At close of ebook trial, Apple gains ground: what lies ahead

At the outset of a June trial that captivated the publishing world, Apple’s(s aapl) role in fixing ebook prices was nearly a foregone conclusion: Five publishers had already settled and the trial judge started the proceedings by saying the government could likely prove Apple had organized the whole thing.
Three weeks later, the situation looks somewhat different. Apple made a forceful argument that it brought competition to a market dominated by Amazon(s amzn) and, according an antitrust expert, forced the trial judge to rethink the foundation of the case. Here’s an easy-to-read Q&A about the case and what will happen next.

Why was Apple on trial in the first place?

The Justice Department filed a lawsuit claiming that Apple was the ringleader of a conspiracy among publishers to fix the price of ebooks. All of the publishers agreed to settle, pay fines and change their pricing systems. Apple held out and the case went to trial.

What happened at the trial?

The government held up emails and phone calls between Apple and the publishers as evidence of a conspiracy brokered by Apple. The company’s lawyers, however, made slides to show that these communications were not the smoking gun that the Justice Department claimed. More importantly, Apple laid out an alternative theory of the case: that its pricing policies were not a conspiracy but a business decision that was good for consumers.

“[Judge Cote] may have had certain impressions before the trial started from reading the written materials. But then, throughout the trial, Apple made a lot of headway in explaining their actions and how their model came about, and how they interacted with these publishers,” said Andre Barlow, a former Justice Department lawyer who is now a partner at the antitrust firm, Doyle, Barlow & Mazard.

“The judge now has a lot more to think about it. It’s not a simple case the way the Department of Justice was presenting it.”

What happens now?

The judge is expected to issue her decision later this summer. If Apple loses, the company will have to agree not to use certain types of pricing terms in its ebook contracts. It will also have to pay millions in fines to state governments who are suing on behalf of consumers.

More broadly, the case could be a bellwether for the tech sector.

“It’s going to be a big deal, whatever the decision is, because not many of these cases go to trial. Whenever you have an Apple, or Amazon(s amzn) or Google(s goog) go to trial against antitrust, it’s really important,” says Barlow. “This isn’t a case about money, it’s about conduct and principle on both sides. The Justice Department is concerned about these tech companies that control distribution.”

How will the decision affect the ebook market?

Ironically, the decision will have very little practical effect. That’s because the publishers, under the settlements, have already agreed to abandon controversial pricing tactics, including some forms of “most favored nation” clauses. If Apple is barred from using such clauses in the ebook market, it won’t change anything at this point.

Will there be an appeal?

If Apple loses, yes. The company will almost certainly file an appeal to the Second Circuit Court of Appeals. The commission-style pricing system at issue is a basic part of how Apple does business, says Barlow, and the company will appeal out of principle.

If the government loses, an appeal is less certain. The Justice Department has already made a high profile legal and public relations bet. A loss would be an embarrassment and an appeal would mean doubling down.

“From the Justice Department perspective, I’m sure they’ll have to go back and decide if it makes sense to appeal. It’s one thing to have a district court decision — it’s another to lose at the Second Circuit.”