The U.S. Department of Justice Friday morning made public its proposal for injunctive relief against Apple for its role in the conspiracy to fix e-book prices. For Apple, the nightmare scenario in losing its e-book price-fixing case was always the potential for government oversight of all its digital content businesses. And while the proposed injunction does contain language that could extend oversight beyond e-books, it is unclear if the proposed order represents a worst-case scenario for Apple.
The proposal comes after a federal judge found Apple and five major publishers violated antitrust laws in moving the e-book business to the agency model in 2010.
"Frankly, I'm a little surprised [the DoJ] didn't ask for more," says Christopher Sagers, a law professor at Cleveland State University, noting that the proposed injunction frequently cites the strong language of Judge Cote's July 10 ruling.
"While the government asks for fairly broad remedies in this case, I don't think they're actually that much different than the kinds of remedies it ordinarily asks for. For the most part it seems to me like the remedies are actually pretty well limited to e-book markets, and for the most part they take a form that is familiar from these kinds of injunctive remedies: the court is being asked to enter an order that basically says go forth, and fix your prices no more."
However, he notes, how the proposal actually plays out remains to be seen, as there is broad language in the agreement that would prohibit Apple 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.”
"Who can say what kind of agreement is likely to affect third party prices?" Sagers told PW. "If Apple negotiates agreements, even if it negotiates each one completely separately from the others, but the result is retail price terms that look similar, that will raise serious concern. Particularly where the content providers' own markets are concentrated, and cultural content markets now are all highly concentrated, it could look very much like orchestration of another horizontal agreement to fix prices."
Many of the provisions, meanwhile, are similar to those agreed to by the publishers in their settlements, although signfiicantly longer in duration. The proposed injunction for Apple covers three general categories:
First, Apple is prohibited from engaging in “conspiratorial conduct,” or entering into contracts that would, “in any way fix the price that any of its competitors charge for content.” Specifically, Apple is barred, for five years, from either enforcing its MFNs, or “accepting limitations” on its own ability to price-compete with respect to e-books. That is three years longer than the publisher settlements, and the DoJ goal seems to be to push the market back toward retail price competition.
Second, the injunction seeks “proactive steps to ameliorate the harm its conspiracy caused to competition and consumers.” Here, Apple must terminate its existing agency agreements with each Publisher Defendants, and “reset” its treatment of competing e-bookstores on Apple platforms for two years—in other words, rival booksellers would be allowed to to include hyperlinks to their own e-bookstores within their e-book apps. That is a potentially major concession, which the DoJ says is designed to deny Apple the benefits of its conspiracy.
In addition, Apple is now required to report any behavior among its content suppliers—such as publishers—that “reasonably suggests collusion.”
Finally, as with the publisher settlements an external monitor will be appointed to oversee Apple’s compliance, but for an extended 10-year period, as opposed to two years for the publishers. In addition, Apple must also hire a new full-time internal Antitrust Compliance Officer, who “will be hired by and report directly and exclusively to the Audit Committee of Apple’s Board of Directors.” And Apple will pay the salary and expenses of this new hire, who will ostensibly have to sign off on future Apple content negotiations.
As was the case in the publisher settlements, Apple also will be required to provide “reasonable access” to company “documents, information, and personnel” throughout the duration of the injunction.
The monitoring could be another major question mark for Apple, Sagers observes.
"Apple has to adopt all recommendations of an external compliance monitor that it cannot prove to the court are unduly burdensome and I doubt that Judge Cote will agree that basically anything is unduly burdensome, given the findings in her judgment of liability," he notes. "And the Monitor is not limited to reviewing only Apple's eBooks business. The Monitor seems to me to have broad license to review Apple's whole business operation."
DoJ officials pressed the need for a broad injunction. Throughout the course of the trial, the DoJ argued in its brief, “it became clear that Apple lacks sufficient internal controls to prevent the reoccurrence of the wrongdoing found here,” noting that the proposed terms are necessary to “discourage senior management from orchestrating similar behavior, and provide its employees with sufficient training and oversight to minimize the risk of recurrence.”
The injunctive relief does include the states and the consumer class—although money damages are not part of this proposal. The states and the consumer class will seek to work that out in a separate proposal.
Apple, meanwhile, will certainly contest a number of the details of this proposed order. A hearing on remedies is set for August 9, 2013, before Judge Cote.