Appeals court looks at Amazon e-books pricing in arguments stemming from Apple appeal

NEW YORK, N.Y. - A federal appeals panel is trying to decide whether Apple Inc. or Amazon.com Inc. was the bigger bully when price wars over electronic books heated up a few years ago.

After hearing oral arguments Monday, a three-judge panel of the 2nd U.S. Circuit Court of Appeals in Manhattan did not immediately rule on Apple's appeal of a lower-court judge's finding that it violated antitrust laws by colluding with e-book publishers to raise prices and upset Amazon's control of prices when it entered the market in 2010.

U.S. District Judge Denise Cote ruled after a civil trial in summer 2013 and ordered the technology giant to modify contracts with publishers to prevent price fixing and appointed a monitor to review the company's antitrust policies and training.

On Monday, one appeals judge questioned whether it was unfair for Apple to bust Amazon's one-time monopoly of the e-book market.

Theodore J. Boutrous Jr., an attorney with the Cupertino, California, company, portrayed Seattle-based Amazon as monopolizing the e-book market before Apple arrived on the scene.

Boutrous said Amazon set e-book prices at $9.99, cheaper than cost, as it controlled over 90 per cent of the market.

"The prices were artificially low," Boutrous said, explaining why publishers embraced the relief Apple offered when it opened the market to new pricing possibilities.

"That's competition," he said. "That's not price fixing."

His argument was well received by Circuit Judge Dennis Jacobs, who seemed skeptical of Amazon's intentions when he questioned Justice Department lawyer Malcolm L. Stewart.

"These people got together to defeat a monopoly," Jacobs said as he described one way to view the publishers' interest in raising prices. "When a monopolist is maintaining a monopoly through low-cost pricing, the erosion of that monopoly will cause prices to rise."

He also questioned why the government didn't seem to notice when Amazon dominated the market and its biggest competitor was struggling to make a dent against it.

"We noticed the $9.99 price point but considered it good for consumers," Stewart said.

"Would you have maintained predatory pricing if it's good for consumers?" Jacobs asked. "That's really odd."

Circuit Judge Raymond J. Lohier Jr. questioned how Apple and the publishers could have broken Amazon's monopoly of the e-book market without violating antitrust laws.

Stewart said they could have let the competitive forces of the market with a powerful new entrant play out naturally or could have filed a lawsuit or filed complaints with the Justice Department and federal regulatory authorities.