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Publishers dispute Justice Department's ebook penalties for Apple, saying they harm industry

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ipad ibookstore
ipad ibookstore

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.

"Under the guise of punishing Apple, they effectively punish the settling defendants."

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.

But the tricky part for the Justice Department is that it already reached separate settlements with all five of those publishers to avoid dragging them into the messy trial against Apple. As part of those settlements, the publishers agreed to terminate their existing relationships with Apple and let retailers like Amazon offer discounts on ebooks again for two years. The settlements said that after two years, the publishers could continue using the agency model. So the publishers are now saying that the Justice Department's new proposed penalties for Apple would keep them from entering into an agency model with Apple for an extra three years more than they originally agreed.

The Justice Department is "attempting to impose a specific business model on the publishing industry."

In their objection, the publishers complain that the Justice Department 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." Further, the publishers note that if this goes forward, it will make other companies in other industries think twice before settling cases with the Justice Department. The penalties still have to be approved by the court, so it could go either way for Apple and the publishers, but at the least, the publishers aren't about to let the Justice Department savor its victory quite yet.