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United States of America v. Apple Inc., et al., 12 Civ. 2862 (DLC), was a US antitrust case in which the Court held that Apple Inc. conspired to raise the price of e-books in violation of the Sherman Act. The suit was filed alleging that Apple Inc. and five book publishing companies conspired to raise and fix the price for electronic books (e-books) in violation of Section 1 of the Sherman Antitrust Act. The publishers are Hachette Book Group, Inc., HarperCollins Publishers, Macmillan, Penguin Group, Inc., and Simon & Schuster, Inc. (collectively referred to as the Publisher Defendants). Only Apple proceeded to trial while the Publisher Defendants settled their claims.

Background The Publisher Defendants sold over 48% of all e-books in the U.S. in the first quarter of 2010. The Publisher Defendants along with Random House Publishing are the six largest publishers in the United States (collectively the Publishers) and are often referred to as the "Big Six" in the publishing industry. In 2009 Amazon Inc. had nearly 90% of the e-books industry. Amazon Amazon e-book price point of $9.99 and it's Kindle for reading. In 2009 Amazon had nearly 90% of the e-books industry. Problems for the Big Six They team up to to create joint strategies for tackling Amazon's price point Roughly once a quarter the CEOs would meet in private dining rooms in NY restaurants "without counsel or assistants present, in order to discuss the common challenges they faced, including most prominently Amazon's pricing policies." Same wholesale price for e-book as printed versions "Windowing" New Releases By the Winter of 2009, four of the six published used windowing as a tactic. Allows for the increase in potential hardcover sales Increased the risk of pirating Apple estimated that the book industry was roughly $35 to $42 billion while trade books only composed $12.5 billion of that and trade e-books accounting for $100 million but growing exponentially. Apple's McDonald predicted that the e-book market could reach nearly $1 billion in 2010. Apple planned to unveil the iPad on January 27, 2010 and ship the device in early April 2010. Apple also hoped to announce its new iBookstore at Launch. Beginning on December 8, 2009 Apple's Eddy Cue's, Senior VP of Internet Software and Services, team contacted the Publishers to set up meetings the following week. Was able to get all but Random House to agree to join the iBookstore before the Launch. Cue suggested that Apple would sell books between $9.99 and $14.99 for the most part, with New Releases being $12.99 to $14.99/ Apple adopted the agency model for distribution of e-books with 30% commission. This let Publishers control the pricing of e-books and ensured that Apple would make a profit from every e-book sale without having to compete with Amazon's price. However would not allow for prices to be set unrealistically high. Would not allow for windowing. Apple also wanted the Publishers to move other e-book retailers to agency model to eliminate retail price competition. Apple included an MFN clause in their contract with the Publishers that allowed for Apple to sell e-books at its competitors' lowest price. Effectively forcing the publishers to change their entire e-book distribution business to the agency model. Amazon learned about the coming deals between the Publishers and Apple on January 18th. In response Amazon would appeal directly to authors and encourage disintermediation, the act of reducing intermediaries between producers and consumers (ie allowing for authors to directly sell to consumers). Authors could choose a "new 70 percent royalty option" for e-books with a list price "between $2.99 and $9.99." The Big Six called each other over 100 times in the week before signing the agreement. Jobs even called Rupert Murdoch, HarperCollins' parent company's News Corp.'s CEO, to discuss having Harper Collins join. On the day of Launch, Jobs was asked by a reporter why people would pay $14.99 for a book in the iBookstore when they could purchase it for $9.99 from Amazon. In response Jobs stated that "The price will be the same… Publishers are actually withholding their books from Amazon because they are not happy." Thus Jobs acknowledge his understanding that the Publishers would raise e-book prices and that Apple would not have to face any competition from Amazon on price. Shortly after January 31, Amazon sent a letter to Federal Trade Commission complaining about the simultaneous nature of the demands for agency model agreements form the Publishers who had signed with Apple. By March, Amazon had completed agency agreements with four of the five publishers. During the negotiations over the agreements the publishers would talk with each other and share information about what Amazon would concede with each. Apple was closely following all of this progress and Cue was in contact with the publishers. Following Amazon's move to agency amounted to "an average per unit e-book retail price increase of 14.2% for their New Releases, 42.7% for their NYT Bestsellers, and 18.6% across all of the Publisher Defendants' e-books." The Publishers also raised the price of some of their New Release hardcover books as to move the e-book versions into a correspondingly higher price tier. Amazon saw Random House e-books having an increase of 41%. Two studies showed that the Publishers who moved to agency model sold over 10% fewer units at major retailers. In contrast other publishers sale increased 5.4% in the same period. Consumers suffered in a variety of ways from this scheme: some had to pay more for e-books, others bought a cheaper e-book rather than the one they preferred to purchase, and others deferred a purchase rather than pay the higher price. In January 2011 Random House also moved to the agency model and raised the prices of its e-books and then experienced a decline in its e-book sales. This allowed Random House to join the iBookstore. Decision Sherman Act Section 1 of the Sherman Act outlaws "every contract, combination…, or conspiracy, in restraint of trade or commerce among the several States." To show that there is violation of Section 1 of the Sherman