'Apple v. the DOJ': did Cupertino conspire to fix ebook prices?

Apple's $450 million ebooks case settlement received preliminary approval from US District Judge Denise Cote today, though the ultimate sum distributed to consumers will hinge on the outcome of Apple's appeal. If the original verdict is upheld, $400 million will go to consumers that were "harmed" by the price-fixing scheme between Apple and book publishers, with $50 million directed to lawyers' pockets. If Apple somehow pulls an upset and wins on appeal, the company won't have to pay anything. And then there's a third scenario: the appeals court could overturn Cote's verdict and kick the case back down to her for another go. Should that play out, Apple will pay consumers $50 million, with lawyers still earning a healthy $20 million payday.

Cote, who was originally concerned about this possibility, now seems more confident that the appeals court will affirm her finding that Apple and publishers violated antitrust laws. Apple, by contrast, still refuses to admit any wrongdoing. "We did nothing wrong and we believe a fair assessment of the facts will show it," the company said last month when the settlement was made public. "If we are vindicated by the appeals court, no settlement will be paid."

Apple will pay $450 million as part of the US state lawsuit against it claiming the company conspired to raise the price of ebooks to consumers. Pending an appeal effort from Apple, $400 million of that could be going back to consumers, which would add to an earlier $166 million book publishers agreed to pay out as part of an earlier settlement.

Apple's efforts to remove an antitrust compliance monitor following last year's ebooks trial hit another road block today, this time one that appears more permanent. In an opinion, the US Court of Appeals for the Second Circuit denied an Apple motion to remove Michael Bromwich, a court-appointed monitor tasked with keeping the company within the bounds of antitrust laws following its loss to the Justice Department over ebooks price-fixing last year. In an order, the court said Apple hadn't "demonstrated that it is entitled" to a halt of Bromwich's activities, a decision that lands in favor of the Justice Department.

Apple has received a new damages claim of over $840 million for conspiring with publishing companies to raise the price of ebooks across the entire industry. The claim, filed Friday in New York by an attorney leading a class action lawsuit on behalf of ebooks customers in 33 states, stems from the US Justice Department's successful antitrust lawsuit against Apple that took place in the summer of 2013. Using evidence presented during the course of that trial last year, attorney Steve Berman begins by arguing that Apple owes American ebooks customers a bare minimum of $231 million in damages, and probably far more money than that.

The $231 million figure comes from an estimate provided by one of Apple's witnesses during the trial, who said that Apple's deal with publishers to use an "agency model" for pricing ebooks – an agreement under which publishers set the final price of ebooks that Apple would charge consumers, and Apple took 30 percent of each sale – resulted in a 14.9 percent increase in sales dollars. This increase came about because Apple charged an average of price of $12.99 for each new ebook, higher than the average $9.99 previously charged when Amazon was the major ebooks retailer and could lower the price for consumers.

Apple is being temporarily relieved of the court-appointed antitrust-compliance monitor that it had instated after being found guilty in an ebook price-fixing trial last year. According to Reuters, the monitor is being removed at least until a federal court can hear Apple's motion to have the monitor fully removed during its appeal of the decision. The government did not oppose Apple's request for this temporary stay on the monitor, and it will reportedly have until January 24th to oppose its motion to remove the monitor throughout the appeal.

The stay is a small victory for Apple, but a victory nonetheless. Apple has been criticizing the monitor, Michael Bromwich, for several months now, complaining that Bromwich has been charging it exorbitant fees and acting too intrusively. Apple could see a full reprieve from the court-appointed monitor soon, though the monitor's ultimate presence rests on whether Apple succeeds in appealing last year's decision.

Apple's stuck with the court-appointed monitor tasked with keeping an eye on the inner workings of its digital business — at least for now. In a ruling today, US District Judge Denise Cote denied a request by Apple to oust Michael Bromwich, who last year was tasked with keeping the tech giant within the bounds of antitrust laws following its loss to the Justice Department over ebooks price-fixing. In a filing last week Apple said it wanted Bromwich out, and accused him of having a personal bias against the company. Moreover, Apple had also tried to reverse the need for a monitor entirely, something Cote denied as part of her ruling today, Reuters reports.

