Apple rips e-book settlement as ‘unlawful’ and ‘fundamentally unfair’

Apple is urging a federal court to reject the Justice Department’s proposed settlement with a group of e-book publishers, calling the terms “fundamentally unfair, unlawful, and unprecedented.”

DOJ’s antitrust division sued Apple and five publishers in April, accusing them of colluding to raise the price of e-books. Apple and two publishers, Macmillan and Penguin Group, are fighting the charges. But the other three publishers — Hachette, HarperCollins and Simon & Schuster — agreed to settle with the government.

In a filing on Wednesday, Apple argued that the court should not accept the settlement until Apple and the remaining publishers have had their day in court.

{mosads}”[The proposed settlement] 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 wrote. “Once its existing contracts are terminated, Apple could not simply reinstate them after prevailing at trial.”

According to the Justice Department’s lawsuit, Apple and the five publishers were unhappy that Amazon was driving down the price of e-books. Amazon had set the price of all of its e-books at $9.99.

Justice officials said the companies conspired to set up a new business model, called the agency model, which raised the price of many e-books by about $2 to $3.

Under agency pricing, the publishers, not bookstores, set the retail price of e-books. 

The settlement with the three publishers would require them to abandon their agency-pricing agreements with Apple and other retailers and would bar them from setting up similar agreements for two years. 

In its own earlier filing, the Justice Department argued that it is reasonable to insist that the companies abandon any agreements that were crafted illegally and to bar them from entering similar deals for a “brief cooling-off period.”

The agency model itself is not illegal, DOJ wrote, but the backroom collusion that established it was.

But Apple insisted that the contracts were arranged legally and that the court should not nullify the deals until the company has had a chance to defend itself.

In a footnote, Apple speculated that the lawsuit was orchestrated by Amazon.

“For example, many expressed concerns about the possibility that the Government has unwittingly placed a thumb on the scales in favor of Amazon, the industry monopolist,” Apple wrote. 

“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,” Apple wrote.

Many critics, including Sen. Charles Schumer (D-N.Y.), have worried that the lawsuit could empower Amazon to regain dominance of the e-book market. Under the old model, Amazon controlled about 90 percent of the market, but after the publishers instituted the new pricing, Amazon’s share fell to 60 percent.

In its earlier filing, the Justice Department insisted that the proposed settlement will restore competition to the industry, not empower Amazon. 

Aggressive competition from Amazon does not excuse price-fixing, DOJ argued.