DOJ Seeks To Monitor Apple iBooks, iTunes In Proposal To Court

A couple of years ago, Apple took away the right of third-party book sellers on iOS devices to link through their apps to their online stores. Most prominent among these is Amazon/Kindle. The move was clearly anticompetitive, although consumers could still get to the Kindle store (and others) via the mobile Web.

Last year, the Apple store was sued by the US Department of Justice (DOJ) under the Sherman Act for conspiring to fix e-book prices along with five major book publishers: Hachette, HarperCollins, Macmillan, Penguin and Simon & Schuster.

Cupertino lost at trial and was found guilty. Now, the trial enters the damages/remedies phase. The DOJ also has settled with the individual publishers.

The DOJ is proposing a remedy to the court that it says will “halt Apple’s anticompetitive conduct, restore lost competition and prevent a recurrence of the illegal activities.” However, the proposed remedy extends beyond books into all the digital content Apple sells on iTunes.

The DOJ says it wants to prevent further anticompetitive behavior by Apple in the future. The DOJ’s proposal contains the following provisions:

• Apple would be required “to terminate its existing agreements with the five major publishers with which it conspired  . . . and to refrain for five years from entering new e-book distribution contracts which would restrain Apple from competing on price.”
• Apple could not enter “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.” (emphasis added)
• Apple would also be compelled (for two years) to restore in-app links to “e-book retailers like Amazon and Barnes & Noble . . . allowing consumers who purchase and read e-books on their iPads and iPhones easily to compare Apple’s prices with those of its competitors.”

The DOJ is also proposing an external monitor to ensure compliance with the above remedies over the next several years.

Apple is likely to vigorously oppose both the idea of the external monitor and any extension of the remedy beyond the scope of e-books to iTunes broadly. The court will hear the DOJ’s proposal on August 9.

Postscript: Apple filed its response (embedded below) to the DOJ’s proposed remedy described above. As expected the company strongly opposes the prospect of long-term DOJ oversight and the expansion of that monitoring to content areas that have nothing to do with e-books:

Plaintiffs’ proposed injunction is a draconian and punitive intrusion into Apple’s business, wildly out of proportion to any adjudicated wrongdoing or potential harm. Plaintiffs propose a sweeping and unprecedented injunction as a tool to empower the Government to regulate Apple’s businesses and potentially affect Apple’s business relationships with thousands of partners across several markets. Plaintiffs’ overreaching proposal would establish a vague new compliance regime—applicable only to Apple—with intrusive oversight lasting for ten years, going far beyond the legal issues in this case, injuring competition and consumers, and violating basic principles of fairness and due process. The resulting cost of this relief—not only in dollars but also lost opportunities for American businesses and consumers—would be vast.