Print 22 comment(s) - last by flatrock.. on Aug 7 at 8:56 AM

Apple wants to self-police and a shorter period of compliance, with no promises about future behavior

The U.S. Department of Justice (DOJ) accused Apple, Inc. (AAPL) of costing customers "millions of dollars" by entering into secret deals with eBook publishers and offering to reward them for blacklisting Apple's competitor, Inc. (AMZN).  In an apparent mea culpa, most of the publishers quickly settled with the U.S. Department of Justice (DOJ) -- but Apple has defiantly chosen to fight the feds in court.

I. After Losing in Court, Apple Refuses to Obey a Judge's Ordered "Remedy"

At the trial Eddy Cue, Apple's internet software and services who masterminded the e-book deals, admitted that his company was responsible for raising e-book prices.  He appeared to concede that his company's deals later drove up e-book prices from the former de facto rate of $10 to $15.  Asked if Apple (or Amazon) customers complained about the higher prices, he commented, "They may or may not have, I can't recall."

Apple was found guilty by a judge early last month.  Bill Baer, head of the Justice Department's (DOJ) antitrust division, late last week handed Apple a proposed remedy, approved by the case's presiding judge, U.S. District Judge Denise Cote of the U.S. District Court for the Southern District of New York.  

The deal, cosigned by 33 state attorney generals, would prohibit Apple from entering "anticompetitive" contracts with the five publishers it alleged conspired with and would be subject to monitoring.  Most onerously, the DOJ would force Apple to allow publisher to put links in their apps advertising alternatives from, Inc. (AMZN) and Barnes & Noble, Inc. (BKS) whose sales proceeds Apple would not get a cut of.

Apple iPad
Apple is rejecting a Judge's order to change its e-book business tactics.
[Image Source: Telegraph]

To be clear, the latter term bears some similarities to how the European Union required Microsoft Corp. (MSFT) to put links to rivals browsers upon Windows installation to compensate for prior anticompetitive behavior.  However, the punishment for Apple is slightly different and not as extreme, as Apple is simply required to modify its terms of service agreement to allow rival apps to do so.  On the other hand it'd be an unprecedented punishment for Apple, which bans competitors from offering purchase links to storefronts when it can’t get a cut of sales.

8.2.13 Apple's Brief Opposing Injunctive Relief by eprotalinski

Apple fired back on Monday, rejecting the proposal as "a draconian and punitive intrusion into Apple’s business, wildly out of proportion to any adjudicated wrongdoing or potential harm."  Apple says require external compliance monitoring "will place bureaucratic tentacles around Apple’s e-books business, stifling the company’s ability to innovate and compete."

II. Apple Proposes Alternative to DOJ Punishments

The Cupertino company accuses the DOJ of conspiring with Apple's competitors to "regulate" Apple's business and adversely affect its "relationships with thousands of partners across several markets."  Apple particularly takes issue with the demand to allow publishers to advertise links to other markets, commenting:

Apple is under no duty to allow other retailers to offer apps on the iPad in the first place, much less on terms that subsidize their operations. Pac. Bell Tel. v. LINKLINE Commc's, 555 U.S. 433, 450 (2009) ("if a firm has no antitrust duty to deal with its competitors at wholesale, it certainly has no duty to deal under terms and conditions that the rivals find commercially advantageous"). Nevertheless, Apple allows all e-book retailer apps that are compliant with its policies — including those offered by Amazon, Barnes & Noble and other competing e-book retailers — to be offered in its App Store. Trial Tr. 1908:5-1909:21 (Cue). It also permits consumers to download e-books purchased through another e-book retailer’s website or bookstore onto its e-reader devices without charge...

Without any basis in the evidence or the Court’s findings, the proposed regulation of the App Store is simply outrageous and cannot be included in an injunction.

Apple contends it should basically have to do nothing since the settlements the publishers sign already prevent them from entering into anticompetitive deals with it.

