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DOJ accuses Apple, e-book publishers of 'unmistakable' harm

updated 01:35 pm EDT, Thu August 23, 2012

Fights to save settlement with three publishers

The Department of Justice has filed its response to Apple's call for the settlement with three of the major publishers to be dismissed or suspended at least until after the trial in which the DOJ accuses Apple and two other publishers of colluding to fix e-book prices. In it, the DOJ accuses Apple, Penguin Group and Macmillan of causing "unmistakable consumer harm."

The response from the DOJ (seen below) addresses few of the actual complaints outlined by Apple, such as that the DOJ cannot prove -- as required by antitrust law -- that e-book prices have risen since or because of the actions taken by Apple and the others. Instead, it largely just reiterates its claim that the alleged conspiracy was designed to keep e-book prices high and punish Amazon, which at the time had a monopoly on e-book selling, for undercutting publisher prices.

Notably, the DOJ has not responded to similar calls for transparency from amicus curiae filers Barnes & Noble, the American Booksellers Association (ABA), The Authors Guild or attorney Bob Kohn, all of whom oppose the settlement for a variety of reasons. Kohn is specifically demanding the release of the DOJ's own analysis of e-book prices, which he says shows that Amazon engaged in predatory pricing. Kohn is also seeking a hearing on the proposed settlement, which has received overwhelmingly negative public comment from the industry and the public, reports PaidContent.

In specific response to Apple's complaint that the settlement forces the company to "tear up" contracts with the settling publishers even though it did not join in on the settlement, the DOJ says that Apple is not entitled "to preclude the United States and Apple's co-defendents from obtaining the immediate benefits of their settlements." It argues that it does not need to prove the underlying allegations in the case of an anti-trust proceeding before implementing a settlement.

The "trash talking" animosity that has marked this case continues in the DOJ's filing, with the government dismissing the amicus briefs by claiming that many other industries over the years have "raised cries against 'ruinous competition' over the decades" and specifically that "what troubles Apple is that the [settlement] returns pricing discretion not just to Apple, but also to its retail competitors."

Penguin Group had charged in its filing that the DOJ has not proven that e-book prices overall rose under the agency pricing model. Firing back, the DOJ ignored the overall state of pricing but showed charts that Penguin's prices rose an average of 18 percent following Apple's drive to get publishers to adopt the "agency" pricing model -- a methodology that gives publishers the power to set prices and discounts, from which the retailer simply makes a commission.

The agency model also ensures that all retailers sell books for the same price, as opposed to the "wholesale" model that Amazon favors. Under that practice, retailers are free to discount the books as they like, even selling at a loss to build marketshare. Apple and the publishers have said this model would squeeze out smaller publishers as well as most bookstores (which can't afford to take losses) and allow Amazon to continue engaging in anti-competitive practices like predatory pricing.

In response to Macmillan's demand that the DOJ show (as required by antitrust law) that the settlement would not result in Amazon regaining a monopoly, the government says there is no evidence that the settlement would cause Amazon to regain a monopoly thanks to competition from established companies" such as the parties that oppose the settlement. Putting aside the irony of the statement, the DOJ's reply fails to note that prior to those companies entering the market under the banner of the agency model and Apple's leadership, Amazon already had a monopoly that it routinely used to force publishers to cut prices under threat of dropping them from what was at the time the only viable e-book marketplace.

The DOJ also addressed the amicus briefs of the ABA and Barnes & Noble, both of which pointed out that public comment on the settlement was overwhelmingly against it. According to its own records, the DOJ received 868 public comments on the matter and nearly all of them were negative. It dismissing the concerns by saying "it is not unprecedented for parties to oppose a settlement because they have a stake in an anticompetitive status quo" and claiming that the negative comments "did not come from those seeking to represent the public interest."

The response has been criticized as incomplete by the parties, pointing out that the DOJ doesn't answer most of the complaints and doesn't respond at all to Kohn or the Authors Guild. Kohn argued, for example, that the DOJ was confusing e-books with printed books by calling e-books a "private good" (meaning a resource that is limited and could conceivably be bought up) with a "public good," saying "an e-book can be consumed without leaving any less for others to consume," a key difference between digital and physical products that has a major affect on the subject of supply and demand.

The attorney added that the misunderstanding that flaw's the DOJ's entire premise in the case is that antitrust law seeks the lowest prices in all outcomes. This is fundamentally untrue, he wrote to the court, and excuses Amazon's bad behavior and predatory pricing in order to pursue an alleged conspiracy that the DOJ's own research shows has increased competition and improved selection while keeping prices stabilized and profitable for publishers. In short, Kohn says, the DOJ has no case for proving that the agency model has caused any harm to consumers.

The judge in the case, Denise Cote, has previously expressed views that Apple was indeed part of a conspiracy that hurt consumers, but has not yet ruled on Kohn's request for a hearing, though she did accept the amicus briefs from him, the ABA and Barnes & Noble, all of whom are not named in the case.

DOJ Response No Highlights

by MacNN Staff



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