updated 10:19 pm EDT, Wed May 23, 2012
Echoes PR that suit is 'fundamentally flawed'
Claiming that the Department of Justice is completely wrong in its approach and interpretation of the circumstances and public remarks of its entry into the e-book market, Apple has filed a formal response [PDF link] to the lawsuit that accuses it and major book publishers of conspiring to fix prices on e-books and undermine Amazon's ability to discount them. The response echoes Apple's few public statements on the matter, saying it fostered competition where Amazon would have destroyed it.
The suit, which originally named five publishers, accuses Apple and the remaining two publishers (MacMillan and Penguin Group) of colluding to require a switch to the "agency model," a traditional publishing-industry model that allows publishers to set wholesale prices. The suit also accuses the company of demanding a "most favored nation" type clause that required publishers not to sell books at lower prices on other outlets such as Amazon.
The DOJ (though few others) see the moves as a targeted conspiracy to weaken Amazon's policy, in which the online retailer could cut prices as much as it wanted and would pressure publishers to accept payment based on what the books actually sold for. Amazon remains in a position to sell e-books as a loss leader, which many in the industry feared would lead to the ruin of smaller publishers.
Apple and the two publishers' position is that no collusion occurred, no price-fixing occurred and that the moves helped protect all publishers -- even those not part of the agreement -- from the "predatory pricing" practices of Amazon. The company further says that quotes cited by the DOJ from former CEO and co-founder Steve Jobs were taken entirely out of context.
Jobs stated in both an e-mail to a reluctant publisher as well as on video that publisher would at some point be forced to withhold their books from Amazon in order to force the company to respect its own pricing of the e-books. Amazon itself had already become known for punishing publishers that resisted its cut-rate discounting strategy, which publishers feared would lead to permanent lowering of payments and royalties. The DOJ says the conspiracy worked to keep e-book prices "artificially high," costing consumers millions of extra dollars they would not have paid if Amazon or others had been able to sell them at a loss.
Apple has said that Amazon had a near-monopoly on e-book sales before Apple introduced the iBookstore, garnering some 90 percent of e-book sales and pressuring publishers to lower prices. While seen by some consumer groups as a pro-consumer position, price-dumping is also illegal when it can be shown to be employed in order to squeeze out competitors that can't afford to lose money.
In today's brief, the company called the DOJ suit "fundamentally flawed" and argued that if successful, the practical effect would be to harm consumers, discourage competition and award Amazon a practical monopoly. It said its own entry into the market was "classically pro-competitive" and fueled demand for e-books by forcing Amazon and others to compete more aggressively, including introducing upgraded e-reader technology. The company has previously pointed out that since its entry into the e-book market, Amazon has had to give up predatory pricing and now has 60 percent of the market, meaning it must compete more fairly against Barnes and Noble and other e-book markets.
"For Apple to be subject to hindsight legal attack for a business strategy well-recognized as perfectly proper sends the wrong message to the market," it added. "The government's complaint against Apple is fundamentally flawed as a matter of fact and law." Three of the other publishers originally named in the suit have already settled with the DOJ and agreed to abandon the "agency model." The Author's Guild and its leader, novelist Scott Turow, have already come out in favor of Apple in the DOJ complaint.