The consequences of losing the case
I wouldn’t pretend to understand the legal issues well enough to predict the outcome of the case, but I have to say that the signs aren’t good. Judge Cote expressed the opinion at the outset of the case that Apple would probably lose. Plus there are numerous email exchanges between Apple executives and various publishers that seem very damning. Sure, it’s mostly circumstantial, but the government doesn’t have to prove its claims “beyond a reasonable doubt” for a civil antitrust case.
The concern I have about Apple’s losing the case is not in its immediate impacts. If Apple loses, it signs some form of judgment agreeing to play nice from now on, and coughs up some money to cover the government’s legal expenses. Apple will of course, appeal, would could defer any final judgment for another year.
The problem with Apple Inc. (NASDAQ:AAPL) losing is its “business as usual” defense. If Apple’s iTunes business practices served as a model for iBooks, and these practices were found to be anticompetitive, this opens the door to a wide ranging DOJ investigation into iTunes pricing, especially Apple’s relationships with music and video content providers. Since Apple makes about $4 billion a quarter from iTunes, now the business stakes are much higher.
iTunes pricing has uncomfortable parallels with what happened with iBooks. Once again, Apple’s agency model has produced virtually uniform pricing for digital music and video content across the industry. Every song’s a buck, wherever you go on the Internet. Most videos are released at the same time and have the same pricing, whether for rental or purchase. The only area where there seems to be genuine price competition is in apps, because here the developers do set their own prices and do compete on price.
If Apple were a normal company, the announcement of further DOJ investigations would not have much impact on its share price. Look how many times Google has been investigated. But Apple isn’t a normal company, and with its abnormally high short interest, the Apple bears will have a field day in the media. Apple Inc. (NASDAQ:AAPL)‘s Fall product announcements are starting to look like the light at the end of a very long, dark tunnel.
The article The Consequences of Apple Losing its Ebook Trial originally appeared on Fool.com and is written by Mark Hibben.
Mark Hibben has a position in Apple. The Motley Fool recommends Amazon.com and Apple. The Motley Fool owns shares of Amazon.com and Apple. Mark is a member of The Motley Fool Blog Network — entries represent the personal opinion of the blogger and are not formally edited.
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