United States: The Second Circuit's Apple Ebooks Opinion

The Second Circuit affirmed the district court and held, 2 to 1, that defendant Apple Inc. had violated Section 1 by masterminding the creation, organization and implementation of a conspiracy by five publishers of ebooks that benefited Apple, as Apple intended, by eliminating retail price competition from Apple's rival, Amazon, in the sale of ebooks. United States v. Apple Inc., No.13-3741 (2d Cir. June 30, 2015).1

Amazon, as described by the court, was viewed as the common enemy by Apple and publishers of printed trade books and ebooks (the five publishers settled out before trial for the imposition of equitable relief). Apple was about to introduce the iPad with great fanfare, and wanted to open its iBookstore at the same time. Apple viewed Amazon's across the board $9.99 pricing for ebooks as too low for Apple to make a profit as a retailer, and Apple would not enter into retailing ebooks unless it was profitable. Apple wanted to eliminate Amazon's price competition at the retail level (slip op. p. 24).

The publisher defendants, five of the industry's "Big 6" publishers (p. 14), decried Amazon's $9.99 prices for ebooks as destructive to their traditional way of doing business. They believed that Amazon's prices were making it harder to sell hardcover versions of new releases and New York Times bestsellers; that Amazon would permanently depress prices for printed trade books and gain the power to demand lower wholesale prices; and that authors would go directly to Amazon to get published and cut out the publishers altogether (pp. 14, 85). They were at a loss as to how they could force Amazon to raise ebook prices. Apple knew of and used the publishers' willingness to combine and conspire to force Amazon to raise retail prices (p. 19).

The Court of Appeals affirmed the district court's findings that Apple implemented its plan through its contracts with the publishers to sell their books at retail; by regularly informing them of what the other publishers were doing and what they should do; and by directing them to act in unison so that Amazon would surrender when the publishers made their demands that Amazon enter into contracts with them using Apple's "agency model." It worked. Amazon gave in to the combined strength of the publishers (pp. 38-40), giving the publishers the power to set Amazon's retail prices for their ebooks. That led to higher retail prices by rival Amazon that Apple considered "reasonable."

Apple's contracts for its sale of the five publishers' ebooks constituted the centerpiece of the accused combination. The contracts had three major terms. The first term was designed to eliminate Amazon's power to set its own retail prices. The publishers had been selling to retailers for decades using the "wholesale model," whereby they sold to retailers like Amazon for wholesale prices and Amazon set its retail prices. Apple's ebook contracts with the five publishers instead employed an "agency model" in which the publishers set the retail price and split the revenue with the retailer, 70 percent to the publisher and 30 percent to the retailer (p. 23). Apple initially wanted to have the publishers agree in writing to make all retailers, including Amazon, move to the agency model (p. 24). An in-house counsel for Apple then came up with a "better way" to accomplish the same thing (pp. 28-29).

This became the second major contract term, the Most Favored Nation clause ("MFN") (p. 26). The "MFN would require the publisher to offer any book in Apple's iBookstore for no more than what the same ebook was offered for elsewhere, such as from Amazon" (id.). The MFN was intended to make it imperative for the publishers to move Amazon to the agency model. It would have caused the five publishers to suffer losses if they permitted Amazon's $9.99 pricing to persist and only made 70 percent of that price when selling through Apple's iBookstore. The MFN therefore "stiffen[ed] the spines" of the publishers to present a unified front to demand new terms from Amazon (p. 29).

The third major term was the placement of price caps in Apple's contracts with the five publishers (pp. 29-30). Apple did not want the publishers to use their control over retail prices to raise prices too high. Ebook prices were classified by the prices of the printed trade versions of the ebooks. For example, a New York Times ebook bestseller would cost $14.99 if the hardcover version of the book was over $30.00, and $12.99 if the hardcover was listed below the $30.00 price (p. 30). The publishers negotiated Apple upward on the corresponding ebook prices, and sometimes raised prices of hardcovers so that books would qualify for higher ebook prices (p. 41).

While Apple claimed it had "unwittingly" organized the publishers' conspiracy (p. 63), the lengthy fact section of the Second Circuit's opinion describes numerous deliberate acts by Apple to further the combination (e.g., pp. 31, 32, 35, 39, 58, 64). For example, "Apple kept the Publisher Defendants apprised about who was in and how many were on board. . . The Publisher Defendants also kept in close communication" (p. 35, quoting the district court opinion). Apple reportedly told the publishers that it would not enter ebook retailing unless at least five of the Big 6 agreed to the price fixing agreement (p. 31).

Apple's stronger argument was to concede what it had done but to assert that it was procompetitive because it made it possible for Apple to enter ebook retailing, a market that Amazon controlled with a massive 90 percent share. Apple's entry reduced Amazon's share to 60 percent. This was the argument accepted by the dissenting opinion here in Apple, which would have exonerated Apple. The dissent held that the liability issues pertaining to Apple should be analyzed exclusively under the Rule of Reason as vertical restraints.

