Apple in court over price-fixing allegations

Accused of conspiring with publishers to raise prices.

Apple is in court today, accused of colluding with the "big five" American publishers to raise the price of eBooks. The US Department of Justice alleges that the six acted together to try and reverse Amazon's price cutting strategy, which was steadily eroding the amount an ebook was sold for.

Apple offered the publishers "agency pricing", a model where they would set the price and Apple take a cut. That's in contrast to Amazon's wholesale model: it pays a fixed cost to the publisher and then sets the price wherever it wants. Sometimes that meant it would raise it to get a share of the sale price well in excess of Apple's 30 per cent; more frequently, it meant it would aggressively cut it, selling the book at, or even below, wholesale price.

That drove the price of an ebook way down, leading publishers to fear that their profits were being permanently eroded. They existed in a world where, for the first few months of a books life, it was sold in expensive hardbacks, and they were trying to replicate that model online, charging up to £15 for an ebook. Instead, they saw prices plummeting to a level where they would be hard pressed to make a return at all.

So when Apple offered an agency model, the publishers saw a chance to start selling ebooks for more. And furthermore, they saw a chance to end Amazon's monopoly on the field, all while enable a competitor which might not be so agressive in downward pricing.

All of that is relatively uncontroversial. The issue is: did Apple and the publishers illegally conspire to raise prices for ebooks? Or was there no conspiracy, and it was just a natural offshoot of the agency model?

Steve Jobs, in his 2011 biography, suggests it may have been the former. He told Walter Isaacson, his biographer, that he went to the publishers and said "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."

That's already perilously close to a conspiracy. If Apple were enticing some publishers by telling them that others had acquiesced, it could be an open and shut case. It's tricky now that he is no longer alive to explain his remarks.

There are actually three key legal issues for the court to assess. The first is the agency model itself: how does it apply to virtual goods? In a physical world, it involves the seller 'holding' goods owned by someone else, and taking a cut of their sales. Does that apply digitally, when there are no warehouses to run? Could the agency model itself be legally dubious? Without the need to maintain a standing stock, the distribution of risk is changed, and it certainly seems to represent a form of collusion.

The second involves the type of conspiracy which is alleged. Was it "hub and spoke" – Apple actively co-ordinating a united front on behalf of the publishers – or was it "conscious parallelism" – all of the publishers following each other's leads, actively trying to achieve a pricing strategy without any actual agreement. Both of those are illegal, and the Jobs quote suggests that if wrongdoing did occur, it was likely the former.

The third issue involves a specific clause in Apple's contracts, guaranteeing itself "most favoured nation" status. That lets the company guarantee that publishers will sell their books for no lower elsewhere than they do at Apple, strengthening the collusion aspects of the accusation. Such contracts aren't unusual – and are in fact commonplace in most negotiations such as these. For instance, Amazon makes heavy use of them in running its app store.

After all of that, it almost doesn't matter whether prices actually rose as a result. But analysis by the site Smashwords suggests they didn't. They can only look at a proxy of the data, because the real info is locked up by Apple and Amazon, but their preliminary research showed that average prices on the Apple iBookstore dropped 25 per cent in the first eighteen months. Whatever happened, the customer won in the end.

Photograph: Getty Images

Alex Hern is a technology reporter for the Guardian. He was formerly staff writer at the New Statesman. You should follow Alex on Twitter.

Getty
Show Hide image

How tribunal fees silenced low-paid workers: “it was more than I earned in a month”

The government was forced to scrap them after losing a Supreme Court case.

How much of a barrier were employment tribunal fees to low-paid workers? Ask Elaine Janes. “Bringing up six children, I didn’t have £20 spare. Every penny was spent on my children – £250 to me would have been a lot of money. My priorities would have been keeping a roof over my head.”

That fee – £250 – is what the government has been charging a woman who wants to challenge their employer, as Janes did, to pay them the same as men of a similar skills category. As for the £950 to pay for the actual hearing? “That’s probably more than I earned a month.”

Janes did go to a tribunal, but only because she was supported by Unison, her trade union. She has won her claim, although the final compensation is still being worked out. But it’s not just about the money. “It’s about justice, really,” she says. “I think everybody should be paid equally. I don’t see why a man who is doing the equivalent job to what I was doing should earn two to three times more than I was.” She believes that by setting a fee of £950, the government “wouldn’t have even begun to understand” how much it disempowered low-paid workers.

She has a point. The Taylor Review on working practices noted the sharp decline in tribunal cases after fees were introduced in 2013, and that the claimant could pay £1,200 upfront in fees, only to have their case dismissed on a technical point of their employment status. “We believe that this is unfair,” the report said. It added: "There can be no doubt that the introduction of fees has resulted in a significant reduction in the number of cases brought."

Now, the government has been forced to concede. On Wednesday, the Supreme Court ruled in favour of Unison’s argument that the government acted unlawfully in introducing the fees. The judges said fees were set so high, they had “a deterrent effect upon discrimination claims” and put off more genuine cases than the flimsy claims the government was trying to deter.

Shortly after the judgement, the Ministry of Justice said it would stop charging employment tribunal fees immediately and refund those who had paid. This bill could amount to £27m, according to Unison estimates. 

As for Janes, she hopes low-paid workers will feel more confident to challenge unfair work practices. “For people in the future it is good news,” she says. “It gives everybody the chance to make that claim.” 

Julia Rampen is the digital news editor of the New Statesman (previously editor of The Staggers, The New Statesman's online rolling politics blog). She has also been deputy editor at Mirror Money Online and has worked as a financial journalist for several trade magazines.