Apple is pushing to remove the court-appointed antitrust compliance monitor for its ebook price-fixing court case. The company says Michael Bromwich — who was appointed by US District Judge Denise Cote earlier this year —  has a personal bias against the company, and should be disqualified from serving in his assigned position.

Law firm Gibson Dunn wrote to Judge Cote this week, stating that Bromwich thinks of himself as an "independent prosecutor not a judge," and imagines himself "unconstrained by the federal rules governing discovery and other matters." The letter's main argument for the compliance monitor's removal is a "wholly inappropriate declaration" filed by Bromwich with the US District Court for the Southern District of New York in December. The declaration detailed Apple's apparent obstinance in assisting with Bromwich's work on the case and denied the company's claims that his actions as compliance monitor were unconstitutional.

After Apple was found guilty of ebook price-fixing earlier this year, US District Judge Denise Cote appointed Michael Bromwich as the company's antitrust compliance monitor. Bromwich has been tasked with keeping an eye on Apple for two years to help ensure the company doesn't repeat the business tactics that landed it in the DOJ's crosshairs. Apple is required to pay Bromwich for his work, but after receiving his first invoice, it's already filed a complaint with the federal court overseeing the case.

Orin Snyder, Apple's lead attorney.

Apple will continue to fight the allegations that it conspired with some of the largest book publishers to fix e-book prices. Apple notified the Second Circuit Court of Appeals that it intends to appeal a July district court decision that found Apple violated antitrust laws.

Apple exec Eddy Cue was accused of helping to orchestrate the ebook price-fixing scheme.

Cote is also requiring Apple to do away with a controversial clause in its contracts with publishers known as Most Favored Nation. This guaranteed that Apple's ebook prices would be equal to the lowest prices found online. All the court-ordered restrictions will last for varying lengths depending on the publisher. For deals with Hachette, two years; HarperCollins, 30 months; Simon & Schuster, three years; Penguin, 42 months; MacMillan, four years.

Apple exec Eddy Cue (left) was accused of orchestrating the price-fixing scheme.

The judge overseeing Apple's ebooks price-fixing case has indicated that she will not crack down on the company as hard as the US government has requested, but she also said she was disappointed that Apple has not shown remorse. For that reason, US District Judge Denise Cote suggested that when she makes her final ruling she will require that a third-party monitors Apple in order to ensure that the company doesn't violate antitrust laws in the future.

The Department of Justice is blasting Apple today in a new filing following up on its proposals on August 2nd. In the new filing, reported by the Los Angeles Times, it's clearly annoyed with how Apple has been treating the ongoing discussions around remedies in the case, saying "they resist proposed changes intended to strengthen their internal compliance processes, refuse to undertake basic efforts aimed at restoring price competition in the marketplace, and even decline to commit to not repeating their anticompetitive practices in other content markets." The filing later adds that "the court should have no confidence that Apple on its own effectively can ensure that its illegal conduct will not be repeated."

While the Justice Department did propose cutting the total length of the injunction against Apple from ten years to five, halving the length of a proposed oversight regime, the rest of the proposal is essentially the same as what was discussed earlier this month. The tone of this most recent filing is clearly one of exasperation, but Apple has been equally dismissive of the DOJ’s proposals, which it sees as overly intrusive given the scope of the wrongdoing in the case. Publishers have come to Apple’s defense as well, with five of the companies filing an objection to the DOJ’s proposals, arguing that they "effectively punish the settling defendants by prohibiting agreements with Apple using an agency model." Under the current proposals, Apple would be "prohibited from entering into agreements with suppliers of e-books, music, movies, television shows or other content that are likely to increase the prices at which Apple’s competitor retailers may sell that content" for a period of five years.

