There are some companies which keep on jumping in and out of lawsuits all the time. The mighty Apple (AAPL) is one such company. This time Apple is at the guilty end as U.S. District Judge Denise Cote found the company to be guilty of playing a central role in a price-fixing conspiracy with five renowned publishers - Macmillan, Simon & Schuster, Hachette Book Group, Penguin and HarperCollins.
After a non-jury trial in cases filed by the U.S. Justice Department and 33 states and territories, Judge Denise Cote derived at the conclusion that Apple violated antitrust laws by engaging in price-fixing contracts with publishers and as the lawsuit continues, there are chances that the iPhone maker might have to part with a sum as huge as $800 million as compensation payments.
The Backdrop - What’s the issue?
The lawsuit began in 2012 when U.S. Justice Department sued Apple and the five publishers. Back in 2010, at the time of launching the iPad, Apple was trying to build an iBookstore and for that it was speeding up to initiate contracts with publishers. The company wanted to turn the iBookstore into a success story and for doing that it pushed publishers to get into contracts that would keep the prices of the e-books at a certain level. This pricing model was empowering the publishers to set prices instead of the retailers and Apple was getting a 30% cut for this.
The primary intention for Apple to push the published into such contracts was to curb the growing dominance of Amazon.com (AMZN) by controlling the e-book seller’s strategy to reduce the prices charged for e-books. This would automatically benefit Apple by making its iBookstore more popular among the consumers. As a result of the contracts, consumers ended up paying more for the books and thus were harmed.
What’s going on now?
In her recent decision, Judge Cote announced that even the consumers from states and territories which didn’t participate in the trial can now pursue their claim as a class action. According to an expert witness, the total damage caused to the U.S. consumers stands at $280 million. Now, under anti-trust law this figure can be tripled and this would result in an $840 million fine for Apple. Apple attempted to request Judge Cote to scrap the opinion of the witness, which she denied.
However, the final penalty amount hasn’t yet been decided upon. Judge Cote will be taking that up in a separate trial that will likely take place in July or September. As of now Apple continues to fight while each of the five publishers has settled their cases, agreeing to pay more than $160 million as damages which is being used by Amazon.com to issue refunds to the affected consumers.
Apple may have gone a little too far this time with the anti-trust laws and the way in which the trial is progressing suggests that it might have to pay a huge sum as compensation for the damages caused by its actions. That’s not all. The company may also suffer from irreparable damages to its reputation and that’s something that can’t be quantified. All in all, this entire trial can turn out to be an expensive one for Apple. The final outcome and its effect will only be known after Judge Cote gives her next verdict in July or September.