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Sen. to DoJ: Get Off Apple's Case or Risk Creating a Monopoly

Sen. to DoJ: Get Off Apple's Case or Risk Creating a Monopoly

New York Senator Charles Schumer has spoken up in regard to the U.S. Department of Justice's case against Apple and book publishers over an alleged conspiracy to fix e-book prices. Pursing the case, Schumer said, will prove to be counterproductive. In his view, prosecuting Apple and its partner publishers will serve more to create a monopoly than eliminate one.

By John P. Mello Jr. MacNewsWorld ECT News Network
07/20/12 5:00 AM PT

A lawsuit by the U.S. Department of Justice against Apple and two publishers over the alleged price fixing of electronic books will create what the litigation is intended to stop: a monopoly.

That's what Sen. Charles E. Schumer (D-N.Y.) argued in an op-ed piece that appeared in The Wall Street Journal Thursday. Legal experts, though, say any unintentional consequences from the DoJ's action are far from certain.

In his column, Schumer contends that the action against Apple, Macmillan and Penguin "could wipe out the publishing industry as we know it" by returning Amazon to its monopoly position in the e-book market. Before Apple entered that market, 90 percent of e-book sales were through Amazon.

"If that happens, consumers will be forced to accept whatever prices Amazon sets," the senator wrote.

Lower Average Prices

To crack Amazon's grip on the market, a group of publishers, along with Apple, created a new pricing model for e-books. Called the "agency model," it gave the publishers control over the retail price of the e-books, not retailers like Amazon.

The new pricing model, which is under attack by the DOJ, increased competition, Schumer wrote. Amazon's market share dropped to 60 percent and the company was forced to expand its catalog, invest in innovation and reduce the price of its Kindle electronic readers.

Overall e-book pricing declined, too, the senator maintained, to an average price of US$7 from $9. However, the DoJ is more concerned with another trend in the market: the increase in price for e-books of new releases since the agency model has appeared.

That focus on new releases is short-sighted, according to Schumer. "While consumers may have a short-term interest in today's new release e-book prices, they have a more pressing long-term interest in the survival of the publishing industry," he wrote.

Unintended Consequences

Schumer also raised concerns about the message the DoJ is sending innovators with the lawsuit. "I am concerned that the mere filing of this lawsuit has empowered monopolists and hurt innovators," he wrote.

"I believe," he continued, "it will have a deterrent effect not only on publishers but on other industries that are coming up with creative ways to grow and adapt to the Internet."

There's a lot of truth in the senator's analysis of the lawsuit, according to Notre Dame Law School professor Joseph P. Bauer. "One of the unintended consequences of this lawsuit is that it may solidify Amazon's market position," he told MacNewsWorld. "That's not what the antitrust laws were designed to achieve."

Nevertheless, he added, if the conduct by Apple and publishers alleged in the lawsuit is true, it's clearly unlawful under antitrust laws.

"I certainly wouldn't like to see Amazon restored to the market position it had a couple of years ago," Bauer observed. "That's not in the interest of consumers or the publishers."

"On the other hand," he continued, "the kind of behavior that the publishers engaged in to combat Amazon's market position is unlawful. It doesn't become less unlawful because its aims are good."

Innovators Aren't Monopolists

Not everyone, though, believes a DoJ victory will mean a return to salad days in the e-book market for Amazon. "What happens five, 10 years from now, assuming the lawsuit is successful? No one knows, including Apple," Yasha Heidari, managing partner with the Heidari Power Law Group, told MacNewsWorld.

He also questioned the notion that the lawsuit would discourage market innovation in the long run. "Innovators and entrepreneurs don't typically have the market power to engage in conduct that could even arguably be considered monopolistic, which is what's taking place here," he said.

The DoJ, Amazon and Apple did not respond to our requests for comment for this story. In May, however, Apple commented on the DoJ lawsuit in court papers.

In its filings, it called the government's complaint against it fundamentally flawed as a matter of fact and law. It denied having conspired with anyone and having any knowledge of a conspiracy by others.


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