[Updated with additional background information, details on "escape clause"] Federal court Judge Denise Cote has approved Apple's
$450 million e-book suit settlement offer with US states. The agreement,
proposed in June, will settle allegations made in 33 states and territories, with $400 million potentially reaching customers affected by the "price fixing conspiracy." The agreements only settles the states' complaints, with the publishers' settlements remaining discrete. However, Apple may have an ace up its sleeve on the deal -- in the form of a
"vindication" clause.
The company was found by the judge in a
bench trial to have colluded with Hachette, Macmillan, HarperCollins, Penguin, and Simon & Schuster in order to undermine Amazon, which until the launch of Apple's iBookstore was able to sell e-books for a
money-losing standard of $10, which many critics at the time noted was intended to make it impossible for smaller competitors to enter the market, and which publishers bitterly objected to.
Cote noted that the publishers' switch to an agency model, discussed by the publishers amongst themselves long before the iBookstore concept but made fruitful through Apple's willingness to adopt the model, forced a number of best-selling e-books to climb in price to $13 or $15. The finding was despite
contradictory testimony from Google, Barnes & Noble, and even some Amazon executives that
Apple had not introduced, facilitated or required that pricing structure.
Ironically, publisher Hachette's
recently-struck agreement with Amazon -- which ended a string of
bullying and punitive actions by the reseller,
exactly as predicted by critics and
previously demonstrated by Amazon - holds the megaseller to the very same "agency model" pricing agreement Apple ran afoul of the DOJ over. Conceivably, that settlement could aid Apple in its appeal.
The settlement now approved by the judge has an escape clause for Apple, however. Should Judge Cote's ruling in the Federal-level suit be overturned, Apple will owe nothing to the states. If the case is sent back to Cote on appeal for re-appraisal, the settlement would be reduced to just $50 million to consumers, and $20 million to lawyers. The judge initially objected to the clause, hinting that she thought it likely her ruling would be at least remanded for adjustment.
"The plaintiffs have shown that the publisher defendants 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," the judge commented in her
controversial ruling, finding Apple guilty of the price fixing. The verdict has been widely decried by
legal analysts,
antitrust experts, and
the press. "Without Apple's orchestration of this conspiracy, it would not have succeeded as it did in the spring of 2010," Cote claimed.
One of the aspects' of Apple's initial iBookstore agreements gave the company "most favored nation" status, ensuring that no title could be sold for less than it was at the iBookstore. Although such clauses are very common in retail agreements -- including Amazon's agreements with the publishers -- Judge Cote and the DOJ decided that Apple's use of the MFN clause was somehow anti-competitive. The prosecution and judge's rationale was that it put a stop to Amazon's predatory pricing, which was later revealed to cost the company around $3 per e-book sold on average -- or approximately the wholesale cost Apple and the publishers later promoted as a "sustainable" retail price.