The five settling publishers in the Apple e-book price-fixing case this week jointly filed an objection with the court claiming that the Department of Justice’s proposed punishment for Apple unfairly alters their settlement agreements.
Specifically, the publishers object to provisions in the DoJ's proposed order that would force Apple to terminate its current e-book distribution deals with publishers and would bar Apple for five years from entering into new contracts that would restrain its ability to discount e-book prices. Those provisions, the publishers argue, would “effectively eliminate the use of the agency model” for five years with Apple, and under “the guise of punishing Apple” would effectively punish the publishers. Apple has called the DoJ's injunction "draconian."
In the brief, the publishers stress that its settlements were “carefully crafted” and, citing the DoJ’s own words, have worked effectively as a “cooling off” period for the e-book market following the alleged conspiracy. But despite achieving the stated goal of “returning price competition” the publishers say the DoJ’s proposed injunction for Apple now seeks to impose “additional, unwarranted restrictions” on the publishers, essentially “modifying their Consent Decrees” without “demonstrating any justification.”
The two-year publisher settlements expressly allowed the use of the agency model while also allowing for retailer discounting, not to exceed 30% across a publisher’s entire list. In 2014, after the two years are up, the publishers were to be free to go back to a straight-up agency model for their e-book businesses, without discounting, which the DoJ has expressly stated is acceptable and lawful.
Following its decisive victory at trial over Apple, however, the DoJ is now proposing that Apple scrap its current contracts with publishers and enter into new deals that would preclude any restrictions or prohibitions on Apple’s ability to set consumer prices for five years.
That proposal, the publishers argue, would deprive them of “the primary benefit of the bargain reached in their consent decree negotiations—continued use of the agency model and freedom of contract after two years." It would also impose “significant additional burdens" such as renegotiating settled contracts.
The DoJ, however, claims that the proposed order does not modify the publisher settlements—and the publishers acknowledge that fact, too, noting that the proposed order “is not, in form, seeking a modification of the consent decrees.” Rather, the publishers say the two provisions pertaining to Apple’s contracts exist as “a thinly veiled motion for reconsideration of the consent decrees.”
The publishers say the DoJ proposal is essentially pushing for a new business model for e-books, contradicting the DoJ’s earlier position that it had no desire to regulate the e-book business, and that publishers would be free to use the agency model once their two years was up.
In fact, the DoJ order does not preclude the use of an agency model, except in its limitations on Apple. But DoJ attorneys acknowledge that the provision is desgined to push the market back toward retail price competition. Barring Apple from going back to straight-up agency deals with publishers for five years will make it “more difficult for the Publisher Defendants” to enter into deals with other retailers that restrict the ability to discount consumer prices, DoJ attorneys concede.
In its filing, the DoJ cited the “non-credible” testimony of “multiple Publisher Defendant CEOs” at Apple’s June trial, and suggested that the publishers "may be positioning themselves to pick things back up where they left off as soon as their two-year clocks run,” noting that the new e-book contracts publishers have signed with retailers are “disappointingly similar” to one another.