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Apple wants ebook price class action suit thrown out

Fruity firm fends off regulators' fingers

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Apple may be keeping quiet publically about allegations of antitrust violations in ebook pricing, but a court filing in a class action lawsuit last week shows that Cupertino doesn't think too much of the claims.

The motion to dismiss the case, filed in a New York court, gave a particularly scathing view of the argument against Apple peppered with such memorable phrases as the following:

This allegation just strings together antitrust buzzwords and offers the sort of “bald assertion[s], without any supporting allegations,” that do not survive a motion to dismiss.

Apple and book publishers are facing off with two regulators, the European Commission and the US Justice Department, which are both passing a critical eye over their behaviour in the ebook market.

The concern is that, on entering the market, Apple changed the pricing structure for ebooks with the help of publishers, artificially raising prices.

Before Apple came along, Amazon dominated the ebook market by nearly 90 per cent and was using the typical pricing model with publishers, where it paid half the recommended retail price and then sold it for as much or little as it liked.

Under this model, Amazon was frequently selling new books for $9.99, even if it had paid more for the book.

When Apple moved into ebooks, it negotiated an agency model with publishers, where they set the price and Apple took a 30 per cent cut. The fruity firm also stipulated that publishers couldn't set one price for it and then turn around and sell the book more cheaply to Apple's rivals.

On the strength of Apple's deal, publishers then went to Amazon and asked for the same contract.

The argument against Apple and the publishers is that their agreements artificially lifted the price of ebooks.

Apple argued in its filing in the class action suit that it had "no discretion" over prices set by publishers and they all set their own prices. The company also said it had no reason to be setting book prices as it is not a publisher or really a proper bookseller.

Plaintiffs contend Apple acted as a coordinating hub even though they explicitly acknowledge Apple was a new entrant (not a dominant distributor), with no market power, no experience in book distribution, no business relationships with the Publishers, and no vested interest in the success of the physical book market.

Apple also poured scorn on the idea that it entered into these illegal machinations to get rid of Amazon's Kindle.

Nor does this “Kindle theory” make sense on its own terms. For example, if Amazon was a “threat” that needed to be squelched by means of an illegal conspiracy, why would Apple offer Amazon’s Kindle app on the iPad? Why would Apple conclude that conspiring to force Amazon to no longer lose money on eBooks would cripple Amazon’s competitive fortunes? And why would Apple perceive the need for an illegal solution to the “Kindle threat” when it had an obvious and lawful one which it implemented – namely, introducing a multipurpose device (the iPad) whose marketing and sales success was not centred on eBook sales?

Despite its protestations of innocence though, class action lawsuits and the scrutiny of the regulators of two massive Apple markets are not to be sneered at.

The EU launched a formal investigation of Apple and five publishers over the allegations in December last year. And yesterday, reports said that the US Justice Department is trying to get the six firms to settle against the allegations or it will take them to court. ®

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