Apple Not Likely to Be a Loser in the E-Book Legal Fight –

Apple Not Likely to Be a Loser in the E-Book Legal Fight


 April 12, 2012


If Apple loses the legal case filed against it and book publishers on Wednesday over e-book pricing, will it be deeply wounded in its growing rivalry with Amazon?

Not likely, analysts say.

The Justice Department’s lawsuit against the company and five publishers, three of which settled the case, paints a vivid picture of Apple’s thinking from several years ago about how it could use its entry into electronic books to hurt Amazon, a growing player in digital media and devices with the Kindle. At the time, Apple saw having a competitive e-book offering as a critical element of its strategy for introducing the iPad.

In an e-mail sent by Eddy Cue, the Apple executive in charge of the company’s Internet services, to Steven P. Jobs, then Apple’s chief executive, about a year before Apple introduced the iPad and iBookstore, Mr. Cue said, “It would be very easy for us to compete and I think trounce Amazon by opening up our own ebook store.” Apple eventually cut a deal with publishers that gave them control over pricing of e-books and that forced other retailers, including Amazon, to raise prices, the lawsuit alleges.

Apple’s bluster, though, was unfounded. Amazon may have lost some share in e-books, but it still dominates the fast-growing market. At the same time, Apple’s failure to trounce Amazon in e-books did little to diminish the appeal of the iPad, which became a smash hit for other reasons. James McQuivey, an analyst at Forrester Research, said research by his company indicated that games, Web browsing, Facebook and other applications are bigger parts of the appeal of the iPad than e-books.

“The fact is that they didn’t weaken Amazon the way they had hoped to, but it doesn’t harm them,” Mr. McQuivey said.

If e-book prices plummet as a result of the lawsuit — one possible outcome — chances are the financial impact on Apple will be small. Already the three publishers that settled the lawsuit have agreed to negotiate new deals with retailers that could lead to a return of the $9.99 Amazon used to charge for best-selling e-books before Apple entered the business. If Apple loses the case, other publishers could be forced to follow suit.

Since Apple has never shown much stomach for losing money on the sale of digital goods, as Amazon did with $9.99 Kindle best-sellers, it’s doubtful the company would try to match the low prices of its rival. That, in turn, would hurt Apple e-book sales but do very little direct damage to Apple’s overall business. In the holiday quarter, Apple reported $2 billion in revenue from Internet services — about 4 percent of total company sales — with an undisclosed, but most likely small, percentage of that coming from e-book sales.

Book publishers are worried that a return to low pricing by Amazon could drive them out of business, which could harm book lovers in the long run, but that concern won’t help them much as a legal defense in the case, legal experts say. “I think this is a strong case,” said Nicholas Economides, a professor of economics at New York University. “The way U.S. antitrust law is written, in a conspiracy case it does not have to show adverse effects on consumers.”

Mark Lemley, a law professor at Stanford specializing in antitrust and intellectual property, said he did not expect Apple to give up easily in the case. “Apple has a history of being fairly aggressive in litigation,” Mr. Lemley said. “There’s some sense in their corporate culture that we’re right.”

 Apple Not Likely to Be a Loser in the E-Book Legal Fight –

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