The story of Apple is a quintessential tale of American business. A few bright minds develop a grand idea, see potential in it, and actualize it. They continue to innovate, producing immense value in previously unimaginable products and services – that is, unimaginable to all except those who brought them into existence. As their business expands, it becomes a household name, as near everyone in the United States – or even the developed world – owns an Apple product, or else owns an alternative based upon the original product that Apple marketed before others had even conceived the idea. This strict adherence to rational principles of production has made Apple and its investors incredibly wealthy. That was all that was necessary for Apple to garner the ire of the Antitrust Division of the US Department of Justice.
On Wednesday, a federal judge ruled that Apple had violated the Sherman Antitrust Act of 1890 for participating in an “illegal price fixing conspiracy.” It is doubtful that there has been any case in which a crime so inane has been described with language so charged as that. In reality, participating in an “illegal price fixing conspiracy” corresponds with attempts by Apple to offer book publishers an alternative to Amazon’s pricing model for e-books.
Amazon – another example of an incredibly successful American business – is by far the largest distributor of e-books in the world. It has been a pioneer in that business. Even so, the publishers it services were unhappy with Amazon’s terms in which Amazon set the prices of e-books itself, usually at levels deemed “too low” by the publishers themselves.
Enter Apple. Apple offered an alternative to publishers, allowing them to set the price of their own e-books sold through Apple, and Apple would received 30% in compensation. There were two stipulations to Apple offering this “agency model” – that the publishers could not sell their books for a lower price through other e-book services (e.g. Amazon), and that enough publishers had to be on board with the idea for there to be a “critical mass” necessary for Apple to find the model worthwhile.
In 2012, the DOJ sued Apple and e-book publishers over the plan. The publishers settled – only Apple decided to fight.
The judge ruled against Apple – their only crime being that they broke a law allegedly designed to increase business competition by competing for business. They saw profit in offering better terms for the consumers of their services – not just for the ultimate consumers who would have benefited from the variety of options in the e-book industry, but also for those publishers consuming Apple’s services in order to distribute their goods – and pursued it. Why is that reprehensible?
According to the DOJ, it is because that would raise the price of e-books. But a few decades ago, Apple’s competitor Microsoft was sued for the opposite reason – including their web browser Internet Explorer for free on all Windows operating systems. In 2011, Google was sued for neither raising nor lowering the prices of its products, but for selling them at all – placing paid ad space at the top of its own search pages.
Despite its alleged intent to “protect consumers,” the Sherman Antitrust Act is an instrument of control. It punishes those who produce because they are productive, those who succeed because they are successful, and those who profit because they are profitable. Simply examine what the judge in the recent Apple case considered the “linchpin for the conspiracy”: Apple promised all publishers “identical terms… in every material way.” Apple is to be punished because it offers identical terms of service to all its customers? And even if it set up one contract with publisher A and a separate, different contract with publisher B, why should that be under the purview of government regulation?
Apple is certainly not the only business being persecuted by the regime of antitrust in the United States. Microsoft and Google have already been mentioned, but at any time, visit the home page of the DOJ’s Antitrust Division, and one will be greeted by a list of successful businesses currently under fire – like prized trophies hung on a wall, not as a reassurance to others that such “wild beasts” had been defeated, but as a threat to other potential prey, demonstrating the DOJ’s power of political and legal force against all who might become “too successful” as to draw the government’s attention. The current victims include notable names such as Anheuser-Busch InBev, Verizon, Comcast, and Time Warner Cable, some Japanese businesses like Yazaki Corporation and DENSO Corporation, and many others.
The Sherman Antitrust Act has been and will continue to be one of the greatest governmental injustices against individual, economic liberties for the last one hundred years – making business itself a crime, as business cannot be conducted without violating it in some way– whether by raising prices above the competition, lowering them below the competition, or arranging to set them the same as the competition. It renders to politicians and bureaucrats the ability to punish any business on an arbitrary whim, as nearly every business of considerable size and importance can be said to have violated the law at some time or another. It is the cornerstone in America’s mixed economic aristocracy of pull, and its abolition should be sought by any legislator who considers himself a defender of freedom and individual rights.