Apple to the Feds: Bring It On!

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Apple (NAS: AAPL) thinks it saved us from Amazon.com's (NAS: AMZN) evil clutches. Although the U.S. Department of Justice believes that the Mac maker is in cahoots with major e-book publishers in an elaborate price-fixing campaign intended to gouge consumers.

The DoJ recently filed suit against Cupertino and publishers Hachette, News Corp.'s (NAS: NWSA) HarperCollins, CBS's (NYS: CBS) Simon & Schuster, Pearson's (NYS: PSO) Penguin, and Macmillan.

The issue at the heart of the case lies in Apple's use of the agency pricing model with e-books sold through its iBookstore, which was a stark contrast from the wholesale model that Amazon forced on publishers as the most viable e-book platform at the time. As soon as Apple came along and offered to give pricing power back to the publishers, they all hopped onboard the Apple Express and Amazon had to follow suit.


Consumers got the short end of the stick, as the net result was that e-book prices throughout the industry saw a precipitous rise, now that Amazon was no longer there to cap prices. Such was an inadvertent outcome to Apple "breaking Amazon's monopolistic grip on the publishing industry."

Three of the publishers are now in settlement talks, which could let Amazon go back to its discounting ways. There is one defendant that is decidedly not settling: Apple.

Put up your dukes, Uncle Sam!
Apple is looking forward to duking it out with the feds in court to defend itself, with an iLawyer telling a district judge: "Our basic view is that we would like the case to be decided on the merits. We believe that this is not an appropriate case against us and we would like to validate that."

In all likelihood, Apple will have a solid defense. The company just provided the platform for agency pricing, which it uses in its other content stores, while the publishers set the prices. Apple's "music related" segment, which includes all of its content offerings like iTunes, the App Store, and iBookstore, comprised just 4.3% of sales last quarter, so it has little incentive to collude for a cut of any price increases -- it just wants you to buy iPhones and iPads.

On the other hand, publishers have more reason to cheat. There's also evidence that they had various business meetings over meals at high-end hotels and restaurants that Apple didn't attend. They also seem rather willing to settle.

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At the time this article was published Fool contributorEvan Niuis not a lawyer, nor does he play one on TV. He owns shares of Apple and Amazon.com, but he holds no other position in any company mentioned. Check out hisholdings and a short bio. The Motley Fool owns shares of Amazon.com and Apple.Motley Fool newsletter serviceshave recommended buying shares of Amazon.com and Apple and creating a bull call spread position in Apple. The Motley Fool has adisclosure policy. We Fools don't all hold the same opinions, but we all believe thatconsidering a diverse range of insightsmakes us better investors. Try any of our Foolish newsletter servicesfree for 30 days.

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