Apple conspired to set e-book prices, judge finds

A federal judge ruled Wednesday that Apple conspired with publishers to set the prices of e-books. Apple, the judge found, “played a central role in facilitating and executing that conspiracy” and will pay damages to be set at a future trial.

Five publishers that had been defendants itn the case -- Simon & Schuster, HarperCollins, Penguin, Hachette and Macmillan -- have all previously settled with the Department of Justice, which brought the suit.

“Without Apple’s orchestration of this conspiracy, it would not have succeeded as it did in the spring of 2010,” Judge Denise Cote added in her 159-page ruling. The case was tried in U.S. District Court in Manhattan without a jury.

At issue was a change in e-book pricing schemes that was implemented upon the launch of the iPad in 2010. Apple and publishers agreed that e-books on the iPad would be sold under the so-called agency model, in which publishers could determine the price of a book and give Apple -- the retailer or agent -- a cut. The agency model allowed publishers to determine the retail prices of their e-books.

Previously, e-books, just like print books, had been sold under a wholesale model: Publishers were paid a flat rate for their books and retailers sold them at whatever prices they liked. Publishers had grown concerned that Amazon.com, the only major e-book retailer at the time, was pricing e-books below cost, setting a customer expectation that $9.99 should be a standard e-book price.

Each $9.99 e-book sale meant a loss for Amazon, which was still paying the wholesale price to publishers. Apple suggested retail e-book prices of $12.99 to $14.99 -- publishers made less money on each sale than they had under the wholesale model, but they said that the higher price structure was sustainable, while $9.99 was not.

Between this ruling and Barnes & Noble’s CEO resigning because of the company’s dismal Nook performance, this week is shaping up to be a good one for Amazon.

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