Apple Avoids E-Books Damages Trial in State, Consumer Accord

Apple Inc. (AAPL) reached a settlement with U.S. states and consumers seeking damages over the company’s fixing of electronic book prices, avoiding a July trial in which it faced as much as $840 million in claims.

A lawyer for a class of e-book buyers told U.S. District Judge Denise Cote in Manhattan yesterday that the parties signed a “binding agreement in principal” to resolve the claims. The settlement, now under seal, will be replaced in a month by a publicly filed agreement spelling out the details, the lawyer, Steve Berman, said in a letter to the judge.

Cote ruled last year in a case filed by the U.S. Justice Department that Apple orchestrated a price-fixing conspiracy among five of the biggest publishing companies in violation of U.S. antitrust law. Apple has appealed that ruling, which the consumers and states had been using to try to recover damages from the iPhone maker.

“Any payment to be made by Apple under the settlement agreement will be contingent on the outcome of that appeal,” Berman said in the letter.

Attorneys general in 33 states and territories participated with lawyers for the Justice Department in the non-jury trial against Apple. In March, following Cote’s rulings in the Justice Department case, the judge allowed consumers in 23 states and territories to sue Apple as a group. Lawyers for the states and consumers estimated the total damage to consumers from the price-fixing at $280 million. That amount could have been tripled under antitrust laws.

Apple’s Cut

The government sued Apple and the five publishers in April 2012, claiming Apple pushed them to sign agreements letting it sell digital copies of their books under a pricing model that made most e-books more expensive. Under the contracts, the publishers set book prices, with Apple getting 30 percent.

Apple and the publishers used the contracts to force Amazon.com Inc. (AMZN), the No. 1 e-book seller, to change its pricing model, the government claimed. At the time, Amazon was selling electronic versions of best-selling books for $9.99, which was often below cost. Cote ruled against Apple after a non-jury trial.

The publishers settled with the government before the trial.

As part of her ruling in the Justice Department case, Cote appointed lawyer Michael Bromwich to monitor Apple’s policies for preventing antitrust violations at the company. In February, the company failed to persuade a federal appeals court panel in Manhattan to halt Bromwich’s oversight while it challenges Cote’s rulings.

Improved Relationship

Two months ago, Bromwich reported that the previously “contentious” relationship between him and the company had improved.

Kristin Huguet, a spokeswoman for Cupertino, California-based Apple, declined to comment on the settlement.

Berman, the lawyer representing the plaintiffs, said yesterday in a phone interview that all the U.S. attorneys general and consumers involved in the case had agreed to settle.

The case is currently before the federal appeals court in New York. The court hasn’t set a date for the parties to make oral arguments. The settlement of the consumer and state claims doesn’t affect Apple’s appeal of the Justice Department case.

The company is challenging Cote’s conclusion that the company fixed e-book prices and is seeking to overturn rulings including the appointment of Bromwich to oversee antitrust policies. The Justice Department didn’t seek any money damages.

Amazon, Hachette

In the trial, Apple claimed it was acting to counter what it said was anticompetitive behavior by Amazon, the biggest seller of e-books. Cote’s rulings barred the pricing model set by Apple and the publishers. Amazon is currently feuding with Hachette Book Group Inc., making it harder for consumers to order books by the publisher. Amazon is seeking a bigger share of the retail price of e-books.

According to Hachette, one of the world’s biggest publishers, Apple accounted for 13 percent of its U.S. e-book sales in 2013, compared to 60 percent for Amazon.

Apple fell 0.1 percent to $92.08 today in trading in New York. The shares have climbed 15 percent this year.

The case is In Re Electronic Books Antitrust Litigation, 11-md-2293, U.S. District Court, Southern District of New York (Manhattan).

To contact the reporters on this story: Bob Van Voris in federal court in Manhattan at rvanvoris@bloomberg.net; Joel Rosenblatt in San Francisco at jrosenblatt@bloomberg.net

To contact the editors responsible for this story: Michael Hytha at mhytha@bloomberg.net Fred Strasser

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