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Apple bashes Amazon and proposed ebook settlement

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In a memo filed with the Southern District of New York this afternoon (PDF; embedded below), Apple (s APPL) argues that the Department of Justice’s proposed settlement with three book publishers forces Apple to tear up existing contracts. That is “fundamentally unfair, unlawful, and unprecedented,” Apple says: It’s not settling, so it’s entitled to a trial.

“Apple is taking a bold stance by ignoring the Judge’s admonition to the parties not to oppose the settlement, other than submitting comments,” attorney and RoyaltyShare CEO Bob Kohn, who is seeking permission to file an amicus brief in the case, tells me. “Apple makes a good point that the proposed settlement terminates Apple’s agency contracts without a trial and that would be an unprecedented violation of Apple’s right to due process.”

The proposed settlement would require the three settling publishers — HarperCollins, Hachette and Simon & Schuster — to terminate their existing agency pricing contracts with Apple. Apple says that isn’t fair: “The Government is seeking to impose a remedy on Apple before there has been any finding of an antitrust violation.” This case, the company states, revolves around “an alleged conspiracy to force Amazon to adopt agency.” So a settlement “enjoining collusion or precluding publishers from forcing agency on Amazon would be appropriate,” but Apple is entitled to defend its contracts in court.

Apple also says the most favored nation clauses in its contracts have not “forced any publisher to adopt agency with other retailers,” and notes that “many independent publishers” — not mentioned by name here, but they include Sourcebooks and Scholastic — have agency pricing agreements with Apple and wholesale agreements with Amazon.

Kohn objects to this. If the settling publishers were to terminate their agency agreements with Amazon, he says, “that would (a) allow Amazon to resume predatory pricing (i.e., selling below its marginal cost) and (b) allow Apple, under its agency agreement with the publishers, exercise its MFN clause to match Amazon’s discounts. Since the publishers get 70 percent of what Apple charges, this could really hurt the settling publishers. I don’t think the Apple lawyers intended this, but it does seem an unfair result to the settling publishers.”

Apple’s filing appears intended to increase scrutiny of the proposed settlement but also, at a deeper strategic level, to protect the commission-style pricing system that underlies its entire content business.

Amazon’s story “has yet to be scrutinized”

In a footnote, Apple says that many of the public comments on the proposed settlement

expressed concerns about the possibility that the Government has unwittingly placed a thumb on the scales in favor of Amazon, the industry monopolist. Amazon was the driving force behind the Government’s investigation, and it told a story to the Government that has yet to be scrutinized. Amazon talked with the Government repeatedly throughout the investigation, even hosting a two-day meeting at its Seattle headquarters. In all, the Government met with at least fourteen Amazon employees—yet not once under oath. The Government required that Amazon turn over a mere 4,500 documents, a fraction of what was required of others.

Therefore, Apple says, the settlement should be rejected — or the Court should defer ruling on it until after the trial, which is set for June 2013.

Full document below.

[scribd id=102973332 key=key-1j1qfwez2d8ixdsvhdvb mode=scroll]

25 Responses to “Apple bashes Amazon and proposed ebook settlement”

  1. Those who say that Apple working with the publishers was “price fixing” forget several essential points:
    1- Apple does NOT set the price of books (except that they cannot be more than a printed version)
    But the big one is this..
    2- THERE IS MORE THAN ONE PUBLISHER – and THEY are the ones competing. If publishers are charging so much, then why is it that one does not start charging less? Does the agency model FORCE publishers to charge more? NO.

    As a writer I would like to make a decent living off my work. That is difficult if the customer wants to pay only 99¢ for everything.

    @ russellleeo
    Let me remind you that in most industries, the producer is allowed to set his own price. If buyers think it too high, then they will not pay for it. Competitors can also select their own price points. Why should publishing be any different? Why should one company Amazon set the price for all the producers and drive neighborhood bookstores out of business?

    A friend went to see Lady Gaga – $90 for the cheapest seat in the house for a 3 hour concert. But people cringe at paying $10 for a book that is a three day experience.

    50 Cent Flash Fiction – great stories

  2. russellleeo

    For over 100 years, the antitrust laws have had the same basic objective: to protect the process of competition for the BENEFIT OF THE CONSUMERS, making sure there are strong incentives for businesses to operate efficiently, keep prices down, and keep quality up….

