Apple Inc. (AAPL) E-book Case Kills “Most-Favored Nation”

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The case brought against Apple Inc. (NASDAQ:AAPL) by the Justice Department involving a conspiracy to keep the prices of ebooks artificially high is over, and commentators are doing their best to figure out what the results of the case will be. A journalist at The Wall Street Journal, Joe Palazzo, writes that the verdict could mean the end of the “Most-Favored Nation”, or MFN, clause.

Apple Inc. (AAPL) E-book Case Kills "Most-Favored Nation"

Apple Considered a ‘Most Favored Nation’ Company

The MFN clause originates in international trade. It defines a set of countries, each carrying the label MFN, who have to be treated in the same manner as all other countries in the set. The best example is the World Trade Organization, in which every country gives the other members MFN status.

In the Apple Inc. (NASDAQ:AAPL) trial, the Most Favored Nation argument was raised because such clauses guarantee a buyer with MFN status the lowest price of any buyer. In this case, those buying ebooks from the Apple store were getting the lowest prices possible. Because they were giving consumers the lowest price in the market, Apple called its practices competitive. The judge disagreed.

The End of MFN?

The Apple Inc. (NASDAQ:AAPL) ebook case is not the only one in recent times in which a judge has discounted the MFN argument. In a move made earlier in 2013, Michigan banned insurers from using MFN clauses. The move came after a drawn out legal case involving the insurer Blue Cross.

The MFN clause is no longer seen as a safe place to hide non-competitive practices. Apple Inc. (NASDAQ:AAPL) is now fully aware of this, and other businesses in the United States are likely to come to terms with that in the coming years. According to the WSJ piece, one of the restrictions likely to be placed on Apple Inc. (NASDAQ:AAPL) business in the wake of the case is a ban on the company using MFN clauses, in ebook markets at least.

Apple Court Case Brings MFN Into Scrutiny

Apple Inc. (NASDAQ:AAPL) will be forced to change its business practices in line with the rulings of the court. The company will give up some power in the market in order to keep on the federal government’s good side. There will be little apparent change on the consumer side of the market, however.

On the technical side, this high profile case could be the beginning of the end for the MFN clause. That could be excellent news for consumers.

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