Apple eBook Antitrust Lawsuit Gets First Reading in 2012

By | Jul 2, 2012

Antitrust lawsuits are becoming commonplace in the technology market as digital consumerism rapidly increases. Companies like Google, Microsoft, and mobile device king Apple are now being placed on trial for violations of national fair competition and pricing laws; Apple's eBook antitrust lawsuit, which the iPad maker had hoped would be over quickly, is scheduled for a June 2013 start date. But do these lawsuits have substantial merit, or are courts just reading between the lines? And what do such cases mean for IT professionals?

Hard Covers

The Apple lawsuit concerns what is known as the agency model of digital distribution, which the company managed to push publishers toward after the debut of its iBooks store in 2010. This replaced the retail model used by Amazon, and its implementation has generated no end of controversy.

The US Department of Justice (DOJ), concerned about possible price collusion between several major publishers and Apple has begun an eBook antitrust lawsuit, one set to begin in 2013. According to a June 25, 2012, article at Mac Observer, Apple was hoping for an earlier trial date, but the DOJ wanted one at the end of 2013 so it can gather evidence. Judge Denise Cote set the June 2013 date as a compromise between the two.

So what's the DOJ's problem with Apple? According to the department, Apple's model encourages unfair price setting and collusion between eBook manufacturers and publishers, in large part because of what is now known as the "most favored nation" clause. Under this provision, any publisher working with Apple agreed not to sell their books at a lower price on any other platform --for example, Amazon's Kindle. Consider that when the iPad hit the market, 90 percent of the market share belonged to Amazon, compared to only 60 percent today, and a potential issue begins to emerge. Consumer groups argue that Apple's model has increased prices across the board, while Apple maintains it is simply fostering competition.

Trouble Abroad

Apple isn't the only company facing potential antitrust issues. A recent CNet article discusses the $1.12 billion fine that Microsoft may have to pay to the European Union. The fine stems from an alleged breach of a European Commission order in 2004, which mandated the company to licence interoperability information so that rivals' software would work with Windows. Microsoft complied, but in 2008 the commission argued that its rates were too high. Now, four years later, the EU court is finally expected to lay down its final verdict.

Microsoft contends the fine is "most undeserved" since it relies on finalized rate parameters from 2007, but deals with rates levied from June 2006 to October 2007. The lengthy process of setting, processing, and now finalizing this fine speaks to just how much effort Apple can expect to exert as its eBook antitrust lawsuit gets set for a June 2013 start--not exactly the quick resolution the company was hoping for.

For IT professionals, this increased reliance on lawsuits to settle matters of cost and collusion leads to a number of conclusions. First, it's clear that both consumers and governments are finally honing in on pricing practices long used by companies but not really brought to light until the advent of mass digital market distribution. Ideally, the imposition of fines and sanctions will help keep costs for cloud computing and other consumerized services reasonable and force providers to consider interoperability instead of merely profit.

But all's not rosy in the world of antitrust lawsuits; as any industry matures, court cases begin to spring up for even frivolous claims. Right now, it's large providers that have the legal lens leveled in their direction, but even midsize businesses need to be mindful of how they conduct themselves both at home and abroad. If giants like Apple and Microsoft can be taken to task for violations, any company may be fair game for alleged unfair practices.

This post was written as part of the IBM for Midsize Business program, which provides midsize businesses with the tools, expertise and solutions they need to become engines of a smarter planet. Like us on Facebook. Follow us on Twitter.

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