The dissent agreed with Apple's positions that the only way for it to enter ebook retailing was to use price fixing to raise Amazon's prices, and that Amazon's low $9.99 pricing had succeeded in preventing entry at the retail level. Apple asserted that Amazon engaged in loss leader pricing of new releases and New York Times bestsellers. The dissent stated that Apple had achieved "the pro-competitive result of deconcentrating a market that had been dominated by a monopolist and insulated from competition through below-cost pricing" (Dissent slip op. p. 26).

The majority held that Apple had not shown that price fixing was necessary for Apple to be able to enter (pp. 99, 103), and that Apple had not shown that it would have lost money if it had entered a market that had price competition (p. 100). The majority recognized that a market with artificially high prices caused by price fixing is more attractive to potential new entrants, but "it would seem to follow that the more successful an agreement is in raising the price level, the safer it is from antitrust attack. Nothing could be more inconsistent with our cases" (p. 94, quoting Catalano, Inc. v. Target Sales, 446 U.S. 643, 649 (1980)).

The majority stated that "the Sherman Act does not authorize . . . marketplace vigilantism to eliminate perceived 'ruinous competition' or other 'competitive evils'" (p. 98, quoting Arizona v. Maricopa County Med. Soc'y, 457 U.S. 332, 346 (1982)). The antitrust laws encouraged vigorous price competition by Amazon (p. 97, citing Brooke Group Ltd. v. Brown & Williamson Tobacco Corp., 509 U.S. 209 (1993); cf. Cargill, Inc. v. Monfort of Colorado, Inc., 479 U.S.104, 116 (1986) ("[I]t is in the interest of competition to permit dominant firms to engage in vigorous competition, including price competition." [Citation omitted]). Apple had not shown that the price fixing it had arranged improved competition (pp. 104-105). Collusion, the method used to raise prices here, is "the supreme evil of antitrust" (p. 98, quoting Verizon Communications Inc. v. Law Offices of Curtis V. Trinko, 540 U.S. 398, 408 (2004)). In short, the majority held that "Apple had no entitlement to enter the market on its preferred terms" (p. 97).

The majority believed that the combination as described in its opinion impaired consumer welfare and nullified any potential benefit of reduced concentration. Retail prices of the five publishers' ebooks rose a weighted average 23.9 percent (p. 42) and the volume of ebooks they sold diminished by 12.9 percent (p. 87).

The majority held that this case did not present the same type of pristine vertical restraints found in Leegin Creative Leather Prods., Inc. v. PSKS, Inc., 551 U.S. 877 (2007). Defendant Leegin's vertical restraints only applied to retailers carrying Leegin's leather goods. Leegin did not eliminate price competition, or any other type of competition at its horizontal level, that it faced as a manufacturer from other manufacturers of leather goods. Here, the court found that Apple's primary objective, which it achieved, was an anticompetitive effect on a horizontal rival (p. 77).2


[1] The lead opinion found that Apple had committed a per se violation of Section 1 and, alternatively, had restrained trade unlawfully under the Rule of Reason; the concurring opinion joined the per se holding only and stated that no Rule of Reason analysis was needed; and the dissent held Apple's conduct was lawful under the Rule of Reason.

[2] The opinion also dealt at length with the proper scope of injunctive relief against Apple and the publishers. That issue is beyond the scope of this article. No damages were sought.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

Events from this Firm
13 Sep 2018, Other, Los Angeles, United States

Liisa will be giving opening remarks and presenting, "Big Data and Online Behavioral Advertising (OBA): An Advertiser’s Perspective Origins of big data and how to legally acquire data."

26 Sep 2018, Seminar, San Francisco, United States

Please join us for Sheppard Mullin's Labor & Employment Law Update & Happy Hour Seminar Series.

28 Sep 2018, Other, Los Angeles, United States

Leaders today don't just have to worry about nefarious cybercriminals getting "inside" their firewalls; there's an entire ecosystem of SAAS partners, third party vendors and suppliers, and all the hardware from switches to POS terminals that need to be monitored.

Similar Articles
Relevancy Powered by MondaqAI
Patterson Belknap Webb & Tyler LLP
Lewis Brisbois Bisgaard & Smith LLP
In association with
Related Topics
Similar Articles
Relevancy Powered by MondaqAI
Patterson Belknap Webb & Tyler LLP
Lewis Brisbois Bisgaard & Smith LLP
Related Articles
Related Video
Up-coming Events Search
Font Size:
Mondaq on Twitter
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
Email Address
Company Name
Confirm Password
Mondaq Topics -- Select your Interests
 Law Performance
 Law Practice
 Media & IT
 Real Estate
 Wealth Mgt
Asia Pacific
European Union
Latin America
Middle East
United States
Worldwide Updates
Registration (you must scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions

Mondaq.com (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of www.mondaq.com

To Use Mondaq.com you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.


The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.


Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions