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Apple Verdict Marks Digital Power Shift In Book Publishing

Publication Date: 
July 12, 2013
Source: 
Time
Author: 
Sam Gustin

Professor Mark Lemely spoke with Time's Sam Gustin on Apple's verdict and what it means for the future of the publishing industry.

Apple suffered a major legal defeat this week when a federal judge ruled that the tech giant violated U.S. antitrust law by orchestrating a conspiracy with five big publishers to raise electronic book prices. Consumers won’t feel much immediate impact from the decision, however, because e-book prices have fallen sharply since the publishers agreed to settle the charges before Apple’s trial.

The most interesting aspect of the case is the future of the publishing industry itself, says Mark Lemley, a Stanford law school professor and antitrust expert. The settlement limits publishers’ ability to influence the retail price of e-books, underscoring their waning power as the industry hurtles toward a future in which most books are bought and read in digital form.

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“This was the publishers’ last-ditch effort to prop up their print business model,” said Lemley. “Over the long-term, it’s going to be very hard for them to maintain their traditional role as intermediaries, in which they take the lion’s share of industry profits.” Judge Cote determined that the goal of the conspiracy was to undermine Amazon, which had spooked the publishers by selling e-books for $9.99 — below wholesale cost — in order to drive sales of its Kindle e-reader.

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“The settlement had the effect of breaking up the conspiracy and introducing price competition back into the market,” said Lemley. Over the last year, the average price for best-selling e-books has declined by nearly 50%, according to Jeremy Greenfield, editorial director at Digital Book World, a leading trade publication covering the e-book and digital publishing business.

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If Apple had settled, it could have been viewed as a tacit acknowledgement that Jobs might have broken the law, Lemley said. After all, some of the most damning evidence introduced during the trial included Jobs's own statements, such as his now-infamous quote to his biographer Walter Isaacson: "We told the publishers, 'We'll go to the agency model, where you set the price, and we get our 30%, and yes, the customer pays a little more, but that’s what you want anyway.'"