Judge scolds Apple for lack of remorse in e-book antitrust case

No final judgments were made in a Friday hearing on how to redress Apple's anticompetitive practices in the e-book market

A federal judge took Apple to task on Friday for showing no contrition about potentially defrauding its customers of hundreds of millions of dollars.

"None of the publishers nor Apple have expressed any remorse" about colluding to fix electronic book prices in 2010, said District Judge Denise Cote, of the U.S. District Court for the Southern District Court of New York. "They are, in a word, unrepentant."

Additionally, Cote expressed dissatisfaction that Apple had not taken any steps to modify its business practices, such as establishing internal compliance monitoring, to prevent it from undertaking similar behavior in the future.

Cote addressed this charge to Apple's attorneys at a hearing held Friday to discuss remediation, or the actions the court would take to compensate consumers and prevent further price-fixing.

Last month, Cote ruled that Apple violated the Sherman Antitrust law when it contracted with five of the six largest book publishers to provide e-books to Apple's book-reading app for its then newly launched iPad .

On Friday, Cote reviewed proposed settlements that were submitted by both Apple and the plaintiffs, namely the U.S. Department of Justice and the 33 state attorneys general. In 2012, the DOJ and the states brought an antitrust case against Apple and Hachette, HarperCollins, Macmillan, Penguin and Simon & Schuster for working together to set prices of electronic books.

The DOJ and the states had convinced Cote that Apple and book publishers had conspired to raise prices in the e-book market in 2010, in an effort to stop Amazon from pricing their best-selling electronic books at US$9.99.

The publishers all settled out of court prior to the trial, which began in June, and have earmarked $164 million for restitution.

Cote did not decide on what a proper remediation should be, but rather set up a series of meetings to be held over the next few weeks among Apple, the DOJ and the attorneys general to determine if they had any areas of agreement to establish a settlement.

Despite Apple's apparent hubris, Cote said she wanted to make the remediation as narrow as possible to minimize unnecessary government intervention in the e-book market.

The injunction should only try to restore competitive pricing in the electronic book market, to prevent Apple from colluding with publishers in the future, and to award appropriate -- though not overly punitive -- damages to e-book consumers, Cote said.

She stated she would rather not establish an external monitor to watch Apple, expressing hope that the injunction be structured in a way that an external watchdog would not be needed. Nor did she wish to force Apple to change its policies on how it runs its app store.

In their proposed remedy, the DOJ and AGs advised modifying the way Apple contracts with publishers in order to limit the company from dictating terms that publishers would use with other retailers.

They also wanted Apple to allow third-party e-reading software on Apple devices, such as the Kindle software offered by Amazon, to directly link into their electronic bookstores. Today, as a general policy for its app store, Apple requires a 30 percent commission on any goods sold through third-party apps.

In response, Apple chiefly argued that, because it plans to appeal the court's decision, the court should stay all further actions. Apple argued that it has compelling reasons for believing that an appeal would be successful for the company.

Cote declined to place a stay on proceedings, however, expressing doubt that Apple had that strong of a case.

Short of being granted a stay, lead Apple attorney Orin Snyder argued that the company would need time to prepare for the upcoming trial to determine damages, which could cost Apple and the publishers hundreds of millions of dollars.

The DOJ had argued that consumers paid significantly more for their e-books from April 2010, when the contracts were signed, until May 2012, when the proceedings for the trial began.

Snyder vigorously argued that Apple needed at least nine months to determine what it thinks proper damages would be. Because some e-books were reduced in price after the move to Apple's agency-model contracts, Apple would need to calculate how much consumers saved under the new model, to offset it against how much they lost previously, Snyder said.

Apple would also need to obtain marketing plans from Amazon, Barnes & Noble and other e-book sellers to get an idea of what those companies' plans were prior to Apple's entry into the market, in order to estimate how much money the market would have generated if Apple hadn't entered the fray.

However, Cote insisted on a shorter time frame, giving Apple only until December to conduct this fact-finding and analysis, noting the company already had a year since the trial began to collect preliminary evidence. She indicated that she would like to hold the damages trial within the first few months of 2014.

Cote also offered a potential remedy: Apple would be allowed to sign new contracts with the publishers, one at a time. It would have eight months to sign a contract with one publisher, then the next eight months to sign with another publisher, and so on. In this way, Apple would not be dealing with all the publishers at once, preventing more collusion, Cote said.

Joab Jackson covers enterprise software and general technology breaking news for The IDG News Service. Follow Joab on Twitter at @Joab_Jackson. Joab's e-mail address is Joab_Jackson@idg.com

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Joab Jackson

IDG News Service
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