Apple eBooks. Class 8

1.

Class 8
Antitrust Fall 2021
Apple eBooks
Randal C. Picker
James Parker Hall Distinguished Service Professor of Law
The Law School
The University of Chicago
Copyright © 2012-21 Randal C. Picker. All Rights Reserved.

2.

Jan 2010: iPad Launch
December 13, 2022
2
Apple PR (27 Jan 2020)

3.

TTYN (1 of 4)
Framing Digital Entry
Hypo 1: Acrobat
Adobe plans to build an authoring and reading
platform called Acrobat with two components:
writing software and reading software
Stylized facts
Initially charged $25 for reading software, now
gives it away
December 13, 2022
3

4.

TTYN (2 of 4)
Framing Digital Entry
Hypo 1: Acrobat
Always has charged for the authoring software
How should we think about the
competition/antitrust choices posed by that
business design?
December 13, 2022
4

5.

TTYN (3 of 4)
Framing Digital Entry
Hypo 2: Xbox
Microsoft is ready to launch a new game console
Stylized facts
The plan was to sell the console below cost
such that Microsoft would lose $100 to $150 on
each sale
December 13, 2022
5

6.

TTYN (4 of 4)
Framing Digital Entry
Hypo 2: Xbox
But Microsoft would use a lock-and-key
mechanism, perhaps blessed by the DMCA, to
control access to the Xbox
It would then sell licenses to game developers
(either lump sum, per game or something else)
Competitions/antitrust issues?
December 13, 2022
6

7.

Kindle Launch
December 13, 2022
7
Amazron PR (19 Nov 2007)

8.

NYT Review
December 13, 2022
8
New York Times (22 Nov 2007)

9.

NYT Review
December 13, 2022
9
New York Times (22 Nov 2007)

10.

December 13, 2022
No. of Books
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
27
Kindle
410
420
430
440
450
460
470
480
490
500
510
520
530
540
550
560
570
580
590
600
610
620
630
640
650
660
670
Hard Cover (@ $25)
25
50
75
100
125
150
175
200
225
250
275
300
325
350
375
400
425
450
475
500
525
550
575
600
625
650
675
Book Reading on
the Kindle in 2007
10

11.

Disintermediation
December 13, 2022
11
Amazon PR (20 Jan 2010)

12.

TTYN (1 of 2)
Framing Digital Entry
Hypo 3: Amazon Kindle
Amazon launches Kindle in 2007 with a price for
the reader of $400 and a per ebook price for best
sellers of $10
December 13, 2022
12

13.

TTYN (2 of 2)
Framing Digital Entry
Hypo 3: Amazon Kindle
Try four sets of stylized facts
Ereader Ebook bestsellers
Loses $
Loses $
Loses $
Makes $
Makes $
Loses $
Makes $
Makes $
Competitions/antitrust issues?
13

14.

Initial Apple Phone Calls
Apple Phone Calls to Book Publishers
• Apple’s Eddie Cue makes phone calls to Big
Six publishers to set up in-person meetings in
NY
• Makes clear to each that he is meeting with
each of the Big Six
December 13, 2022
14
Tuesday, 8 Dec 2009

15.

Initial Meetings with Publishers
Cue, Moerer and Apple in-house attorney Saul meet
with each of the Big Six
• Apple discloses iPad and wants bookstore on
iPad with Big Six
• Apple won’t sell books at a loss but doesn’t
want to be at a price disadvantage with Amazon
• Apple suggests eBook prices at $11.99 to
$14.99
December 13, 2022
15
Tues/Wed, 15-16 Dec 2009

16.

Selling Models
Agency Model vs. Wholesale Model
• Hachette and HarperCollins propose that Apple
use agency model rather than wholesale model
• Cue rejects that
December 13, 2022
16
Tues/Wed, 15-16 Dec 2009

17.

Two Books Sales Models
The Wholesale Model
Book publishers set wholesale prices and sell
books to retailers
Retailers, as owners of books, set retail prices to
consumers
December 13, 2022
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18.

Two Books Sales Models
The Agency Model
Wholesalers do not sell books to retailers
Retailers instead act as agent of wholesalers in
selling books directly to consumers
Wholesalers set prices at which books are sold to
consumers
Retailers are paid fee for agent services
December 13, 2022
18

19.

Second Round of Meetings
Second Round of Apple Meetings with S&S,
Macmillan and Random House
• Described prior meetings with Big Six
• Stated that industry needed to move to agency
model
• Apple wanted 30% fee
• Proposed general eBook pricing at the
iBookstore of $12.99
• Publishers needed to adopt agency model with
other ebook retailers
December 13, 2022
19
Mon/Tues, 20-21 Dec 2009

20.

