Apple Found Guilty of E-Book Price Fixing

Apple was dealt a setback on Wednesday when a New York district judge found that Cupertino is guilty of e-book price fixing.

The Justice Department showed that publishers "conspired with each other to eliminate retail price competition in order to raise e-book prices, and that Apple played a central role in facilitating and executing that conspiracy," Judge Denise Cote wrote in her ruling.

Apple "changed the face of the e-book industry," but not in a good way, Judge Cote concluded. "Without Apple's orchestration of this conspiracy, it would not have succeeded as it did in the Spring of 2010."

The case dates back to April 2012, when the DOJ sued Apple and five publishers - Macmillan, Penguin, Hachette, HarperCollins, and Simon & Schuster - over an alleged "illegal conspiracy" involving e-book price fixing. The publishers settled with the government, but Apple fought back and the case went to court early last month.

According to the DOJ's case, Apple conspired with publishers to raise the price of e-books from the $9.99 charged by Amazon to $12.99 or $14.99. In order to do that, Apple encouraged the publishers to embrace an "agency" model, whereby publishers set the prices and distributors like Apple and Amazon take a cut of the sale. If the publishers conspired to set e-book prices, Amazon would be forced to accept the higher prices.

Apple has long denied any wrongdoing, and Apple CEO Tim Cook said at the D11 conference in May that the government's case against Cupertino was "bizarre."

Judge Cote, however, did not agree. The DOJ presented "a preponderance of the evidence that Apple conspired to restrain trade," which violates the Sherman Antitrust Act as well as various state laws, the judge said. "There is, at the end of the day, very little dispute about many of the most material facts in this case."

Judge Cote argued that "Apple seized the moment and brilliantly played its hand." Cupertino took advantage of the publishers' fears over Amazon's e-book pricing in order to get the necessary backing it needed to launch its iBookstore alongside the first iPad in Jan. 2010.

Apple "provided the [publishers] with the vision, the format, the timetable, and the coordination that they needed to raise e-book prices," the judge said - not to mention the threat of financial penalties for publishers that did not embrace the agency model.

"Apple and the Publisher Defendants shared one overarching interest - that there be no price competition at the retail level," the judge concluded.

"Apple did not conspire to fix e-book pricing and we will continue to fight against these false accusations," an Apple spokesman said in a statement. "When we introduced the iBookstore in 2010, we gave customers more choice, injecting much needed innovation and competition into the market, breaking Amazon's monopolistic grip on the publishing industry. We've done nothing wrong and we will appeal the judge's decision."

In a statement, Assistant Attorney General Bill Baer said the ruling is "a victory for millions of consumers who choose to read books electronically."

"Companies cannot ignore the antitrust laws when they believe it is in their economic self-interest to do so," Baer continued. "This decision by the court is a critical step in undoing the harm caused by Apple's illegal actions."

Judge Cote said a scheduling order will follow to address the DOJ's request for injunctive relief and damages.

Editor's Note: This story was updated at 10:45 a.m. Eastern with comment from Apple.