062907pricefixingHot on the heels of the filing I mentioned yesterday, the judge in the publisher/Apple price-fixing class action has issued a 56-page ruling (PDF). It’s important to note that this is only a preliminary ruling on Apple and the publishers’ motion to have the case thrown out. It doesn’t mean they’re necessarily guilty. As such, it used a simplified set of criteria—rather than questioning the plaintiffs’ facts, as would be done in a full trial, the judge took them at face value for the purpose of determining whether there was enough of an issue to move to full trial about.

It should come as little surprise that the judge determined that a full trial was merited. The ruling is surprisingly penetrable reading, keeping the legalese to a minimum and explaining why the decision was made—well worth reading in full. Judge Denise Cote starts with a section laying out the background of the matter in fairly comprehensive fashion, including publishers’ fears that consumers would be conditioned to expect lower prices.

She then moves to consider the plaintiffs’ claims, setting them in context of several prior antitrust cases. Those cases include one in which a movie theater operator convinced eight movie distributors to offer it preferred pricing, and another in which Toys’R’Us dictated anti-competitive terms to toy suppliers. Finally, she looks at the defendants’ motion for dismissal and explains why each of the reasons the defendants give are invalid.

There’s some fascinating stuff here. For example, from pages 30-31 of the ruling, the judge explains why collusion is so probable. It’s a classic “prisoner’s dilemma” scenario: if each individual publisher hadn’t known it could count on most of its competitors to move to agency pricing as well, it would have made little sense for it to do so alone:

The costs of such a unilateral switch to the agency model would be substantial.  The publisher would be selling its eBooks at a higher price than its competitors and would therefore be losing market share.  This loss in market share would in all likelihood have been large.  Random House gained significant market share from the Publisher Defendants during the months between their adoption of the agency model and Random House’s capitulation.  The eBook sales by Random House increased 250 percent in 2010 as it continued to sell them at $9.99.  At the same time that an individual publisher would be losing market share, it would be taking in less revenue per sale because of Apple’s 30 percent commission.  In addition, the publisher would probably lack the leverage to force Amazon to accept the agency model.  Potentially, then, this publisher would be barred from selling its eBooks to Amazon.

When you put it like that, it really does seem like an open and shut case, doesn’t it? Of course, needless to say it won’t be. This sucker’s probably going all the way to the Supreme Court. Or maybe the separate DoJ case will. Either way, I can’t see anyone short of the Supremes putting this issue to bed.

There’s also some stuff about Steve Jobs’s role in things, including full consideration of Jobs’s cryptic remark, a few days before the Macmillan/Amazon agency kerfuffle, that e-books would cost $12.99 to $14.99 from Apple, but “the prices will be the same” as on Amazon. Apple claims Jobs was making an educated guess; the plaintiffs claim he had inside knowledge of a conspiracy. Too bad that he’s dead now and nobody can ask him under oath what he meant.

Given what I said above about the requirements of deciding on a motion dismiss involving taking the plaintiffs’ claims at face value, I’m not sure I can say that this ruling necessarily means the judge is inclined to look on the plaintiffs with favor—she sort of had to by the nature of the ruling. I expect the claims they made will be examined and facts scrutinized over the course of the trial. But it at least shows she has already got a framework in mind in which to examine those claims.

I don’t know if something like this will make Macmillan and Penguin reconsider their “no settlement no way no how” stance, but I would think it surely ought to. The wind is blowing that-a-way, people. Are you really going to throw more good money after bad?

(Found via PaidContent.)


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