In a letter filed Thursday with the court, U.S Attorney Lawrence Buterman rejected publisher objections that the government’s proposed injunction for Apple would rewrite publisher settlements, and reminded the court of a key fact: Apple is not just a retail partner to the publishers, they are also a co-conspirator. The parties, meanwhile, will be in court today for a conference on the DoJ's proposed punishment, and to hash out a schedule for future proceedings.
“Apple has been found to have orchestrated and facilitated a horizontal per se price fixing conspiracy-amongst these very Publisher Defendants,” Buterman wrote. “Apple should not be rewarded with the same terms received by those that chose to settle to avoid the risks of litigation.”
Specifically, the publishers have objected 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."
The DoJ, however, explains that its proposed order does not modify the publisher settlements—a fact the publishers also acknowledged, conceding that the proposed order “is not, in form, seeking a modification of the consent decrees.”
“While Plaintiffs recognize that the practical effect of [the order] is that it extends the Publishers' ‘cooling off’ period with the retailer with which it engaged in a price-fixing conspiracy for an additional three years, Plaintiffs believe such a limited extension is necessary,” Buterman writes. “A necessary component of this Court’s decision finding Apple liable for horizontal price-fixing is that the publishers themselves were engaged in a horizontal price-fixing conspiracy.”
Buterman reiterated his claim that “the Publisher Defendants may be positioning themselves to pick things back up where they left off as soon as their two-year clocks run,” and even cites the joint objection as proof that the “Publisher Defendants have banded together once again.”
Kobo Supports DoJ
Meanwhile, the DoJ got some support for its proposed final order, in the form of Amicus briefs from Kobo, and from The Consumer Federation of America.
Notably, Kobo’s brief in support of the DoJ puts it odds with its retail partner—the American Booksellers Association, through which Kobo facilitates e-book sales. ABA president Oren Teicher has criticized the DoJ action, and has argued that banning the use of the agency model would harm indie booksellers.
In its brief, however, Kobo says the DoJ injunction would help Kobo and the indies—especially through the requirement that Apple allow e-book retailers to link to their own e-bookstores for two years without paying a commission to Apple on sales.
In the summer of 2011, when Apple first imposed restrictions on what functionality could be included within an iOS app, Kobo says its Apple business plummeted, with the rate of “new customer conversions” falling by approximately 75% in the three months following Apple’s change in policy.
“Prior to Apple’s 2011 rule change, Kobo’s monthly sales to U.S. customers through hyperlinks in the Kobo app on Apple iOS devices peaked at nearly 75,000 units in July 2011," the brief notes. "These sales benefited all consumers who visited the Apple and Kobo e-books app stores by providing price competition and a greater selection of e-books. Following Apple’s rule change, Kobo’s sales via Apple iOS devices swiftly and expectedly plummeted to fewer than 20,000 units in August 2011 and to fewer than 5,000 units in December 2011, and have since fallen even further.”
By placing competitors “on a level playing field for a two-year transition period,” Kobo argues that the Department of Justice’s proposed remedy could restart competition.
“E-books are frequently sold through e-book apps, which Apple makes available to customers through its Apple App store," Kobo attorneys argue. "For Kobo and other e-book retailers to serve as effective competitors to Apple, their potential customers must be able to discover that these retailers actually sell e-books, a fact which is not readily apparent to an Apple iOS device user who encounters these competitors through apps on Apple iPads and iPhones.”
The CFA, meanwhile, is represented by noted antitrust lawyer David Balto. In its brief, Balto and CFA attorneys argue that DoJ’s proposed remedy “is not unusual by comparison to prior antitrust remedial orders,” and is appropriate in light of “the significance of the violation, the gravity of the consumer harm, and defendant’s continued denial.”
Full adoption is warranted, CFA stresses, because “the underlying conduct was willful and [Apple] remains unrepentant.” The brief also notes that the DoJ proved “conduct of a sort often prosecuted criminally, that was knowingly orchestrated by defendant’s highest management.”
Failure to take “strong remedial steps” in a case involving such egregious conduct, the brief concludes, would send a message that “antitrust compliance can be an afterthought and that antitrust penalties are merely a cost of doing business.”