After being found guilty of conspiring with book publishers to raise e-book prices, Apple has dodged an $840 million claim in damages by agreeing to settle out of court with states and consumers.
The price fixing case was set to go to trial next month, but that is no longer necessary as Apple has decided to pay plaintiffs an undisclosed amount to settle the case. District Judge Denise Cote of the U.S. district court for the southern district of New York issued an order Monday that gave Apple and plaintiffs one month to seek approval for the settlement. However, Apple's motion for appeal will continue to stand until the court places its stamp of approval on the settlement.
Steven Berman, head of class action law firm Hagens Berman, which represented the plaintiffs, said Apple would have been made to pay at least $840 million in damages, which is three times more than what Apple is estimated to have earned from its e-book pricing scheme. However, in a phone interview with Bloomberg, Berman said he filed a memorandum of understanding with the court under seal, which means he cannot speak about the details of the settlement.
Last year, Cote ruled that Apple was guilty of colluding with five book publishers, including Hachette, HarperCollins, Macmillan, Penguin and Simon & Schuster, in a move that will drive the prices of e-books way above Amazon's rock-bottom prices. The judge said it's not the use of the agency model, where Apple lets publishers decide the price of the e-books and earns a commission at the expense of customers that has gotten the iPhone maker in trouble with the law. It is what Cote calls Apple's conspiring with publishers to prevent Amazon from offering the $9.99 price point that publishers dread by imposing the same agency model arrangements with Amazon.
In her ruling, Cote said that Apple's scheme drove e-book prices up by 50% or more for a single title, eventually passing the cost to the consumer while publishers earn the same amount as they would with Amazon and Apple takes a 30% commission. She said the ruling was based partly on Apple founder Steve Jobs' statements, which Cote said was evident of "conspiratorial knowledge and intent."
The statements come from a series of email exchanges [pdf] between jobs and HarperCollins chief James Murdoch, where Jobs said that the $9.99 price point set by Amazon is "eroding the value perception" of books and that Murdoch had no other alternatives but to work with Apple or try its luck with Amazon, which Jobs said will eventually drive e-book prices even further. This was also confirmed by Jobs' biographer Walter Isaacson, who said that the Apple visionary told reporters: "We'll go to the agency model, where you set the price, and we get our 30 percent, and yes, the customer pays a little more, but that's what you want anyway."
Apple declined to comment on the settlement. When the court ruled Apple guilty last year, chief executive Tim Cook said Apple will continue to fight because it has done nothing wrong.
"The e-book case to me is bizarre," Cook said. "We've done nothing wrong there, and so we're taking a very principled position of this."