But as a "concession" Apple is proposing:
  • A 2 -year settlement
  • No direct outside compliance monitoring
  • Limtations on Apple's ability to share information between publishers on deals, similar to the settlement the publishers agreed to.
  • A prohibition on "most favored nation" (MFN) deals which incentivize publishers from ditching the competition
  • "Reasonable" antitrust training courses ordered by the court for senior Apple managers
The DOJ's settlement has real teeth to it -- regardless of whether you agree it is fair or not.  Apple's settlement sounds like it has some small concessions but upon closer examination purposefully offers the government no way to directly verify compliance and makes no promises that Apple will not go back to the tactics that got it in trouble in the first place (MFN offers and alleged price fixing) after the two year deal rolls by.

It should be interesting to see what the court says, but it would be surprising to see them agree to Apple's toothless, neutered version of their antitrust punishments.

Sources: Apple via Scribd, The Next Web

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Why not
By Gio6518 on 8/5/2013 2:49:16 PM , Rating: 5
Hey why not.. .. Apple can do what it wants Obama got their back

RE: Why not
By Motoman on 8/5/2013 2:50:43 PM , Rating: 2
No sh1t. And here I thought he was a Blackberry guy.

RE: Why not
By distinctively on 8/5/2013 3:27:52 PM , Rating: 2
It kind of makes you wonder if this administration helped expedite the demise of Blackberry. I can't help but be suspicious now even though the idea may be a little far fetched.

When will someone demand that Apple be held accountable to the same laws as everyone else?

RE: Why not
By retrospooty on 8/5/2013 3:32:38 PM , Rating: 5
No, Blackberry did that all by themselves for not innovating for nearly a decade. The amazing thing is how long it took. They were still selling really well in 2011, 4 years after the whole world passed them by.

RE: Why not
By distinctively on 8/5/13, Rating: 0
RE: Why not
By dgingerich on 8/5/2013 4:20:05 PM , Rating: 2
Not only did BB not innovate, they didn't hardly fix anything wrong with their software. From version 1 to the latest "BB10" you still have the same troubleshooting techniques that involve deleting most of the users' data or config. There's no tool to inspect or fix anything. It's "Oh, that's corrupted? Just delete it and it will be recreated." Pitiful.

RE: Why not
By ClownPuncher on 8/5/2013 4:54:30 PM , Rating: 4
Yea, Jason Mick and Obama killed Blackberry, not poor management!

RE: Why not
By distinctively on 8/5/2013 5:04:12 PM , Rating: 2
Ok, fine. I'll retract the comment. The true context of my statement seems to be obscured.

RE: Why not
By ClownPuncher on 8/5/2013 5:44:56 PM , Rating: 3
Apple does seem to get favourable results in comparison to some other companies.

Nothing to see here
By bug77 on 8/5/2013 3:21:51 PM , Rating: 5
We already knew being fair and open is considered draconian at Apple.

RE: Nothing to see here
By distinctively on 8/5/2013 3:24:02 PM , Rating: 3
Man, that just sums it up there.

RE: Nothing to see here
By inperfectdarkness on 8/6/2013 7:37:01 AM , Rating: 5

"If the DOJ sides with us, we fully support and endorse their visionary decisionmaking.

If the DOJ sides against us, we vehemently decry their draconian tactics--as only we are allowed to utilize such measures." a related note...

DOJ's ruling on the Travon Martin case resulted in riots from those who disagree with its findings. I wonder if the rioters are Apple fans...

By retrospooty on 8/5/2013 3:21:45 PM , Rating: 5
Apple is just getting ridiculous. I don't even know what else to say, just... Enough already.

Split it up....
By murray13 on 8/5/2013 6:19:37 PM , Rating: 3
Hey Apple, you don't want to go there. Remember what happened to AT&T. Don't let others compete on an even (in the government's eyes) field and you could find yourself getting split up. Or made to spin off parts. NO ONE would care. Except for the Apple devotees that think you're the best and love everything you do, their the ones that would sign over half of their paychecks just to have the latest thing from you. And no it doesn't matter what it is either they are that blind. jm2c.

RE: Split it up....
By Azethoth on 8/6/2013 10:48:08 PM , Rating: 2
You must be really poor because my iDevices do not take up remotely that kind of chunk of change and I refresh them on a regular 1-2 year basis.

