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Justice Department wants Apple to terminate existing book deals and compete on price (update)

Justice Department wants Apple to terminate existing book deals and compete on price (update)


Proposal calls for Apple to let ebook retailers link to their stores in iOS apps

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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.

Apple would be prohibited from signing ebook, music, movie, and TV deals that would force competitors to up prices

But it doesn't end there: the Department of Justice wants Apple to let competing ebook retailers link directly to their online stores within their respective iOS applications. That would make purchases far more convenient for Kindle and Nook customers, though it stops short of allowing Amazon to integrate a full-blown Kindle Store in its app. Amazon has been unable to steer iOS users to its ebook store ever since Apple's developer guidelines forbid the practice in 2011. This requirement would be in effect for two years and the DoJ claims it would help "reset competition to the conditions that existed before the conspiracy."

And finally, the DoJ is asking that the court appoint an "external monitor" (whose salary would be paid by Apple) to get the company's internal antitrust policies up to snuff. This person would work alongside an internal antitrust compliance officer tasked with "training Apple’s senior executives and other employees about the antitrust laws and ensuring that Apple abides by the relief ordered by the court." The court is scheduled to hold a hearing on remedies — where it may agree with the Justice Department's proposal — on August 9th.

Update: Apple has filed a response to the DoJ's proposed remedies, slamming them as "a draconian and punitive intrusion into Apple’s business, wildly out of proportion to any adjudicated wrongdoing or potential harm." If the court should agree with the proposal, it would "establish a vague new compliance regime — applicable only to Apple — with intrusive oversight lasting for ten years, going far beyond the legal issues in this case, injuring competition and consumers, and violating basic principles of fairness and due process."

"The Court should reject plaintiffs’ proposed injunction outright, or in the alternative enter a narrower and more modest injunction."

Apple vehemently argues against the Justice Department attempt to regulate aspects of its business that it insists have nothing to do with the price fixing case: music, movies, TV, and the proposed changes to the App Store. "These bear no relation to the wrongdoing alleged in this case," the company writes. Regarding the App Store, Apple says allowing Amazon and Barnes & Noble to include direct links to their stores would be "an exception to its blanket rule — applicable to the more than 850,000 apps in the App Store — that a commission applies to in-app sales of digital goods, and it would allow e- book retailers to make such sales commission-free." The company gets quite aggressive here, going on to say, "Apple is under no duty to allow other retailers to offer apps on the iPad in the first place, much less on terms that subsidize their operations."

Despite maintaining that an injunction isn't warranted, Apple has some ideas of its own if the court opts to go that route.

A potentially valid injunction could include: (1) reasonable limitations on Apple’s ability to share information (2) a prohibition, tracking the publishers’ consent decrees, on retail price MFNs in agreements with the publisher defendants; and (3) reasonable antitrust training obligations for Apple, lasting a reasonable term. No further relief can be justified under the legal standard governing antitrust injunctions or the Constitution.

Apple's complete response to today's Justice Department's proposals can be found here.