Why the Apple eBook trial contains a crucial competition lesson for Australian SMEs

The long-awaited court battle between tech giant Apple and the US Department of Justice regarding claims of price fixing within its eBook division has finally begun – and it contains some apt lessons for Australian SMEs.

The trial is being pursued by the Justice Department’s antitrust division, which alleges Apple convinced major publishers to use an “agency pricing” model, which resulted in less competitive pricing practices.

The previous model worked by having the retailer buy books at wholesale prices, then charge them at retail prices for a profit. But Apple’s method would see publishers set the retail price point.

The department claims Apple convinced every publisher to adopt this model, which reduced competition among retailers.

Of course, Apple denies this, saying its actions actually increased competition – by crushing a monopoly controlled by Amazon.

The company is so convinced it did nothing wrong that chief executive Tim Cook even called the case “bizarre” in an interview last week.

So what does a case involving the world’s biggest tech company have to do with Australian SMEs? Actually, more than you might think.

Competition is an area our government takes very seriously. The Australian Competition and Consumer Commission is constantly cracking down on anticompetitive behaviour, and isn’t shy in pointing out when mergers and acquisitions will harm the consumer.

But Apple’s argument raises an odd question – can anticompetitive behaviour ever really help the consumer?

As it turns out, the answer is sometimes yes.

TressCox Lawyers partner Alistair Little told SmartCompany this morning the ACCC even has a process for allowing some types of behaviour, which traditionally would be called “anticompetitive”.

“There are two ways of going about this,” he says.

“These are potential breaches of the Consumer Act you’re talking about. The first method is to file a notification, which is effectively a letter to the ACCC saying you’re going to engage in a particular practice.”

“You’d argue that while what you’re doing is prima facie anti-competitive, it’s still overall providing a genuine purpose.”

Unless the ACCC responds within a certain period of time, the company making the notification can continue with its behaviour. However, another company can still complain.

The second method is much more complicated and expensive. Businesses apply for “authorisation”, which is similar to the “notification” process – except it costs a lot more money and provides more certainly.

“It could take many months, but if you manage to get it done, then you are in a position where you cannot be attacked.”

Little cites an example in Western Australia, where a zoo created a sponsorship-type deal with Coca-Cola to exclusively provide soft drinks for its patrons. While this could be deemed anti-competitive, the zoo argued the money provided went to animal research.

“These are the kinds of examples which show it is possible to convince the ACCC to enter that type of arrangement.”

However, they are a far cry from what Apple has been doing. And the ACCC isn’t going to tolerate any type of price fixing behaviour.

Little also says if you attempt to engage in this type of behaviour without even checking with the regulator, then you’re in for a tough time.

“Trying to use this argument before the court without seeking a notification, or authorisation, is going to be tough work.”

“The court is going to ask why you didn’t enter those processes in the first place.”