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For Apple, much to gain in fighting e-books case

Reuters/ AFR | July 12, 2013
Beyond defending its honour, the US tech giant has strategic reasons not to settle and to continue fighting the decision as it has said it will do.

Before Apple entered the e-book market, Amazon's strategy involved buying e-books at wholesale prices and then selling them below cost to promote its Kindle reading device. This damaged publishers by driving sales away from brick and mortar outlets.

Apple convinced publishers to enter into "agency agreements," in which publishers were able to set prices and then pay 30 per cent commissions.

Critical to those agreements, however, were the most favored nation clauses. With Apple able to match any lower prices in the market, publishers forced Amazon to adopt the agency model as well, thus raising prices for consumers, according to Cote's ruling.

Evidence in the case included emails from Apple's late co-founder Steve Jobs to News Corp executive James Murdoch that the government said reflected Jobs' desire to boost prices and "create a real mainstream e-books market at $US12.99 and $US14.99."

Cote called it "wrong" for Apple to contend that it acted to stop Amazon's monopolistic practices, and Crane said Apple will hit that argument hard in its appeal.

"That's very important to Apple case," Crane said.

Several publishers settled before trial and agreed to pay more than $US166 million combined to benefit consumers. They also agreed to end their pricing agreements with Apple.

Apple is, however, in the enviable position of being able to afford such a costly proceeding and hundreds of millions in potential civil damages.

"This is not a bet your company case," said Crane.

 

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