## Facts

- Amazon dominated U.S. e-book retailing by 2009–2010 and, under a wholesale model, frequently sold popular e-books for $9.99, sometimes below cost.
- Major publishers viewed Amazon’s discounting as harmful to hardcover sales and to perceived book value, and their executives communicated about shared concerns regarding pricing.
- Apple planned to launch the iPad and an iBookstore and negotiated with major publishers beginning in late 2009.
- Apple proposed an agency model in which publishers set retail prices and Apple took a 30% commission, using standardized price tiers that generally raised prices for new releases and bestsellers.
- Apple required a most-favored-nation (MFN) clause obligating publishers to ensure Apple’s store was not underpriced by other retailers, effectively pressuring publishers to make other retailers adopt agency or raise prices.
- Publishers used the Apple agreements and coordinated timing to compel Amazon to abandon wholesale pricing and accept agency terms; publishers also used supply restrictions (including temporary withholding of e-books) to increase pressure.
- After Amazon and others moved to agency, retail e-book prices for many popular titles rose substantially and quickly.
- The United States and state plaintiffs sued under Sherman Act § 1; the publisher defendants settled, and Apple proceeded to a bench trial.

## Issues

1. Whether Apple violated Sherman Act § 1 by joining and facilitating a horizontal agreement among publishers to raise e-book prices and eliminate retail price competition.
2. Whether the conduct was per se unlawful price fixing or instead subject to rule-of-reason analysis.
3. Whether Apple’s entry into the market and claimed procompetitive benefits justified the challenged conduct.

## Decision

- The court found Apple liable under Sherman Act § 1 for participating in and facilitating a horizontal conspiracy among competing publishers to raise e-book prices.
- The court held the arrangement per se unlawful because its core purpose and effect were to raise prices and eliminate retail price competition.
- In the alternative, applying the rule of reason, the court found actual anticompetitive effects (higher consumer prices) without offsetting, necessary procompetitive justifications.
- The court entered judgment for the United States and the states and later imposed injunctive relief restricting Apple’s use of MFN-like terms and requiring antitrust compliance measures, including external monitoring.

## Legal Principles

- A firm may violate Sherman Act § 1 by knowingly joining and advancing a horizontal price-fixing agreement, even if it acts through a set of vertical contracts.
- A “hub-and-spoke” structure can constitute a single unlawful agreement when a central firm coordinates parallel vertical arrangements that implement a horizontal understanding among competitors.
- Horizontal agreements to raise prices or eliminate price competition are per se unlawful; defendants cannot avoid per se treatment by packaging the restraint within vertical contractual forms.
- Under the rule of reason, plaintiffs may establish liability by showing actual anticompetitive effects such as immediate, substantial price increases; asserted benefits do not excuse restraints that were not necessary to achieve those benefits.
- Market entry and competition against a dominant incumbent do not justify collusion among competitors to blunt price competition.

## Conclusion

The court concluded that Apple orchestrated and joined a hub-and-spoke conspiracy among major publishers to force an industry-wide shift to agency pricing and higher e-book prices, violating Sherman Act § 1, and it ordered forward-looking injunctive and compliance relief to prevent recurrence.


United States v. Apple, Inc., 952 F. Supp. 2d 638 (S.D.N.Y. 2013)