Apple slams Justice Dept.'s proposed e-book settlement

In a legal memo, the company calls the settlement's requirement of contract termination "fundamentally unfair."

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The Justice Department's proposed settlement with three book publishers over alleged e-book price fixing is "fundamentally unfair, unlawful, and unprecedented," Apple said in a legal memo today.

In an antitrust lawsuit filed in April, federal prosecutors accused Apple and five book publishers of conspiring to artificially hike prices. The same day, the Justice Department announced it had reached settlements with three publishers but said Apple and the other two publishers had opted to fight the charges.

The proposed settlement -- with Lagardere SCA's Hachette Book Group, News Corp.'s HarperCollins Publishers, and Simon & Schuster (owned by CBS, which publishes CNET) -- requires the three e-book publishers to terminate their existing contracts with Apple.

Apple, which denied the Justice Department's allegations, said the publishers' settlement unfairly impacts Apple and would be "irreversible."

The Justice Department "seeks to terminate and rewrite Apple's bargained for contracts before a single document has been introduced into evidence, before any witness has testified, and before the Court has resolved the disputed facts," Apple said in its memo (see below). "Once its existing contracts are terminated, Apple could not simply reinstate them after prevailing at trial."

"Nullifying a non-settling defendant's negotiated contract rights by another's settlement is fundamentally unfair, unlawful, and unprecedented," Apple argued.

The increased popularity of Apple's iPad prompted some publishers to shift from the so-called wholesale model, where retailers set prices, to the agency model, where publishers set prices. Since that happened in 2010, prices that consumers pay for e-books have generally risen, and Amazon and other online book sellers who discount have been under pressure.

In a memo footnote, Apple accused Amazon of being the "driving force" behind the federal prosecution:

Many [critics] expressed concerns about the possibility that the Government has unwittingly placed a thumb on the scales in favor of Amazon, the industry monopolist. Amazon was the driving force behind the Government's investigation, and it told a story to the Government that has yet to be scrutinized. Amazon talked with the Government repeatedly throughout the investigation, even hosting a two-day meeting at its Seattle headquarters. In all, the Government met with at least fourteen Amazon employees -- yet not once under oath. The Government required that Amazon turn over a mere 4,500 documents, a fraction of what was required of others.

CNET has contacted Amazon for comment and will update this report when we learn more.

Apple Statement