Apple proposes new terms in e-books battle

The company offers its own set of measures for complying with the fallout from its loss against the Justice Department.

Eddy Cue, Apple's senior vice president of Internet software and services (right), arrives at court in Manhattan with an Apple attorney in June. Sarah Tew/CNET

Hours after the Department of Justice and 33 U.S. states proposed a set of remedies for Apple following its July loss in the e-books price-fixing case, the company came back with its own set of terms and called the government's proposals vague, overreaching, and unwarranted.

In a brief filed Friday, the company called the government's proposed measures a "draconian and punitive intrusion into Apple's business, wildly out of proportion to any adjudicated wrongdoing or potential harm."

Apple maintained that it did not violate antitrust laws. It added that an earlier pact publishers struck to settle the government's allegations against them has already rooted out the behavior that the court found to be anticompetitive, and can't recur again.

But if the court does issue an injunction, Apple said, it should place "reasonable limitations on Apple's ability to share information," prohibit agreements with publishers from having "most favored nation" pricing pacts that give Apple the best price, and "reasonable antitrust training obligations for Apple, lasting a reasonable term."

Earlier Friday, the Department of Justice proposed a remedy that would require Apple to terminate its existing agreements with five major book publishers, staff a court-appointed monitor to keep an eye on internal antitrust compliance policies, and allow competing companies like Amazon to link to purchasable content within their e-book apps.

A plan from either side still requires court approval. The court will hold a hearing on proposed remedies on August 9. It will be holding a separate trial on monetary damages, which some estimates have set as high as nearly $500 million.

In April 2012, the Justice Department sued Apple and five of the six largest book publishers in the U.S., accusing all parties of conspiring to set e-book prices and break Amazon's hold on the market with its Kindle e-book reader. Apple became the sole defendant in the case after the publishers made deals with the Justice Department.

A federal judge last month ruled that Apple violated antitrust laws, following a trial in the Southern District of New York. Judge Denise Cote said the Justice Department proved that publishers conspired together to eliminate price competition for e-books, and that Apple played a central role in that conspiracy. Apple has said it plans to appeal the decision.

The government's proposal linking other retailers' e-bookstores to their iOS apps would be a particular win for the likes of Amazon, which publishing CEOs had criticized in testimony during the Apple trial.

Such a measure would make it easier for consumers who read e-books on their iPads and iPhones to easily compare Apple's prices with those of its competitors and buy elsewhere.

But executives at Penguin Group USA and Simon & Schuster said Amazon's e-book pricing , in which the publishers had little power, was the main factor that drove them into the arms of Apple, which let them set their own prices. (Simon & Schuster is owned by CBS, which is the parent company of CNET.)

Hachette Book Group, HarperCollins, and Holtzbrinck (also known as Macmillan) were the other publisher defendants that settled.

Keith Hylton, a professor at the Boston University School of Law, called app-links proposal novel. "The antitrust laws are pretty clear that you don't need to support a rival's business, so there are questions as to whether that has legal grounding," he said. He also noted that the proposed monitor would have the authority to inspect all of Apple's business.

"Antitrust is so open-ended, a monitor could rack up enormous fees in the process of monitoring Apple's compliance with the laws for 10 years," Hylton said.

Another of the measures sought by the government could limit Apple's business in realms other than digital books, should the court confirm it. The DOJ proposed Apple be prohibited from entering into agreements with suppliers of not only e-books but also music, movies, television shows or other content "that are likely to increase the prices at which Apple's competitor retailers may sell that content."

Apple called that request unwarranted and "alarmingly vague."

While the government is seeking to restrain Apple broadly, Ankur Kapoor -- an antitrust attorney with Constantine Cannon in New York -- noted that the government's language in its brief suggested publishers are ready to pick up with the same practices where they left off after two-year prohibitions in their settlement expire.

The Justice Department in its filing said e-book distribution contracts that the publisher defendants have entered into under their settlements "are disappointingly similar to one another."

It indicates that publishers may be going back to an agency model, in which publishers set the prices, Kapoor said. That would mean they're gravitating away from the traditional wholesale business that the government fought to encourage with its suit.

"Was the trial of the U.S. versus Apple much ado about nothing? I thought so during the trial, but now I see the proposed briefings confirmed that as well," he said.

CNET's Josh Lowensohn contributed to this report.

 

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