Act proof of joint or concerted action is required. Monsanto Co. v. Spray-Rite Service Corp.. The plaintiffs must show: 1. "a combination or some form of concerted action between at least two legally distinct economic entities" that 2. "constituted an unreasonable restraint of trade either per se or under the rule of reason." "Circumstances must reveal a unity of purpose or a common design and understanding, or a meeting of minds in an unlawful arrangement." Analysis of Evidence There is a large amount of evidence that shows that the Publisher Defendants joined with each other in a horizontal price-fixing conspiracy. There is also evidence showing that Apple violated Section 1 of the Sherman Act by conspiring with the Publishers to eliminate retail price competition and raise the price of e-books. The evidence shows that Apple was a knowing and active member of the conspiracy. Thus they have proven a per se violation of the Sherman Act. Apple's Arguments Apple asserts that it is entitled to a verdict in its favor since the evidence does not "tend to exclude" the possibility that Apple acted in a manner consistent with its lawful business interests. This relies on the Supreme Court's decision in Monsanto Apple argues that it never intended to conspire to raise e-book prices. Apple argues that the Plaintiffs have failed to show that the Publishers actually "increased" e-book prices. This is because had Amazon not adopted the agency model, the Publishers would have simply withheld e-books from Amazon. Apple also argued that they their conduct must be analyzed under the rule of reason. Finally, Apple argues that should the Plaintiffs win a verdict in their favor, this would set a dangerous precedent and will discourage business from entering other markets. Conclusion The Court found that Apple had conspired to restrain trade in violation of Section 1 of the Sherman Act. Significance Leegin Creative Leather Products, Inc.L v. PSKS, Inc., 551 U.S. 877 (2007), is a US antitrust case in which the United States Supreme Courtreversed the 96-year-old doctrine that vertical price restraints were illegal per se under Section 1 of theSherman Act, replacing the older doctrine with the rule of reason. This case applied the per se doctrine to vertical conduct that led to horizontal price fixing. Timeline[edit] "The Government filed this action on April 11, 2012 against defendants Apple, Inc. ("Apple"); Hachette Book Group, Inc. ("Hachette"); HarperCollins Publishers L.L.C. ("HarperCollins"); Verlagsgruppe Georg Von Holtzbrinck GMBH and Holtzbrinck Publishers, LLC d/b/a MacMillan (collectively, "MacMillan"); The Penguin Group, a division of Pearson PLC and Penguin Group (USA), Inc. (collectively, "Penguin"); and Simon & Schuster, Inc. ("Simon & Schuster"). That same day, the Government submitted a proposed Final Judgment as to defendants Hachette, HarperCollins, and Simon & Schuster, as well as a Competitive Impact Statement pursuant to Section 2(b) of the Antitrust Procedures and Penalties Act ("APPA" or "Tunney Act"), 15 U.S.C. §§ 16(b)-(h), which invited public comment on the Proposed Final Judgment."[1] "On August 1, 2012, non-parties the American Booksellers Association (the "ABA") and Barnes & Noble, Inc. (Barnes & Noble") filed a motion for leave to file amici curiae responses to the U.S. Department of Justice's Tunney Act filings. For the following reasons, the motion is granted."[2] "The Government's August 3, 2012 motion for entry of the proposed Final Judgment is granted."[3] "On April 29, 2013, non-party Bob Kohn ("Kohn") filed a motion for leave to file a five-page amicus curiae response to the U.S. Department of Justice's (the "Government") Tunney Act filings as to defendant The Penguin Group, a division of Pearson PLC and Penguin Group (USA), Inc. (collectively, "Penguin"). For the following reasons, the motion is granted."[4] "This Opinion explains how and why the prices for many electronic books, or "e-books," rose significantly in the United States in April 2010. Plaintiffs the United States of America ("DOJ") and thirty-three states and U.S. territories (the "States") (collectively, "Plaintiffs"), filed these antitrust suits on April 11, 2012, alleging that defendant Apple Inc. ("Apple") and five book publishing companies conspired to raise, fix, and stabilize the retail price for newly released and bestselling trade e-books in violation of Section 1 of the Sherman Antitrust Act, 15 U.S.C. § 1 ("Sherman Act"), and various state laws. These cases represent two of four related actions brought before this Court alleging the same e-books price-fixing conspiracy between Apple and the publishers.[1] The publishers are Hachette Book Group, Inc. ("Hachette"), HarperCollins Publishers LLC ("HarperCollins"), Holtzbrinck Publishers LLC d/b/a Macmillan ("Macmillan"), Penguin Group (USA), Inc. ("Penguin"), and Simon & Schuster, Inc. ("Simon & Schuster" or "S&S") (collectively, "Publisher Defendants"). Only Apple proceeded to trial; the Publisher Defendants have settled their claims with both the DOJ and the States. This Opinion presents the Court's findings of fact and conclusions of law following the bench trial that was held from June 3 to 20, 2013 to resolve the issue of Apple's liability and the scope of any injunctive relief. As described below, the Plaintiffs have shown that Apple conspired to raise the retail price of e-books and that they are entitled to injunctive relief. A trial on damages will follow." [5] On July 10, 2013 "this Court finds by a preponderance of the evidence that Apple conspired to restrain trade in violation of Section 1 of the Sherman Act and relevant state statutes to the extent those laws are congruent with Section 1. A scheduling order will follow regarding the Plaintiffs' request for injunctive relief and damages."[6]

"Broadly speaking, the Complaint alleges that the defendants conspired to raise, fix, and stabilize the retail price for newly-released and bestselling trade e-books, to end retail price competition among trade e-books retailers, and to limit retail price competition among the Publisher Defendants in violation of Section 1 of the Sherman Antitrust Act. 15 U.S.C. § 1" [7]

Decision