Apple Inc. (NASDAQ:AAPL) in a legal dispute? There is virtually no day that goes by in which there is a courtroom somewhere in the world that a lawyer (or flock of them – or is it pack, or pride?) isn’t representing Apple in some legal case. In our daily Apple watch here in the Insider Monkey newsroom, we bring you the latest on an important case involving Apple, e-books and somewhat indirectly, Amazon.com, Inc. (NASDAQ:AMZN).
Apple Inc. (NASDAQ:AAPL) v Amazon.com, Inc. (NASDAQ:AMZN): DOJ as a Proxy?
OK, so Apple Inc. (NASDAQ:AAPL) is actually up against the U.S. Department of Justice in that e-book price-fixing trial, of which Apple was found liable for anti-trust violations and was found to have “conspired” to elevate prices in the e-book market.
But let’s face it – this is about Amazon.com, Inc. (NASDAQ:AMZN), the dominant e-book retailer in the world, thanks to its very low prices for e-books. Brian Fung of the Washington Post (now a Jeff Bezos property, after the recent news that the Amazon.com chief bought the paper; how might this affect how this story is covered?) gave a preview of what we might expect at Friday’s hearing.
Friday, the federal judge who presided over the DOJ’s case against Apple is expected to hear arguments about a proper punishment for Apple for its price-fixing scheme. However, Apple lawyers already seem to have an appeal typed up ready to submit, essentially claiming that this is a witch hunt and that Amazon.com Inc. (NASDAQ:AMZN) has been the company that has been suppressing competition by offering e-books at prices which other retailers have a difficult time matching.
The main thrust of Apple’s argument is that first of all, the DOJ did not prove that there was an actual conspiracy between Apple and the five publishers – in that Apple – headed in the e-book negotiation process by senior executive Eddy Cue – was not the “ring leader” and actually brought all the publishers together; and second, that what Apple did by encouraging an “agency” pricing model was to increase competition in the e-book space, not limit it.
Antitrust Law in a Nutshell
After all, that is supposed to be the heart of anti-trust law – to discourage monopolies and encourage competition in the marketplace. Apple Inc. (NASDAQ:AAPL) likely will make the case that Amazon.com, Inc. (NASDAQ:AMZN) has a virtual monopoly in the e-book market, and to annul the deals between Apple and the publishing houses would ensure that the monopoly not only continues to exist, but may actually grow even more than the 90-percent share it owned in 2010, just before the “agency” pricing model – where the publishers dictate the retail price of e-books and not the retailers – went into effect. Since 2010, Amazon.com, Inc. (NASDAQ:AMZN) market share dropped to about 70 percent, with Barnes & Noble Inc. (NYSE:BKS) taking up about 20 percent. The Apple e-book store, by the way, has always been in single-figures.
Will the Punishment Fit the Crime?
According to antitrust lawyer Ankur Kapoor, the DOJ may push hard to get the judge to impose a five-year ban on Apple Inc. (NASDAQ:AAPL) making any e-book deals with any publishers, which would give Amazon.com, Inc. (NASDAQ:AMZN) and other retailers an open opportunity to reach their own deals to sell e-books without Apple’s participation in the marketplace. Not only that, Kapoor said there is a chance that the DOJ might call for at least a temporary injuction against the agency pricing model, which would then give market leader Amazon.com the chance to restore its e-book pricing to $9.99 or less – a price that has proven to be untenable for many other retailers, including Barnes & Noble Inc. (NYSE:BKS).
What are your thoughts about this case, and how do you think the result will affect investors like fund managers invested in either Apple or Amazon.com, like Jim Chanos, Ken Fisher, David Einhorn or Philippe Laffont? If you want to learn more in a nutshell, check out the video below about this case, summarized by Dominic Chu of Bloomberg Television.