Saturday, September 07, 2013

Judge 'lays down the law,' issues injunction in Apple e-book price-fixing case

U.S. District Court Judge Denise Cote issued her injunction against Apple in the e-books antitrust case, on Friday (via GigaOM). In July, Cote ruled that Apple had colluded with a number of publishers to raise rates on e-book sales.

Those publishers, who were originally Apple's co-defendents, Pearson Plc's Penguin Group (which has since merged with Random House), News Corp.'s HarperCollins Publishers Inc., CBS Corp.'s Simon & Schuster Inc., Hachette Book Group Inc. and MacMillan, all settled with the Justice Department prior to the trial.

Cote's ruling should please the DOJ. It gives the Justice Department much of what it wanted in terms of "punishing" Apple. It wasn't a complete win for the DOJ, though, and and other booksellers "lost" as well.

The injunction is set to go into place in 30 days. It will last for five years, but the court can extend it for “one or more one-year periods” after that, either on its own or at the request of the DOJ or the states.

With Judge Cote’s injunction, Apple is forbidden from entering into any most-favored-nation deals with any e-book publishing contracts for five years, and also prevents the company from enforcing any already existing MFN clauses, also for five years. Apple had wanted this restriction to include only the five co-defendants listed above; it instead applies to any and all publishers.

With regard to those five, Judge Cote will require Apple to stagger new contract negotiations with them. As part of their original settlements, all of those publishers were required to enter new contracts with retailers that allowed the retailers to discount their books for two years. Those agreements are already in force, but the clause in the injunction will significantly extend the amount of time that they’re required to permit discounting of their e-books.

Apple had already agreed to this clause, but the company had wanted the right to choose the order in which it would negotiate new contracts with the five publishers. Judge Cote instead laid down the exact order: HarperCollins, Hachette, Simon & Schuster, Penguin and Macmillan. Penguin and Macmillan, the last publishers to settle, appear to be slapped for doing so by having to wait the longest to renegotiate their contracts.

In addition, for two years, Apple will be monitored by a court-appointed External Compliance Monitor to ensure that it does not collude again. Apple can, however, suggest candidates for the position.

In a loss for the DOJ, it had wanted the court to force a change in Apple’s in-app purchase policies. To circumvent the 30 percent that Apple would otherwise take on in-app purchases, and Barnes & Noble, along with other booksellers (and other third parties, too) would link to their site instead of allowing the purchase to be made in app. Apple eventually banned this practice.

In response, retailers were forced to modify their apps to remove those links from their apps.

The DOJ had wanted the court to reverse Apple's ban. That provision is not included in the final injunction (Judge Cote had already stated that she did not intend to regulate Apple's App Store.

The full injunction can be read here.

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