Apple doesn't deserve the less harsh, shorter term punishments dealt to publishers involved in the ebook price-fixing case, according to a filing by the Justice Department. Without saying as much directly, the letter from DOJ lawyer Lawrence Buterman hints that things may have worked out more favorably for Apple — at least in terms of repercussions — had the company opted to join the five implicated publishers in settling earlier. "Apple should not be rewarded with the same terms received by those that chose to settle to avoid the risks of litigation," it reads. The filing serves as a response to objections raised by Hachette, HarperCollin, Macmillan, Penguin and Simon & Schuster over the DOJ's proposed penalties against Apple.

Publishers very much favor the "agency model" that Apple embraced with its iBookstore, which placed ebook pricing power in their hands rather than letting Amazon and Barnes & Noble set their own cost structure. And while they've already agreed to abandon the agreements for a period of two years, the companies maintain that forcing Apple to avoid such deals for five years goes too far. The DOJ is "attempting to impose a specific business model on the publishing industry, despite their express and repeated representations that they would play no such role" the publishers wrote yesterday.

Eddy Cue, the Apple exec accused of orchestrating the price fixing (right), leaves court.

The Consumer Federation of America (CFA) said in papers filed in federal court that Apple caused considerable "consumer harm" when it conspired to fix ebook prices. Because of that the group supports the government's plan to penalize the company. US District Judge Denise Cote is scheduled to hear arguments today in Manhattan about the proposed penalties.

In a hard-fought trial, Apple recently lost to the US Justice Department and was found guilty of working with five major publishing companies to illegally fix prices of ebooks. But now, these publishing companies are trying to fight the Justice Department's proposed penalties for Apple, saying that if some of the penalties go through, they would harm the publishing industry, while having minimal impact on Apple. "Under the guise of punishing Apple, they effectively punish the settling defendants [publishing companies] by prohibiting agreements with Apple using an agency model," reads an objection filed in a federal district court in New York yesterday by the five companies — Hachette, HarperCollin, Macmillan, Penguin and Simon & Schuster.

Cutting through the legalese, the publishers are basically trying to keep in place the pricing model they introduced when the iBookstore launched in 2010. This "agency model" let publishers set the final price of ebooks for consumers. Prior to this, publishers sold their ebooks on a "wholesale" model to retail companies like Amazon, and retailers were able to set the final prices, which they did usually much lower than what the publishers actually wanted consumers to be paying — $9.99 for a single ebook instead of $12.99 or $14.99. Apple and the publishers worked behind the scenes to launch the agency model and raise prices across the whole industry, which the Justice Department sued them for in early 2012. When the Justice Department won the antitrust case this past July, it proposed a series of harsh penalties for Apple, including one that would forbid the company from entering into any new similar ebook contracts with publishers for five years.

Earlier this month Apple was found guilty of ebook price fixing in a lawsuit brought by the US Department of Justice, and now the DoJ is offering "remedies" to ensure Apple never repeats the anticompetitive behavior. The proposal was submitted by the Justice Department along with 33 state attorneys general today, and calls for Apple to terminate its deals with the five publishers involved in the original suit. Further, for a period of five years, Apple would essentially be barred from signing fixed pricing agreements with ebook distributors. It sounds worse than it is: Cupertino is still free to continue selling ebooks, but it can't arrange terms resembling those that led to the court battle.

Earlier today, a federal court found that Apple had violated antitrust laws, colluding with publishers to drive ebook prices higher and break Amazon’s hold on the market. On its face, the case involves publishers making decisions that favored their interests over consumers, most particularly the imposition of an "agency model" that lets publishers, not retailers, set book prices.

The cost of ebooks is what’s on everyone’s mind. Behind it all, though, is a decision that has nothing to do with pricing schemes and everything to do with a series of backroom deals and suspicious phone calls. Things that were banned in the publishers’ settlements, like most-favored-nation clauses that helped Apple or the agency model, could have been perfectly legal, said Judge Denise Cote. Negotiating with multiple publishers or sharing some details might also have been fine. But in this case, "the evidence taken as a whole paints quite a different picture — a clear portrait of a conscious commitment to cross a line and engage in illegal behavior."