    The Sherman Act outlaws “every contract, combination, or conspiracy in restraint of trade,” and any “monopolization, attempted monopolization, or conspiracy or combination to monopolize.”…These include plain arrangements among competing individuals or businesses to fix prices, divide markets, or rig bids. These acts are “per se” violations of the Sherman Act; in other words, NO DEFENSE OR JUSTIFICATION ALLOWED….

    The Clayton Act addresses specific practices that the Sherman Act does not clearly prohibit, such as mergers and interlocking directorates (that is, the same person making business decisions for competing companies). Section 7 of the Clayton Act prohibits mergers and acquisitions where the effect “may be substantially to lessen competition, or to tend to create a monopoly.”…

    Steve wanted to enter the ebook market, but the profits were too low for his liking. So he colluded with publishers to increase prices, thus violating both laws.
    Some people (mostly booksellers), feel Amazon is a monopoly and that was enough justification for increasing prices. The law says NO.

  3. dugan6415

    “Price Fixing” happens all the time when an industry realizes; Oops, we made the prices too low, were losing money.’

    Yeah, we can totally apply Hanlon’s razor to billion dollar entities that previously controlled almost all publishing. “Oops, the prices are too low, we totally just priced ourself out of the market.” Doesn’t happen.

  4. When the price of a song on iTunes went from $.99 to $1.29 no one cried ‘PRICE FIXING’. Everyone understood that record labels needed to make more money to stay in business. But when the price of books rose to a level that was profitable for publishers, all the sudden it’s a gosh darn conspiricy.

    “Price Fixing” happens all the time when an industry realizes; Oops, we made the prices too low, were losing money.’ Look at TV makers, they are all failing and are raising their prices.

  5. While I firmly believe the publishers/authors should have the power to set their own pricing, what Apple and the publishers is collusion and price fixing. Competition drives higher quality, new product development, new research, and lower pricing. When you all get together to price fix, you remove competition. And, for the record, ebook prices went up BIG TIME when this was set up. I bought the very first Kindle and the most I was paying for non-textbook books was $9.99. Now those same books I purchased are selling for $14.99-$18.99. And recently I’ve bought actual physical books (shocking, I know) because their price was LOWER than the ebook price! Figure that one out! Amazon dominated ebook sales early on just like Apple dominated mp3 sales early on. That is to be expected when you are first to market. Competition allows the remainder of the market to catch up, and what Apple/publishers are doing is anti-competitive in all regards.

  6. Rey Erlman

    Hundreds of books are offered by Amazon, Free-Of-Charge – Of course, this is a “crime” when one looks at it from Apple or Publishers point-of -view.


    Also, hundreds of books are offered at $4.99 or LESS – where is the wrongful doing of Amazon.

    Apple -since its conception- is aiming at control of EVERYTHING. right? This is WRONG; unless it cost the consumer nothing – which is an oxymoron.

    • Apple has hundreds of e-books for free, also. Amazon’s loss-leader model, though, is what is fundamentally wrong here as it skews price perception in a so-called efficient market to fundamentally negatively impacting content creators such as both writers and smaller publishers, in particular.

      • Lyndon Allydice

        Why is selling something as a loss leader wrong. If a store can afford to sell something less expensively in hopes of selling more things to the customer, isn’t that up to the store? Apple isn’t some tiny independent publisher getting pushed around. THey have 10s of bilions in cash that they can spend. And, there’s also google selling books, barnes and noble….So, it’s not like you have to buy from Amazon. You don’t have to use the Kindle app.

    • @ Lyndon
      APPLE lets me “sell” a book for free. Amazon does not. Well – it DOES allow me to sell at $0 for a few days with 90 days in between, but I cannot price a sample book at 0 permanently. Look me up on iTunes bookstore and you will see – I have a freebie there. (Then please go buy the full volume for 99¢ :P ) So – the full volume of 3 stories is on both stores but the sample story is only on iTunes and my web site.

