Apple blasts the DOJ's proposed e-book price settlement

If Apple, Penguin, and Macmillan’s filings this week voicing opposition to the government’s proposed settlement in the e-book price fixing case are any indication, it’s going to be a long, drawn-out battle.

Penguin’s response to the Department of Justice? “The Emperor has no clothes.”

Apple’s very first line in its response to the Department of Justice? “Apple has not settled with the Government.”

In its five-page memo, Apple blasted the DOJ’s proposed e-book price fixing settlement, calling it “fundamentally unfair, unlawful, and unprecedented.” The proposed settlement effectively terminates Apple’s contracts with the three publishers who have settled “before a single document has been introduced into evidence, before any witness has testified, and before the court has resolved the disputed facts,” according to the memorandum.

In its filing, Apple said it never “participated in, encouraged, or sought to benefit from collusion,” and said its advocacy of the agency model (in which publishers, not retailers, set book prices) was necessary to break Amazon’s monopoly on the e-book market.

The Cupertino company said the DOJ should not penalize Apple with this contract-ending settlement before Apple “has had its day in court” and asked the court to defer judgment until after the trial, some ten months hence. If Apple and the remaining defendants win the trial, it argued, the legality of its original contracts would be validated.

Apple and five book publishers were sued by the DOJ in April for allegedly conspiring to raise e-book prices in response to Amazon’s efforts to price most e-books at $9.99. Three publishers – Hachette, HarperCollins, and Simon and Schuster – settled with the DOJ while Apple, Penguin, and Macmillan decided to fight the government’s charges. Since then, the case has gotten a lot of attention, starting with a well-choreographed campaign against the charges by the Authors Guild and others in the publishing industry, followed by an outpouring of public comments against the settlement, including an op-ed by Sen. Charles Schumer in the Wall Street Journal criticizing the government’s accusations as harmful to the publishing industry. In response, the DOJ defended its suit.

With its judgment, the proposed settlement would automatically terminate Apple’s agreements with publishers and effectively bar Apple and other retailers from selling e-books under the agency model for two years – all without Apple’s consent and without a trial, the Cupertino company said in its filing.

In a bit of well-placed irony, Apple remarked, “This case is about an alleged conspiracy to force Amazon to adopt agency. Thus, a settlement enjoining collusion or precluding publishers from forcing agency on Amazon would be appropriate.”

For their part, both Penguin and Macmillan argued that the government provided no evidence that e-book prices rose under the agency model, then proceeded to share their own price analyses and urged the government to show its evidence.

It remains to be seen whether the court will approve the judgment forcing Apple to terminate its agency model agreement. With its legal memorandum, Apple is hoping the court rejects the settlement or delays its implementation until after the July 2013 trial. We’re preparing for a long battle.

Husna Haq is a Monitor correspondent.