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Circuit Court Rules Against Apple in E-Book Price-Fixing Case

A federal appellate court on Tuesday found that Apple violated antitrust law by coordinating with the nation’s largest publishers to set prices for e-books. In the 2-1 decision, the United States Court of Appeals for the Second Circuit upheld a lower court’s decision finding that Apple and the publishers colluded in an effort to establish the agency pricing model, which lets publishers set their own e-book prices.

These prices were often higher than the artificially deflated $9.99 rate preferred by Amazon on its path to capturing nearly 90% of the e-book market.

The majority opinion, written by Judge Debra Ann Livingston, downplayed the irony that the Department of Justice, which brought the case in April 2012, was using antitrust law to prosecute action that reduced Amazon’s market share from 90% in 2010 to around 67% today. While admitting Amazon’s e-book dominance, Judge Livingston characterized Apple’s behavior as “marketplace vigilantism.”

More sensible, in our opinion, was the approach taken by Judge Dennis Jacobs in his dissent, where he observed that “Apple took steps to compete with a monopolist and open the market to more entrants, generating only minor competitive restraints in the process. Its conduct was eminently reasonable; no one has suggested a viable alternative.” Judge Jacobs also noted that “Apple was a major potential competitor in a market dominated by a 90 percent monopoly,” and in its desire to broker a price point above $9.99, “[Apple] was justifiably unwilling to enter a market on terms that would assure a loss on sales.”

The Second Circuit’s ruling will leave Apple on the hook to pay consumers $450 million under a settlement it agreed to in 2014—unless the tech giant takes the case to the Supreme Court and succeeds. Apple appears to have left that option open. “While we want to put this behind us, the case is about principles and values,” the company said in a widely reported statement. “We know we did nothing wrong back in 2010 and are assessing next steps.”