U.S. Markets closed

Apple's latest ebooks loss won't appeal to Supreme Court majority

Aaron Pressman
An illustration picture shows application icons on an Apple Ipad tablet held by a woman in Bordeaux, Southwestern France, February 4, 2013. REUTERS/Regis Duvignau

Apple (AAPL) lost yet again this week in its effort to shake charges it ran a conspiracy to hike e-book prices. But the latest defeat contained the seeds of what could ultimately be the company's vindication, at least for its battered reputation.

On Tuesday, a panel of judges from the Second Circuit Court of Appeals upheld a two-year-old ruling that Apple was a critical player in the illegal (and highly successful) conspiracy to eliminate the $9.99 price for best-selling e-books that Amazon (AMZN) had made popular. But it was the minority report in the 2-1 decision, a dissent by Judge Dennis Jacobs in favor of Apple, that could be far more significant in the long run.

That's because the reasoning of Jacobs, a pro-business judge appointed by the first President Bush, is much more in line with the pro-business, conservative majority on the Supreme Court. If Apple appeals to the Supremes, it is Jacobs' opinion, not that of his two colleagues, that's likely to have more sway.

Apple hasn't said what it will do next, but maintained its innocence in a comment to the New York Times. "While we want to put this behind us, the case is about principles and values," the company said, sounding like executives there want to appeal further. "We know we did nothing wrong back in 2010 and are assessing next steps."





[Get the Latest Market Data and News with the Yahoo Finance App]

Consumers have a lot at stake. Apple has pledged to pay $450 million if it loses, most of which will go back to e-book buyers ripped off in the price hike conspiracy. The major book publishers settled the same price-fixing charges in 2012 without a trial, but agreed to pay less than $170 million.

Competing with, not colluding with

In Tuesday's dissent, Judge Jacobs focused not on the impact of Apple's behavior on e-book prices, but solely on the segment of the market where Apple was directly involved. Apple wasn't competing with e-book publishers, but with Amazon, as an e-book retailer. Therefore, it couldn't be colluding with them, evidence be damned.

"Collusion among competitors does not describe Apple’s conduct or account for its motive," Jacobs wrote. "Apple’s conduct had no element of collusion with a horizontal rival. Its own rival in competition was (and presumably is) Amazon; and that competition takes place on a horizontal plane distinct from the plane of the horizontal conspiracy among the publishers."

It's just this sort of logical and theoretical examination, devoid of real world analysis, that the five justices on the Supreme Court frequently employ in their most controversial pro-business decisions. Unlimited, anonymous campaign contributions won't give big donors undue sway, Chief Justice Roberts maintained in the 2010 Citizens United ruling. And removing 100 years of price-fixing protections won't hurt consumers, the conservative majority argued in a 2007 decision known as Leegin that Jacobs cited frequently in his e-book opinion. Despite the reassurances, outside contributions have skyrocketed and many kinds of price fixing are now on the upswing, as well.

Not that Jacobs' opinion made much sense or would serve consumers better, either. It takes quite a bit of fancy footwork to ignore the mountains of evidence that Apple executives, including the late CEO Steve Jobs, and senior vice president  Eddy Cue were at the center of an organized effort to raise e-book prices.

And on the flip side, conjuring any true benefits that flowed from Apple's conspiracy requires even greater leaps of the imagination. Apple was going to release its iPad regardless and most of the amazing features touted as unique benefits of Apple's e-book app range from meaningless (visible page turns) to unoriginal (customizable fonts). And after Apple decided to start selling e-books itself, it banned all other apps from selling e-books directly on the iPad and iPhone -- an innovative harm, not benefit, for consumers.

Back in the real world, because the e-book price-fixing scheme succeeded, e-book sales have slowed under the drag of higher prices and the possibility that innovation will come to the publishing industry seems more remote than ever.

"It is cold comfort to consumers that they gained a new e-book retailer at the expense of passing control over all e-book prices to a cartel of book publishers -- publishers who, with Apple's help, collectively agreed on a new pricing model precisely to raise the price of e-books and thus protect their profit margins and their very existence in the marketplace in the face of admittedly strong headwinds created by the new technology," Judge Debra Ann Livingston wrote for the majority in Tuesday’s ruling.

The two judges in the majority this week may have been on the correct side of the story, had the facts on their side and ruled in favor of consumer interests. But that won't stop a majority of the Supreme Court from siding with Apple.