Apple is not happy with the U.S. Justice Department, according to a letter released Monday responding to the government’s proposed remedy in the closely watched e-books price-fixing conspiracy case. Last month, a federal judge ruled that Apple conspired with major book publishers to raise the price of e-books, costing consumers millions of dollars. Apple has maintained its innocence and plans to appeal the decision.
In her ruling, U.S. District Court Judge Denise Cote found that Apple worked with five major book publishers — Macmillan, Penguin, Hachette, HarperCollins, and Simon & Schuster – to pressure arch-rival Amazon into changing its business model, resulting in higher prices for consumers. Apple insisted that the publishers, which had previously settled the case, sought to raise prices on their own. In the end, Judge Cote found that Apple “facilitated this conspiracy and changed the face of the e-book industry.” She further found the testimony of Apple content honcho Eddy Cue, who led negotiations with the publishers, “not credible.”
The latest round of bickering between the tech giant and the Justice Department concerns the government’s proposed remedy, which must be approved by the court. The feds want Judge Cote to issue an injunction requiring Apple to allow retailers like Amazon and Barnes & Noble to sell e-books through their iOS apps without giving Apple a cut, in order to “restore and protect e-book price competition.” The feds are also asking Judge Cote to require the creation of an external monitor to ensure Apple doesn’t violate antitrust laws in the future. The two sides will meet in court with Judge Cote today.
Apple objects to these aspects of the government’s proposed remedy. In a sharply worded letter posted by the court Monday, Apple’s lead counsel Orin Snyder blasted the government’s brief, filed last Friday, in which the feds outlined their latest remedy proposal. Apple accused the Justice Department of filing “a 12-page broadside masquerading as a brief,” and accused the feds of “seeking a remedy that would give Amazon a significant competitive advantage over Apple — an advantage it is neither entitled to nor deserves.” Apple called the government’s recommendations “plainly improper.”
It’s not hard to see why Apple is defensive. The government’s brief is withering in its assessment of Apple’s conduct and what the feds describe as the company’s lack of contrition, despite having been convicted of violating antitrust laws. Apple’s top executives and lawyers “resist a remedy intended to strengthen their internal compliance processes, refuse to undertake basic efforts aimed at restoring price competition in the marketplace, and even decline to commit to not repeating their anticompetitive practices in other content markets,” according to the government.
“Quite simply, Apple wants to continue business as usual, regardless of the antitrust laws,” the feds continued. “Under these circumstances, this Court should have no confidence that Apple on its own effectively can ensure that its illegal conduct will not be repeated. There must be significant oversight by someone not entrenched in Apple’s culture of insensitivity to basic tenets of antitrust law.”
In his letter to the court, Snyder portrayed the Justice Department’s brief as an attempt by the government to impugn Apple and penalize the company for its vigorous defense. Snyder called the government’s brief “a transparent effort to again attack the credibility of Apple and its counsel, and obtain an injunction wildly out of proportion to the issues and evidence in this case, in order to punish Apple for defending itself at trial.”
The Justice Department wants the court to order Apple to reverse a policy it instituted in 2011, which prohibited rival retailers from placing hyperlinks in their iOS apps in order to send users to external websites to make e-book purchases. This policy ensured that Apple would receive a 30% cut on all purchases made through iOS apps, including those made in the apps of competitors like Amazon and Barnes & Noble.
“This policy change was instituted specifically to retaliate against Amazon for competitive conduct that Apple disapproved of,” the government wrote in its brief. “The fact that Apple protests this provision reasonably leads to concerns regarding what Apple is doing, and plans to do, in those other content markets, like music and television,” the feds added.
Apple accused the government of over-reaching. “Apple’s treatment of apps used for the consumption of digital content is outside the scope and content of this court’s decision, and, accordingly, outside the scope of any injunction that might conceivably be entered in this case,” Apple counsel Snyder wrote. He added that such a remedy “would give Amazon a significant competitive advantage over Apple — an advantage it is neither entitled to nor deserves.”
The other main point of contention concerns the external antitrust monitor, which the government insists is essential because there is “no indication that Apple recognized the severity of its actions or was undertaking institutional reforms to ensure its executives would never again engage in such willful and blatant violations of the law.” In essence, the government argues that Apple can’t be trusted to police itself through an internal antitrust compliance process.
As one might expect, Apple is not particularly enamored with the idea of having an external antitrust watchdog looking over its shoulder. In his letter, Snyder suggested that the government is trying to punish Apple for its vigorous defense, and reiterated that the company’s “commitment to legal compliance, including antitrust compliance, is unconditional and steadfast.”
“Apple’s defense of the case, and its good faith exercise of its appeal rights, will help settle important legal issues under the antitrust laws, and should not be a basis to impose external monitoring or other unnecessary, intrusive, or punitive provisions when Apple has committed to very substantial antitrust compliance,” Snyder wrote.
Ultimately, Judge Cote will have to decide the nature and scope of any injunction designed to remedy Apple’s violations of antitrust law. And of course, Apple will have another crack at the underlying charges in the case when its appeal is heard next year.
Given the acidic tone of the government’s latest brief and Apple’s response, it’s clear that the two sides view each other with thinly veiled contempt, like two schoolyard bullies throwing shade at each other from across the playground. Judge Cote should act like the adult in this situation and approve a remedy that puts the interests of consumers first. It is consumers, after all, that the antitrust laws are designed to protect.