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United States v. Apple, Inc.

United States Court of Appeals for the Second Circuit
791 F.3d 290 (2015)


When Amazon introduced the Kindle in 2009, it offered downloadable bestseller and new-release e-books for just $9.99. The move threatened to upset traditional publishing pricing structures, which charged up to $30 for new hardbacks and bestsellers. By late 2009, Apple, Inc. (codefendant), planned to launch the iPad using the iBookstore as its virtual marketplace for e-books. Apple negotiated with the six largest American publishing companies (the “Big Six”) (codefendants) to change pricing structures to an agency model, in which they would charge $19.99 for new releases and $14.99 for bestsellers and pay Apple a commission. Apple counsel added a “most favored nation” (MFN) clause requiring the publishers to match prices available elsewhere, including Amazon. Although it appeared the publishers would earn less per book, once most of the Big Six adopted the new scheme, they together could make Amazon raise its prices by withholding books. Apple encouraged the Big Six to unite against the $9.99 e-book, assuring them they were all contracting on identical terms. Ultimately, five of the Big Six contracted to sell through iBookstore. When Steve Jobs introduced the iPad, he explained that consumers would pay higher iBookstore prices because Amazon’s Kindle e-book prices would increase to match. One day later, the publishers began threatening Amazon with book delays until it also shifted to agency pricing. Once Amazon switched, the publishers increased book prices. E-book prices remained 16.8 percent higher over six months and remained elevated two years later. The Department of Justice and 33 states and territories (plaintiffs) sued Apple and the publishers for violating antitrust laws by conspiring to fix prices. The publishers all settled out, but Apple proceeded to trial. The trial court found that Apple conspired with the publishers to fix prices horizontally, a per se violation of the Sherman Antitrust Act. Apple appealed.

Rule of Law


Holding and Reasoning (Livingston, J.)

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