August 02, 2013 1:51pm PT by Eriq Gardner
Apple Says Justice Department's E-Book Price-Fixing Remedy Is 'Draconian'
Last month, a New York federal judge determined that Apple colluded with major book publishers to inflate the price of e-books. Now the question is what to do about that.
In advance of a hearing next week, the Department of Justice and attorney generals of various states have made their own recommendations for a proposed injunction. The proposals include requiring Apple to terminate existing agency agreements with top book publishers and barring Apple for five years from enforcing retail price contractual clauses that ensure most-favored status.
But the proposals also go much further: For example, the Justice Department wants Apple to hire a full-time Antitrust Compliance Officer and allow other e-book retailers like Amazon to freely link to their own stores in e-book apps distributed through Apple's store.
Apple hates the plan. Within hours of hearing about the suggested punishment, the tech giant filed a scathing response with the following introduction:
"Plaintiffs’ proposed injunction is a Draconian and punitive intrusion into Apple’s business, wildly out of proportion to any adjudicated wrongdoing or potential harm. Plaintiffs propose a sweeping and unprecedented injunction as a tool to empower the Government to regulate Apple’s businesses and potentially affect Apple’s business relationships with thousands of partners across several markets."
It's clear from the documents that the government doesn't trust Apple, and thinks supervision is necessary going forward not only over e-book concerns, but over antitrust suspicions in other markets.
For example, according to the government's papers (read in full here)...
"Apple executives have also demonstrated sufficient resistance and intransigence to support the appointment of a monitor. For example, [Eddy] Cue [Apple's senior vp internet software and services] testified that in his recent negotiations with several music labels to supply content for iTunes Radio, he used the same negotiating tactics that facilitated collusion with the e-book publishers ... Through the course of the trial, it became clear that Apple lacks sufficient internal controls to prevent the reoccurrence of the wrongdoing found here."
In response, Apple says that an injunction is unnecessary because the government has already achieved its objective of remediating the price-fixing of e-books, which according to the trial, sent prices up from $9.99 before Apple entered the market to about $14.99. Apple believes the punishment happened even before the three-week trial, as a result of settlements made by publishers with the government.
Apple hardly wants further punishment and blasts the proposed monitorship as unprecedented and unwarranted. If a judge accepts this remedy, Apple's negotiations with Hollywood studios could be just one of the things that are subject to quarterly reports for a ten-year period. As Apple says, "The proposed provision effectively requests a decade-long roving mandate to parse all of Apple’s business conduct, across all of its myriad businesses, for antitrust compliance."
Here's Apple's full response to what the government wishes to happen.