Lawsuit Says Circumstantial Evidence Enough To Prove e-Book Conspiracy

The plaintiffs who are accusing Apple (NSDQ: AAPL) and publishers of fixing e-book prices say they don’t have to show an actual meeting took place. Instead, they say, indirect evidence like price jumps and a common motive are enough to establish an antitrust conspiracy.
The claims, set out in a new court filing, coincide with reports this weekend that the Justice Department is nearing a settlement in the e-book dispute.
The two-headed legal brouhaha is part of a long-running flap over publishers’ adoption of so-called agency pricing in 2010. Under this model, publishers set the price and retailers like Apple or Amazon take a commission.
So far, the plaintiffs haven’t been able to show hard evidence of a conspiracy — such as Apple and the publishing executives chomping cigars while poring over pricing charts.
But in the new filing, the plaintiffs say a 1939 Supreme Court case means that indirect evidence of price jumps and other “plus factors” is enough to establish a conspiracy. The case involved eight movie distributors found guilty of fixing screen prices.
In the e-book case, the new filing points to circumstantial evidence like:

  • A series of four deals in twelve days between Apple and the publishers
  • A trade association meeting at which senior executives from Hachette and Macmillan were seen together in a hotel bar
  • Similar terms in the contracts between Apple and the five publishers

An agreement among competitors to set prices is “horizontal price fixing” and an automatic violation of the Sherman Act.
The publishers have argued that there was no conspiracy and that they adopted the agency model independently because it made business sense. At the time, Amazon was selling e-books at below market prices; publishers feared the practice would train consumers to expect unviable prices.
The new filing also revisits Apple’s role in the alleged conspiracy. The iPad maker has pushed back against the antitrust claims by pointing out that, at the time, it had no power in an e-book market that was 90 percent dominated by Amazon (NSDQ: AMZN). Apple’s lawyers have also said that plaintiffs have “mischaracterized” comments by Steve Jobs about his relationship with the publishers.
In response to Apple’s defense, the plaintiffs said the company had a motive to be the hub of a conspiracy because:

The “situation that existed” was that Apple was late to the eBook market, Amazon had a very large installed user base, a strong appetite for discount eBook pricing, and Apple wanted to knock out a reason to buy a Kindle versus an iPad – the price of eBooks. The scheme protected Apple from price competition from other retailers and increased Apple’s revenue per eBook unit sold compared to the wholesale model.

Finally, the filing recasts Barnes & Noble’s role in the affair. In a January complaint, the plaintiffs had implied that the bookseller may have supported the conspiracy because it wanted to protect the price of its hardcover books.
Now, the plaintiffs call attention to the fact that Barnes & Noble (NYSE: BKS) launched its Nook reader months before the iPad and that the publishers didn’t change their pricing system in response — the point appears to be that only Apple was big enough to broker a conspiracy. The new filing also repeatedly mentions reports that a Barnes & Noble executive has been deposed by the Justice Department. Earlier court filings stated that a publishing executive had tipped a law firm about the alleged conspiracy — it’s not known if that executive was from Barnes & Nobel.
If the reports of an impending Justice Department settlement are true, this would strengthen the hand of the class action plaintiffs and likely force a civil settlement. Under such settlements, lawyers typically pocket 25 percent of the payout while the rest is distributed in small amounts to consumers who claim it.
The e-book investigation is also before the European Commission and various state Attorneys General. The matter appears poised to come to a head in the next month.
eBooks Opposition to Dismiss Copy