Judge decides Apple's $450M e-books settlement is OK after all

US District Court Judge Denise Cote originally took issue with the settlement because Apple could end up only paying $70 million.

Shara Tibken Former managing editor
Shara Tibken was a managing editor at CNET News, overseeing a team covering tech policy, EU tech, mobile and the digital divide. She previously covered mobile as a senior reporter at CNET and also wrote for Dow Jones Newswires and The Wall Street Journal. Shara is a native Midwesterner who still prefers "pop" over "soda."
Shara Tibken
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The U.S. District Court in New York, the scene of the e-books battle between the DOJ and Apple.
The US District Court in New York, the scene of last year's e-books battle between the Department of Justice and Apple. Shara Tibken/CNET

A US district court judge on Friday gave preliminary approval for Apple's $450 million settlement for e-book price fixing.

Judge Denise Cote, of the southern district of New York, initially had issues with the terms but later came to believe the settlement was fair to consumers, she said in a ruling Friday.

"The court concludes that there is probable cause to find that the proposed settlement agreement is within the range of those that may be approved as fair and reasonable, such that notice to the class is appropriate," she wrote in the ruling.

Under an agreement unveiled last month, Apple said it would pay $400 million to eligible consumers and $50 million in attorneys' fees to plaintiffs' counsel. That would add to the $166 million the states received from the publishers involved in the price-fixing scheme. However, the amount could change if Apple wins its appeal in the original e-books price-fixing trial won by the US Department of Justice in 2013.

If the court of appeals reverses and remands the case back to district court, the settlement agreement calls for Apple to pay consumers $50 million -- plus $20 million in attorneys' fees -- to settle their damages claims, while the DOJ and states' attorneys general would remain free to continue litigating their claims for injunctive relief. If the court of appeals flat-out reverses the lower court decision, Apple would pay no damages.

Cote last week during a telephone conference took issue with the terms, saying the settlement could end up meaning far less money being paid to consumers if the case is appealed. Cote specifically pointed to what she called the "most troubling" clause, which allows Apple to pay only $70 million if an appeals court decides to reverse her earlier decision that found the tech giant liable for violating antitrust laws. She also questioned a clause that said Apple didn't have to pay interest during an appeals process.

In her ruling Friday, Cote said the plaintiffs addressed her concerns by emphasizing they "strongly believe" Apple won't be successful in having the ruling reversed and the settlement lowered to $70 million.

The attorneys also emphasized two other protections for consumers related to the "remand scenario." The settlement agreement defines the decision in such a way that if the case is remanded not "on the merits" of a liability finding, it wouldn't trigger the lower settlement amount. Also, the remand scenario won't apply if the case is sent back to district court on administrative or non-substantive grounds that don't affect the liability finding.

The plaintiffs attorneys also will give consumers more information about the settlement. Eligible consumers have until October 31 to opt out of the settlement or object to it. Consumers who submit "valid and timely requests for exclusion" from the settlement won't be bound by its terms and can sue Apple separately, if they so choose.

The court will hold a final fairness hearing related to the case November 21 in New York.

Apple didn't have a comment about the ruling Friday. But in the past, the company has said that it did nothing wrong and that it would continue to fight the court's ruling in the e-books price-fixing antitrust trial.

The damages lawsuit brought by the states, which prior to the settlement agreement had been scheduled to begin July 14, was connected to a lawsuit filed by the Justice Department in April 2012. That suit accused Apple and five of the largest US book publishers of conspiring to set e-book prices and working together to break Amazon's hold on the market with its Kindle e-book reader. After a nonjury trial, US District Court Judge Denise Cote concluded that Apple orchestrated a scheme with publishers to fix the prices of e-books. Apple is appealing that ruling.

As part of the initial ruling, Cote ordered Apple to modify its agreements with book publishers and hire an external compliance monitor for two years. Apple has strenuously argued against having a monitor,but the DOJ has said the measure is essential to make sure the electronics giant doesn't violate antitrust laws again.

Meanwhile, the state attorneys general had sought $280 million in damages but asked in January that the amount be tripled to $840 million because the US had already "conclusively proven" that Apple had orchestrated the conspiracy. As the case proceeded into the damages phase, Apple sought dismissal of the attorneys general case, contending that the states lacked standing to seek damages against Apple.

After Cote denied that motion in April, a federal appeals court in May denied Apple's petition for an emergency stay of district court proceedings pending resolution of an appeal concerning the case's class status.

Reuters earlier reported the news.

Updated at 3:25 p.m. PT with Apple having no comment.