A federal judge's ruling Wednesday that Apple violated antitrust laws in its dealings with book publishers may limit the ways in which the company strikes deals in other industries going forward.
"Apple will be under more scrutiny," both from the U.S. Department of Justice and other government regulatory agencies, said Jerry Reisman, a partner and antitrust attorney in the Garden City, New York, law firm Reisman, Peirez, Reisman and Capobianco.
"This is a successful civil prosecution of an antitrust case against Apple," Reisman said. "It could possibly lead to other further investigations in which Apple is engaged in anti-competitive pricing."
As a result, Apple may be more cautious about entering into other markets with the same zeal.
The ruling, if it stands, "ties Apple's hands to some extent," said Keith Hylton, a professor at the Boston University School of Law. The company may want to develop other new features for its products, much like it developed the iBookstore for the iPad. This ruling "introduces a risk that it would face in doing something like that," Hylton said.
Judge Denise Cote of the U.S. District Court for the Southern District of New York found Apple guilty of violating Section 1 of the Sherman Antitrust Act in a ruling issued Wednesday. The plaintiffs-the U.S. Department of Justice along with 33 states and U.S. provinces-convinced the court that Apple engaged in "horizontal price fixing" when making deals with the five largest book publishers.
In 2012, the DOJ and 33 states and U.S. territories brought a lawsuit charging that Apple and five of the largest book publishers in the U.S. conspired to raise prices in the ebook market in 2010, in an effort to stop Amazon from pricing their best-selling electronic books at $9.99.
Apple signed deals in 2010 with five of the six largest book publishers-Hachette, HarperCollins, Macmillan, Penguin and Simon & Schuster-to sell electronic books in an agency model. Under such an agreement, the publishers would set the prices of ebooks, chosen from a set of pricing tiers Apple formulated. Apple got a fixed 30 percent cut of each sale through its iBookstore, which would debut on the about-to-be-launched iPad.
Apple also stipulated that publishers would give Apple "Most Favored Nation" pricing, which would guarantee that the publishers would sell ebooks to Apple at a wholesale rate of 70 percent of the lowest retail price of that book, thereby guaranteeing that Apple could offer the books at the same cost of its competitors.
Immediately after the contracts took effect in April 2010, and publishers moved all their retailers to the agency model, prices of ebooks offered by both Amazon and Barnes & Noble increased almost immediately.
Sign up for CIO Asia eNewsletters.