The U.S. Supreme Court refused to hear the appeal of Apple (NASDAQ: AAPL) challenging the decision of the appellate court that the company colluded with publishers to fix the prices of e-books.
In a two-to-one ruling on June 30, 2015, the U.S. Court of Appeals for the Second Circuit ruled that Apple violated that Sherman Antitrust Act by conspiring with five publishers to increase the price of e-books before its entry into the market.
The Second Circuit’s two judges found that Apple’s entry into the e-books market by introducing the iPad did not improve competitions in a legal way even if it reduced the market share of Amazon.com (NASDAQ: AMZN) from 90% to around 60%.
The Court of Appeals ruled that Apple engaged in illegal “marketplace vigilantism” in organizing a strategy challenging Amazon’s dominant position in the e-books market.
Apple contested the ruling of the Court of Appeals and argued that it contradicted a 2007 decision of the Supreme Court in the case, Leegin Creative Leather Products Inc. versus PSKS Inc.
Apple to comply with $450 million settlement agreement
The Supreme Court’s rejection of Apple’s appeal means the company will have to comply with the $450 million settlement agreement with the Department of Justice (DOJ) in connection with the e-book price fixing case.
In July 2014, Apple agreed to pay $400 million to e-book consumers, $20 million to states, and $30 million in legal fees. According to the DOJ, the tech giant’s scheme with publishers caused the increase of e-book prices to $12.99 or $14.99 from $9.99—the price previously charged by Amazon. Consumers who overpaid for e-books will get credits that they could apply for purchases in the future.
Bill Baer, head of antitrust division at the DOJ said, “Apple’s liability for knowingly conspiring with book publishers to raise the prices of e-books is settled once and for all.”
The five publishers that conspired with Apple in the e-book price-fixing scheme included Hachette Book Group, HarperCollins Publishers, Lagardere SCA, Penguin Group, Simon & Schuster, and Macmillan.
Apple and the publishers entered into an agreement that gave the tech giant a 30% commission on e-books. The deal allowed the publishers to set the prices for their e-books, a strategy known as “agency pricing” that prevents discounts. The publishers also agreed to charge the same amount to all outlets. Amazon was compelled to increase e-book prices.
In a statement, Amazon said it is “ready to distribute the court-mandated settlement funds to Kindle customers as soon as we’re instructed to move forward.”