Cue to Jobs re Pricing
December 13, 2022
20
Cue Email to Jobs, Mon, 21 Dec 2009, PX-0043

21.

Cue to Reidy
December 13, 2022
21
Cue Email to Reidy, Mon, 4 Jan 2010, PX-0021

22.

Cue to Reidy
December 13, 2022
22
Cue Email to Reidy, Mon, 4 Jan 2010, PX-0021

23.

Cue to Reidy
December 13, 2022
23
Cue Email to Reidy, Mon, 4 Jan 2010, PX-0021

24.

TTYN (1 of 2)
Framing the ebook Case
Hypo 4
Five of the leading six book publishers meet for
lunch at Picholene and agree on a table of prices
for ebooks.
They also agree that they will not do business with
any ebook platform that doesn’t adhere to those
prices.
Antitrust issues? Horizontal? Vertical?
December 13, 2022
24

25.

TTYN (2 of 2)
Framing the ebook Case
Hypo 5
One book publisher approaches Apple to
negotiate to sells its ebooks on Apple’s new
platform.
Apple and the publisher agree on terms.
Antitrust issues? Horizontal? Vertical?
December 13, 2022
25

26.

TTYN (1 of 2)
Framing the ebook Case
Hypo 6
Apple announces that it will open a digital store.
App/content providers set the price to consumers
Apple charges a 30% fee on each sale.
Antitrust issues?
December 13, 2022
26

27.

TTYN (2 of 2)
Framing the ebook Case
Hypo 7
Apple extends its online store deal to ebooks on
the same terms.
Apple charges a 30% fee on each sale.
Antitrust issues?
December 13, 2022
27

28.

TTYN (1 of 3)
Framing the ebook Case
Hypo 8
One book publisher approaches Apple to
negotiate to sell its ebooks on Apple’s new
platform.
The publisher wants a contingent contract: only
goes effective if Apple signs up 4 of the other Big
6 publishers.
Antitrust issues?
December 13, 2022
28

29.

TTYN (2 of 3)
Framing the ebook Case
Hypo 9
One book publisher approaches Apple to
negotiate to sell its ebooks on Apple’s new
platform.
The publisher wants the other 4 of 6 contingent
contract and an MFN clause w/guarantee for
publisher of best terms from other contracts
Antitrust issues?
December 13, 2022
29

30.

TTYN (3 of 3)
Framing the ebook Case
Hypo 10
Apple extends its online store deal to ebooks on
the same terms. Apple charges a 30% fee on
each sale.
Apple also negotiates for an MFN clause from
each publisher
Antitrust issues?
December 13, 2022
30

31.

10-11 Jan 2010: The Draft MFN
Clause
The Clause:
“If, for any particular New Release in hardcover
format, the then-current Customer Price at any
time is or becomes higher than a customer price
offered by any other reseller (“Other Customer
Price”), then Publisher shall designate a new,
lower Customer Price to meet such lower Other
Customer Price.”
December 13, 2022
31

32.

Understanding MFNs
Simple Static Version
Each publisher does a deal for the price of a
particular book with each ebook vendor (Amazon,
Apple, others)
At end, ebook vendors survey prices and then
prices sync
How should we assess that?
December 13, 2022
32

33.

Understanding MFNs
Dynamic Version
Each ebook vendor understands that as it
negotiates for a good price, its efforts will redound
to the benefit of other ebook vendors.
How will that change negotiation dynamics?
December 13, 2022
33

34.

Cue to Moerer
December 13, 2022
34
Cue/Moerer Emails, 9-10 Jan 2010, PX-0487

35.

Cue to Moerer
December 13, 2022
35
Cue/Moerer Emails, 9-10 Jan 2010, PX-0487

36.

27 Jan 2010: iPad Launch
December 13, 2022
36
Apple PR (27 Jan 2010)

37.

Post-Launch Evidence
December 13, 2022
37
Sargent Email to Cue (31 Jan 2010) PX-0053

38.

eBook Price Increases at Amazon
December 13, 2022
38
From the SDNY Opinion, 952 F.Supp.2d 638 (2013)

39.

What is at Stake in Apple?
Key Questions
What exactly is the contract, combination or
conspiracy in restraint of trade?
Is this a horizontal or a vertical case? Why does
that matter?
What should we make of Amazon?
December 13, 2022
39