      Search: “50 Cent Flash”


  7. Anyone care to tell me who stold all the life pretending to be a Ghostwiter for just One book and mad many while stealing all my Cash? SEEM’S that my life and storie’s everyone has used’ only to be malicous and degrading to my very exsistence….-STAINED-

  8. Kinchas

    This is what happens when companies engage in anticompetitive business practices. The real kicker here…was when the price of e-books went up…after Apple and the publishers joined forces. Why should e-books sold in a competitive market cost $ 15.00….when hardbacks…with all the attendant… cost sell for $ 20 to $ 25. Price fixing. It was in Apple’s interest to keep the e-book prices as high as possible….because they skimmed 30% right of the top. And it’s really no different with music or video. Same scam. That’s why DOJ has taken this extraordinary measure. And why the other offending parties have agreed to the settlement. Maybe Apple thinks they can win on their part of the collusion. But the other defendants are pretty much dead to rights. Finally, there is nothing to stop Apple from entering into a new contract with the publishers. But it will have to be one that is more consumer friendly.

    • Mathias Aeschlimann

      Why can’t I as consumer decide for myself what I think is friendly and what’s not? Why do I need you & DOJ to make these decisions for me? Do you also want to decide which books I should read? I don’t believe the prices for e-books went up, that’s just a make-believe.

      • Anyone who owned a first generation Kindle can tell you that, yes, prices did indeed go up significantly after Apple entered the market. I never used to pay $10 for an ebook–ever. Now, other than the public domain or specials there are almost none (if there are any at all) below the industry’s standard $10 threshold. I went from paying $3-$7 for ebooks (of which I probably bought sixty or seventy) to paying $10 per book in both Apple’s iBooks and on Amazon. If the publishers, Apple, and whomever else weren’t engaged in collusion or price fixing, why are 95% of all ebooks now at least $10? Apple’s entrance into the market should have LOWERED the price point through competition, not raised it to a standard baseline… unless something of a no-no was involved.

      • As a longtime e-book reader I can confirm that prices were generally under $9.99 for new book prior to Apple entering the market. Since then, new books tend to start in the $12.99 to $15.99 range.

      • “I don’t believe the prices for e-books went up, that’s just a make-believe.”

        This statement only tells me you didn’t purchase e-books before all of this started.

  9. David Thomas

    One has to ponder why the details of DOJ’s meetings with Amazon were not made available or circulated in the press during the initial pronouncement. Instead there was a lot of attention to the dinner meeting (cited heavily yet it took place nearly two years before the release of the iPad) between publishing CEOs.
    Still, I don’t think Apple will get far with the DOJ settlement being defacto summary judgement without due process, because settlements initiated to avoid litigation at all is quite common.

    • “Still, I don’t think Apple will get far with the DOJ settlement being defacto summary judgement without due process, because settlements initiated to avoid litigation at all is quite common.”

      Yes, but only when all of the parties involved agree to the settlements.

      The DoJ can’t force Apple to let the publishers out of the existing contracts early just because the publishers themselves are cool with it. They CERTAINLY can’t force Barnes and Noble to let the publishers out without even naming them as defendants.

      That would be like me asking the government to sue me so I can get out of my underwater mortgage.

      • I suppose I should clarify:

        The DoJ and publishers can agree to a settlement; they just can’t agree to do something that the publishers couldn’t legally do on their own without a settlement.

        For example, if the publishers simply agreed to lower ebook prices to $9.99 or less, without modifying any existing contracts, that would be fine.

  10. eBookNoir

    Reblogged this on eBookNoir and commented:
    Now if the DOJ would just pay attention, they would see how wrong they are. I’m an apple fan, I admit it, but even if I wasn’t, common sense kicks in from the retail and sales background I have. To put all the power in one companies hands, which is what the DOJ is trying to do, give amazon a chokehold on everyone, you will defeat everything that has been achieved for eBooks. As I have said before, hard to have collusion when everyone knows what you’re doing, so even going after apple for that, is ridiculous. Hell, publishers have discounts and better deals for certain vendors in certain markets, I don’t see any one being pissed about that. People buy where they want to buy, if it’s spendy, they shop for a deal or they don’t buy.

    DOJ just needs to grow up and realize they have screwed up, put their tail between their legs and move on, you’ve done enough damage.