire to fix ebook pricing,” company spokesman Tom Neumayr said in a statement. “The iBookstore gave customers more choice and injected much needed innovation and competition into the market. Apple will pursue an appeal of the injunction.”
The injunction, which is set to go into place in 30 days, will last for five years — but the court can extend it for “one or more one-year periods” after that, either on its own…
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As expected, Apple(s AAPL) has expressed its strong disagreement with the federal government’s proposed remedies in the ebook pricing case, which the government outlined in a court filing released Friday morning.
In July, a federal judge found Apple guilty of conspiring with publishers to fix ebook prices.
Apple’s full court filing is embedded below and is available here as a PDF. Apple calls the proposed injunction “a draconian and punitive intrusion into Apple’s business, wildly out of proportion to any adjudicated wrongdoing or potential harm,” and claimed it is “a sweeping and unprecedented injunction as a tool to empower the Government to regulate Apple’s businesses and potentially affect Apple’s business relationships with thousands of partners across several markets.”
The government’s injunction seemingly forces Apple to abandon its in-app purchasing restrictions, at least for digital bookstores, by “allowing Amazon, Barnes & Noble, and other ebook app providers to offer a simple…
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The link below is to an article that reports on the J.K. Rowling identity case which has been settled out of court.
Apple (s AAPL) could get smacked with a $500 million bill from the states and class action lawyers in the ebook pricing suit, based on the amounts that the settling publishers have already paid out.
Earlier this month, federal judge Denise Cote found Apple guilty of colluding with five publishers to fix ebook prices at the launch of the iBookstore. The five publishers named in the case — Hachette, Penguin, Random House, HarperCollins and Simon & Schuster — have already settled and paid damages to the states and in the class action suit. In a document that the court made public Tuesday, the Texas attorney general provided Judge Cote with a chart showing the amounts that the states have agreed to pay. The red markup is by me:
The chart shows that the publishers have paid out over $166 million so far. Earlier this month, a lawyer from Hagens Berman…
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Over six months after the European Commission reached an ebook pricing settlement with four publishers and Apple (s AAPL), the EC has approved a similar settlement with Penguin. Penguin, which was trying to clear the decks for its upcoming merger with Random House, had offered its proposed settlement terms in April.
According to an EC press release:
“Penguin offered substantially the same commitments as those proposed by the other four publishers and made legally binding on those companies in December 2012…They include, in particular, the termination of on-going agency agreements and the exclusion of certain most-favoured-nation (MFN) clauses in Penguin’s agency agreements during the next five years. Penguin also offered to give retailers freedom to discount e-books, subject to certain conditions, during two years. After a market test (see IP/13/343), the Commission is satisfied that the commitments offered by Penguin remedy the competition concerns it had identified.”
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