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Could tiny ebooks really upset the mighty Apple cart?

Steve Jobs' last big deal may turn into costly roadblock

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Apple: 'But we had nothing to gain'

Apple hasn't been saying much about the cases in public, but it has presented a defence in the US class action suit. The fruity firm insists that it had nothing to gain by fixing the price of ebooks because it doesn't have a presence in the physical book market. And as for the theory that it was trying to smash the Kindle out of existence because if people got used to having one and Amazon then pimped it up into a tablet, they wouldn't want an iPad, Apple said it thought that was kind of ridiculous.

Its filing in the case said:

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?

But the involvement of two regulators on top of a class action suit isn't making that argument look too steady.

The European Commission's antitrust chief Joaquin Almunia said yesterday that it would be happy to settle with Apple and the publishers providing they addressed the EC's "objections".

Vidal said that the very fact that the EC has objections and is publically talking about them could be a sign that it already has evidence of the firms' collusion on pricing.

"The signal there from the Commission is that they have objections, it's not very clear what those objections are, but there's clearly some problem with the current arrangement so it's effectively threatening the publishers with a fine unless they decide to settle this, and I would imagine that's because they've found some sort of evidence of collusion," he said.

And if the evidence is already there, Apple and the publishers would be in big trouble. The EC can fine them up to 10 per cent of worldwide turnover, which is likely to be a pants-wettingly high sum, so the smart thing for them to do would be to settle. But there's a problem with that too.

Assuming that Apple and the publishers settle the regulator cases in Europe, the US or both, even if the settlement agreements don't mention culpability, it's basically a tacit admission of guilt. And that is going to lend a lot of weight to the existing class action suit, or indeed any other class action suit anyone would like to bring.

"It's very difficult for you to defend your case once you've settled because a settlement is effectively an admission of guilt and everyone accepts that, even if it's not in the settlement," Vidal said.

"There would be no reason for a settlement if there hadn't been some sort of infringement."

In the US, plaintiffs who win class action suits can reap triple damages from companies. And even if the current class action suit fails on some legally flawed argument, there's nothing to stop anyone else from starting another.

In Europe, there's no triple damages, but if the regulator decides you've infringed the competition law, anyone can then bring a follow-on suit. In these cases, they don't have to prove liability, they only have to prove "quantum" (amount) – in other words, show how many ebooks they bought at the unfair prices – and the company will have to pay up.

Neither Apple nor the five big publishers – Harper Collins, Hachette Livre, Simon & Schuster, Penguin and Macmillan – are exactly short a dollar or four, but suffering the fines and numerous lawsuits could hit them hard.

If they have colluded, their only real choice is to settle and cut their losses, at least avoiding the full fines from the regulators, according to Vidal. Just how much those losses could be remains to be seen. ®

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