Justice Department Asks Judge for Severe Penalties Against Apple in Ebook Price Fixing Case

Posted on August 3, 2013

Now that Apple has lost the ebook price fixing case brought against it and major book publishers by the Department of Justice, the DOJ is asking federal judge Denise Cote to severely punish Apple for its illegal conduct. The DOJ has requested a host of penalties. First off, Apple cannot use the agency model for book sales for five years. That means it will have to end its current contracts with all book publishers and renegotiate them.

But it gets worse. The DOJ has asked that Apple "be prohibited from again serving as a conduit of information among the conspiring publishers or from retaliating against publishers for refusing to sell e-books on agency terms." The DOJ wants Apple to be prohibited from entering into agreements with suppliers of e-books, music, movies, television shows or other content that are "likely to increase the prices at which Apple's competitor retailers may sell that content."

The DOJ is asking the court to turn back time and restore the competition that existed before Steve Jobs entered into agreements with the book publishers to keep ebook prices artificially high. To do that the DOJ wants Apple to allow Amazon and Barnes and Noble to allow customers to purchase books directly from their Kindle and Nook apps on their iPhones, iPods and iPads and to be able to easily compare prices. We have to admit we love this one. It was so annoying when Apple disabled Amazon.com's purchase links from inside the Kindle for iPhone App. We talked to Amazon.com at the time and a customer service rep told us that Apple forced them to remove the links and to purchase a book from Amazon.com using our iPhone we would have to go in through the browser, not the Kindle app. The DOJ wants those links put back inside the apps for two years.

Apple could probably live with those requirements for a few years. But this next penalty is a real bombshell. The DOJ wants the court to appoint an external monitor "to ensure that Apple's internal antitrust compliance policies are sufficient to catch anticompetitive activities before they result in harm to consumers." Apple must pay the salary and expenses of this new, in-house spy who will work with an internal antitrust compliance officer who will be hired by and report exclusively to the outside directors on an audit committee. The spy will train Apple's execs on how not to violate antitrust laws and will make sure Apple complies with the penalties. We're sure the Apple team will welcome this new employee with open arms. Because there is nothing Apple likes more than an external monitor watching its every move and reporting back to an outside audit committee (and presumably the court).

The court will hold a hearing on remedies on August 9, 2013, to determine what penalties it will impose on Apple. Because Apple had a chance to settle the case (as all the publishers wisely did) and because the judge herself told Apple it was likely to lose, we think the judge is going to throw the book at them. She is not going to give Apple the same deal the publishers got after Apple made everyone go through the expense and hassle of a trial.