## Facts

- By 2009, Amazon controlled a large share of e-book retailing and sold many new releases and bestsellers at $9.99.
- Major publishers viewed sustained $9.99 retail pricing as a threat to hardcover sales and sought a way to end aggressive discounting.
- In 2010, Apple planned to launch the iPad and an associated e-book store and negotiated e-book distribution terms with five major publishers.
- Apple proposed an agency distribution model in which publishers set retail prices and Apple received a 30% commission, with price tiers and caps tied to hardcover list prices.
- Apple’s contracts included a most-favored-nation (MFN) clause requiring publishers to match any lower retail price offered through another retailer, creating strong pressure to prevent discounting elsewhere.
- Apple communicated with multiple publishers during negotiations and acted as an intermediary while the publishers sought a coordinated shift of the market to agency pricing.
- After Apple and the publishers executed near-simultaneous agency contracts, the publishers used their leverage to require Amazon to switch from wholesale to agency terms within a short period.
- Following the market shift, retail prices for many new releases and bestsellers increased materially, and retail price competition was reduced.

## Issues

1. Whether Apple violated § 1 of the Sherman Act by knowingly participating in a conspiracy to raise and stabilize retail e-book prices.
2. Whether the restraint should be treated as per se unlawful horizontal price fixing (including a hub-and-spoke conspiracy) or analyzed under the rule of reason.
3. Whether the permanent injunction—including restrictions on future e-book contracting and use of an external compliance monitor—was properly tailored and lawful.

## Decision

- After a bench trial, the district court found Apple liable under § 1, concluding Apple orchestrated and joined a horizontal price-fixing conspiracy among competing publishers.
- The district court treated the conduct as per se unlawful price fixing and, in the alternative, held it unlawful under the rule of reason based on anticompetitive effects and lack of offsetting justifications.
- The district court entered a permanent injunction restricting Apple from using e-book agreements that limited its ability to set, alter, or reduce retail e-book prices and imposed compliance requirements, including an external monitor.
- The Second Circuit affirmed liability and the injunction in all material respects, holding that Apple facilitated and executed a horizontal conspiracy that unreasonably restrained trade.
- The Second Circuit rejected Apple’s argument that the arrangement should be insulated from per se treatment because the contracts were vertical, and it further held the result would be the same under rule-of-reason review.
- The Supreme Court denied certiorari, leaving the Second Circuit’s judgment in place.

## Legal Principles

- A firm can be liable under Sherman Act § 1 when it knowingly joins and facilitates a horizontal agreement among competitors to eliminate retail price competition and raise prices, even if it operates through separate vertical contracts.
- A hub-and-spoke arrangement is per se unlawful when the “hub” coordinates competing “rim” firms to achieve a shared horizontal objective of price fixing.
- The presence of vertical components does not preclude per se condemnation where the challenged restraint is a horizontal price-fixing agreement implemented through vertical instruments.
- Even under rule-of-reason analysis, proof of substantial price increases and reduced price competition supports a finding of unreasonable restraint when asserted justifications do not outweigh demonstrated harms.
- Antitrust injunctions may impose forward-looking contractual limits and compliance measures, including monitors, when reasonably designed to prevent recurrence and address the proven violation.

## Conclusion

The courts held that Apple orchestrated and joined a hub-and-spoke conspiracy among major publishers to end retail e-book price competition and raise prices, violating Sherman Act § 1; the resulting injunction and compliance-monitor remedy were affirmed as appropriately targeted to prevent future anticompetitive conduct.


United States v. Apple Inc., 791 F.3d 290 (2d Cir. 2015)