Apple has accused the US government of siding "with monopoly, rather than competition" by suing Apple and six publishers for allegedly colluding to fix e-book prices. Apple's response to the Department of Justice's lawsuit offers strong words for the DoJ and those who believe Apple has engaged in a conspiracy with publishers in order to give itself an advantage in the market.
Right off the bat, Apple's response calls the DoJ's complaint "fundamentally flawed as a matter of fact and law." The electronics giant says it negotiated individual agreements with each publisher so Apple could enter the e-book market, arguing that before the launch of the iBookstore in 2010, the only real player in the e-book space was Amazon and its Kindle Store.
"At the time Apple entered the market, Amazon sold nearly nine out of every ten eBooks, and its power over price and product selection was nearly absolute," Apple wrote. "Apple’s entry spurred tremendous growth in eBook titles, range and variety of offerings, sales, and improved quality of the eBook reading experience."
Throughout its 31-page response, Apple pulls no punches in expressing its opinion about the accusations. The electronic giant says the government started with a "false premise" and calls the DoJ action "absurd." Apple also says the government fails to show how the "agency model," which is what the iBookstore uses and Amazon now uses, harms consumers. The strategy has been "long recognized as perfectly lawful," Apple argues, and if not for the agency model, Apple would not have entered the e-book market in the first place.
Agency model
When people refer to the "agency model," it's usually in reference to the sale of electronic content online—in particular, e-books. The "old" way to sell e-books was to use what is known as the wholesale model. Under the wholesale model, book publishers sell a certain number of books to a reseller (such as Amazon or Barnes & Noble) for a set price, then the reseller sets its own price on each book.
Read more…Amazon was largely pressured to change from the wholesale model—which allowed Amazon to set prices instead of publishers—to the agency model after a series of public battles with publishers throughout 2010. Eventually Amazon gave in and started allowing publishers to set e-book prices, which has resulted in an overall increase in prices, though many Kindle books are still available for Amazon's original price of $9.99 (or less). At the time, the battle was widely viewed as one between Amazon and publishers (not Apple). And in its response to the DoJ's lawsuit, Apple argues that it had nothing to do with Amazon's decision: "Apple is not privy to Amazon’s motivations when it adopted the agency model, but enabling entry and introducing new competition, which is all Apple did, cannot be a violation of the antitrust laws."
The arguments largely echo a public statement made by Apple immediately after the suit was filed in April. At the time, Apple fingered Amazon for having a "monopolistic grip on the publishing industry," and patted itself on the back for having broken that monopoly. Several of the targeted e-book publishers—Macmillan and Penguin Group—also issued statements in their defense, saying that they did not act illegally and feel strongly that they have done nothing wrong by adopting the agency model.
Apple's strongly worded response comes less than two weeks after US District Judge Denise Cote said Apple "intentionally and knowingly joined" the conspiracy among publishers to raise e-book prices. She refused to throw out a class-action suit brought by 31 states—one that largely mirrors the DoJ's complaint—against Apple and the six publishers, giving it the green light to move forward. But Apple continues to stand its ground on this issue and shows no signs of letting up on its position that it did nothing wrong, making a drawn-out legal battle more likely.
"Without Apple’s entry, eBook distribution would essentially be ceded to a single distributor (Amazon), who would then possess virtually unlimited power in the eBook business," Apple wrote. "Apple provided all publishers, large or small, similar opportunities to utilize Apple as an agent to sell eBooks directly to consumers through the iBookstore on non-discriminatory terms."
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