For weeks, Apple's supporters have predicted that if the company was found to have conspired to fix ebook prices, it would hurt consumers as well as online retailers. Today US district judge Denise Cote found Apple liable for antitrust violations, and critics of the decision say the way is clear for Amazon, the largest ebook retailer, to discount at will and drive out competition. They also predict that merchants will think twice about even phoning suppliers for fear of being accused of price fixing, and this will hurt their ability to negotiate.

All we know for certain is that a federal court has ruled that it is illegal for a retailer to help its suppliers fix prices, and as a result ebook buyers, who the government claims were overcharged, stand to have money returned to them. We also know that, depending on the outcome of Apple's appeal, 33 states and in several class action lawsuits may now start chomping at the bit for their chance to collect money from the tech giant.

Apple's Eddy Cue, right, was accused of leading the conspiracy to raise prices

After a trial and several settlements with other publishers, a federal judge has ruled that Apple conspired to raise the price of ebooks from major publishers, and a hearing for damages will be held later. Apple was originally accused of price fixing in 2012, along with five of the six major publishers. Several publishers quickly caved, and all had agreed to settlements by early 2013, leaving Apple the only company facing a trial. Now, Judge Denise Cote has found that "the Plaintiffs have shown not just by a preponderance of the evidence but through compelling direct and circumstantial evidence that Apple participated in and facilitated a horizontal price-fixing conspiracy."

During closing arguments at the ebook price-fixing trial, Apple told the court that a guilty ruling would "send shudders through the business community." According to Reuters, Apple lawyer Orin Snyder explained that such a ruling would condemn the ordinary negotiations that companies undertake to enter new markets. "We submit a ruling against Apple on this record sets a dangerous precedent," he continued.

Apple stands accused of conspiring with publishers to fix the price of ebooks at $12.99 or $14.99, at a time when Amazon sold many titles at $9.99. But the Department of Justice, which is pursuing the case, isn't seeking damages from Apple. Instead it wants to prohibit the company from using the "agency model" or price-parity contract clauses for two years and five years, respectively. The full slide decks from both Apple and the Department of Justice's closing arguments have already been made available online. The case will be decided by judge rather than jury, and with closing arguments already in, a verdict is expected in the coming weeks.

Following nearly three weeks of arguments from Apple and the Department of Justice, the trial around ebook price fixing wrapped up today with the presentation of closing arguments. Both sides have released their closing slide decks, posted by All Things D, trying to drive home the same lines of argument we’ve seen throughout the trial. While Apple is arguing that the ebook business was in turmoil with publishers looking to escape Amazon’s loss-leading business practices, the government is arguing that Apple was the ringleader in a scheme to raise ebook prices across the board. You can take a look at the full decks below.

Eddy Cue, the Apple executive who played a pivotal role in the building of iTunes and the iBookstore, revealed some potentially embarrassing information this morning at the company's ebook antitrust trial in Manhattan.

Cue took the stand after being called by Lawrence Buterman, an attorney for the US Department of Justice, which has accused Apple of participating in a scheme in 2010 to raise and fix ebook prices. Cue confirmed that very early on, when Apple was weighing whether to enter the ebook market, he discussed a plan with then CEO Steve Jobs that called for offering Amazon a deal: Apple would stay out of the ebooks market if Amazon stayed out of music. This kind of arrangement could be considered anticompetitive and illegal.

Apple exec Eddy Cue leaves federal court Thursday after testifying

Just three days after taking the stage at the blockbuster WWDC keynote in San Francisco, Apple's most trusted troubleshooter will appear in a Manhattan federal courtroom today to answer allegations that the company orchestrated a price-fixing conspiracy.

Orin Snyder, Apple's attorney

Apple heads into the second week of the ebooks antitrust trial on the heels of a courtroom victory. Last week, a Google executive took the stand to testify on behalf of the government; Orin Snyder, Apple's lead counsel and one of the country's top trial lawyers, chopped his credibility into sushi.