Justice Department Smacks Down Apple
Somewhere in the world, Amazon execs are quietly cheering.
Apple (NASDAQ: AAPL) is among one of six corporations being sued by the U.S. Justice Department, which alleges that the Mac maker colluded with five major book publishers to raise the price of e-books, the Washington Post reports.
According to AppleInsider, three of the publishers -- Simon & Schuster, Hachette and HarperCollins -- have already settled, while Macmillan and Penguin Group have yet to throw in the towel. There were conflicting reports as to whether or not Apple had settled, but it seems that the iPhone creator is currently planning to fight this battle -- at least for the time being.
Apple had plenty of time to prepare for a fight. The Justice Department officially announced that it planned to sue Apple and five book publishers on March 8. Last August, Hagens Berman (a consumer rights class-action law firm) sued Apple and the five aforementioned publishers over the e-book price-fixing complaint. The lawsuit claimed that by colluding with Apple, these publishers successfully forced Amazon (NASDAQ: AMZN) to raise its prices. Without their collusion, Amazon would have been free to sell cheaper e-books, the lawsuit contended. The Justice Department agrees.
This is not the first time that Apple has gotten in trouble for colluding. The company has also been accused of colluding with several tech giants -- including Google (NASDAQ: GOOG), Adobe (NASDAQ: ADBE), Intel (NASDAQ: INTC), Intuit (NASDAQ: INTU), Pixar and Lucasfilm -- to eliminate competition for skilled labor.
But that lawsuit is a bit different (and, some would argue, a bit more extreme). No one is coming to Apple's defense in the skilled labor case. But Apple has received an abundance of support in the e-book battle, including an amusing tweet from Jim Cramer
"The DOJ lawsuit against $AAPL etc. is silly. Book prices have come down huge. They should investigate oil hoarding via futures," Cramer tweeted this afternoon.
It's true that book prices have come down. But I have occasionally seen e-books retail for more on Amazon than the hardcover version. Was that a coincidence?
Whether guilty or innocent (I suspect that most people will assume all of the involved parties are guilty considering how quickly three of the publishers settled), Apple is fighting a battle it likely can't win. Few investors will run from the stock on this alone, and there's no doubt that the Mac maker has enough capital to stay in court for a very long time. But unless Apple is 100% innocent here (or intends to re-write the laws on colluding), there is no reason for the company to proceed. The damage has already been done.
As I said, most people who hear about this lawsuit will assume Apple is guilty. It's not as easy to dismiss as the vaguely similar lawsuit against Electronic Arts (NASDAQ: EA), which claimed that the company used its exclusive deal with the NFL to raise the price of its own football games. EA charges $60 for new football games -- the same MSRP attached to most video games released on Xbox 360 and PlayStation 3. Before EA signed an exclusive deal with the NFL, 2K Sports began selling its ailing sports games for $20. This was a competitive decision, one that 2K Sports was free to continue doing after the NFL license was lost. But 2K Sports -- which is owned by Take-Two Interactive (NASDAQ: TTWO) -- did not continue to sell its sports games for $20. Instead, it sold NBA 2K and other major releases for the standard MSRP of $60.
The suits against Apple are different. Whereas Amazon wanted to bring down the price of every book it sold, Apple fought to keep that from happening. Book publishers hated the thought of reduced prices, so they sided with Apple. It shouldn't take a rocket scientist to see how Apple could be guilty in this scenario, nor should it take a great deal of thought to figure out why book publishers were wrong to participate in this scheme.
Nonetheless, Apple's defenders don't really care if the company is guilty. They don't realize the problems this could cause for the textbook industry. All they see is a company that's being attacked for price fixing while there are bigger fish to fry.
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