The DoJ looks to re-write the e-book marketplace

The Department of Justice's e-book price-fixing case took an a curious turn last week when the Department of Justice sought to re-write the settlement agreements already ratified by the New York court by introducing harsher terms for the final defendant Apple that would impact everyone.

Apple, of course, has already been found guilty of leading a conspiracy to fix and raise e-book prices, a verdict it is contesting. However, in papers filed on Friday (2nd August), the DoJ has demanded that Apple agree to five years with no agency model, rather than two agreed to by the settling publishers, and submit to ten years of monitoring. It also wants Apple to allow other e-book retailers such as Amazon and Barnes & Noble to enable direct purchases through their iOS apps for "two years" without paying Apple a commission on those sales. The injunction could also spill over into how Apple operates iTunes, with the DoJ specifically referencing how Apple deals with other forms of media content including "music, other audio, movies, television shows, or apps".

The penalties go far beyond anything so far agreed on (or imposed on) publishers, and would effectively force everyone to re-write those agreements already ratified by the New York court.

Though the settling publishers were not on trial, the DoJ tried to argue good cause, suggesting that there was "reason to believe the publisher defendants may be positioning themselves to pick things back up where they left off as soon as their two-year clocks run". It offered no evidence to back up that assertion, except that the court approved settlement deals were "disappointingly similar", a statement the DoJ made with no apparent sense of irony.

Michael Cader at Publishers Marketplace wrote that the filing made it "abundantly plain that the DoJ . . . believes publishers merit double jeopardy for untried bad behavior". He also argued that the new penalties removed the ability of publishers to ensure that their whole list is not sold at a net loss, one of the key breaks publishers now enjoy on the threat of heavy discounting of their e-books.

Nevertheless, Fortune's Philip Elmer-Dewitt believes that the judge will give the DoJ what it wants, based on the view that Judge Denise Cote already has fixed opinions about the guilt of Apple--expressed even before the case came to trial. But Cader argued the DoJ injunction "overreaches", and questioned why the presiding Judge Denise Cote would want to unwrap deals that she has already ratified and called "fair, reasonable and appropriate".

Apple also uses the term "overreach" in its reply. The company called the DoJ's proposed injunction "a draconian and punitive intrusion into Apple’s business, wildly out of proportion to any adjudicated wrongdoing or potential harm" and argues that the "proposal that Apple now be forced to terminate its renegotiated agreements with the publishers cannot be justified". Though it is appealing the guilty verdict, Apple says that if the court does impose an injunction "its terms should be narrowly tailored to redress the specific conduct this court found anticompetitive", arguing that  the "conduct for which the court found it liable has ended and cannot recur as a result of the publishers’ consent decrees."

Some people have claimed that the proposed injunctions show Amazon's long-pen at work, particularly, the clause that demands Apple open up its platform to other e-booksellers to sell direct via their apps with no commission. Just last week Amazon started offering free samples via its iOS app in an apparent attempt to circumvent Apple's in-app purchasing rules. Jeff Bezos' acquistion of the Washington Post overnight, as well as President Obama's decision to give a key speech from an Amazon warehouse, have done little to dampen down suggestions about the company's influence.

But it seems likely that the DoJ is "overeaching' precisely because it knows the judge will need to cut a deal, or risk the case dragging on and upwards towards the Supreme Court. Bringing iTunes and the Appstore into the injunction may be a way of signaling to Apple that settling now under those terms already agreed is better than risking the wrath of legislators further up the food-chain.

This may feel like a side-show to UK publishers, where everyone has now settled, including Apple. But it is highly unlikely that if the e-book market is re-written in the US over the next few months, the fallout won't drift this way thereafter.

Amazon might also want to look at twice at what the DoJ has to say about how the app store operates and why it wants Apple to open it up for two years for other e-booksellers to sell e-books directly through their apps without paying Apple a commission.

According to the DoJ by imposing conditions on in-app purchasing Apple made "it more difficult for consumers using Apple devices to compare e-book prices among different retailers, and for consumers to purchase e-books from other retailers on Apple’s devices". But actually anyone using a tablet device equipped with a browser will pretty quickly be able to figure out how to compare e-book prices, and even how to purchase them. The iPad is inherently an open device in that respect. The opposite, of course, is true of the Kindle, which locks consumers to the Amazon e-bookstore and Amazon prices.

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