As to being blind, I assure you my eyesight was 20-20 when I purchased the iPhone 1, 3, 5, and soon the 7 (5s). Now think back to the smartphone / pad you purchased at the time I got my iPhone 1 / iPad 1.

Oh that's right, nobody else was selling any.

Am I an Apple devotee? No. Same way I am not a Motorola RAZR devotee even though I purchased 2 or 3 of those in a row. Will I switch? Sure, if something compelling comes up. However, it needs to be technically compelling and overcome the vendor lock in I have from family and friends also using iDevices.

By steelytuba on 8/6/2013 8:46:43 AM , Rating: 3
Attorneys general not attorney generals.

civil suits
By flatrock on 8/7/2013 8:56:54 AM , Rating: 3
Apple might want to change their tone a bit. I doubt the arrogance is going to play well in the civil suits that are going to pop up shortly. Suits in which they could face triple damages.

Their illegal actions caused the price of ebooks to rise considerably. I believe that in the case of new releases around 50%, and Apple got 30% of the sale price.

That's an awful lot of ill gotten gains, and triple damages would mean that Apple is going to have to dig pretty deep into those cash reserves.

By dgingerich on 8/5/2013 3:31:05 PM , Rating: 2
Asked if Apple (or Amazon) customers complained about the higher prices, he commented, "They may or may not have, I can't recall."

Seriously? How would Apple know if anyone complained? THey never listen to their customers, especially under Steve Jobs. Steve Jobs pretty much proclaimed himself a god and refused to ever listen to anyone else. He did what he wanted and any repercussions to anyone else be damned.

By ciparis on 8/5/2013 9:56:40 PM , Rating: 2
A prohibition on "most favored nation" (MFN) deals which incentivize publishers from ditching the competition

Considering that the MFN clause was cited in the court's ruling as the reason the publishing agreements lead to conspiracy charges, that's probably all that's needed in actual remedy for this case -- DoJ overreach notwithstanding.

I Wonder If...
By mmatis on 8/6/2013 8:14:25 AM , Rating: 2
they've got enough balls to threaten to expose all the back doors they've given the FedPigs, if the Feds won't back off from this?

Unrepentant arrogance
By flatrock on 8/7/2013 8:48:39 AM , Rating: 2
if a firm has no antitrust duty to deal with its competitors at wholesale, it certainly has no duty to deal under terms and conditions that the rivals find commercially advantageous

The proposed settlement doesn't give rivals a commercial advantage, it levels the playing field in the ebook market on Apple devices. Apple's wouldn't be able to leverage their control of iOS to give them an advantage in ebook sales on iOS. It removes the ties Apple has placed between the two products, which is a rather typical antitrust remedy.

However, Apple's entire business model revolves around tying and integrating products. If Apple had been investigated over leveraging their iPod media player monopoly to expand into the cell phone market, they wouldn't be the market leader they are today. I don't think that would have been a good thing for consumers overall, but Apple has been walking the edge of antitrust law for quite a while now.

They have always had a lot of political pull. Things like having important people on the board of directors sure hasn't hurt, but they have arrogantly kept pushing the limits until their actions couldn't be ignored.

If Apple doesn't want to give rivals the ability to sell books on iOS, then Apple should be forced to exit the ebook market.

No duty
By rs2 on 8/6/2013 8:53:22 PM , Rating: 1
Apple is under no duty to tell developers and publishers what they can create and distribute, or to tell iOS users what kind of content they can install upon the devices which they own or where they can get that content from. Nevertheless, Apple has taken it upon itself to review and approve all content and to block access to any content that Apple cannot directly profit from to ensure that Apple can make as much money for itself as possible. We allow all users who own an Apple device to purchase only those apps that are profitable to us. We also permit consumers to give us as much money as we can squeeze out of them, because that's what anyone "smart" enough to buy an Apple product deserves; the opportunity to continue paying us in order to use something that they already own.

Bend over and take it. You know you love it.

There Apple, I fixed it for you.

"Google fired a shot heard 'round the world, and now a second American company has answered the call to defend the rights of the Chinese people." -- Rep. Christopher H. Smith (R-N.J.)

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