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Judge lays down Apple’s punishment in ebooks case. It’s largely in line with what the feds wanted

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After weeks of back-and-forth between the Department of Justice and Apple (s AAPL), the federal judge overseeing the ebooks antitrust case issued an injunction against Apple in a filing released Friday. The Department of Justice will be happy, because the final injunction contains a lot of what it had asked for.

In July, Judge Denise Cote found Apple liable of conspiring with publishers to set ebook prices at the launch of the iBookstore.

“Apple did not conspire to fix ebook pricing,” company spokesman Tom Neumayr said in a statement. “The iBookstore gave customers more choice and injected much needed innovation and competition into the market. Apple will pursue an appeal of the injunction.”

The injunction, which is set to go into place in 30 days, will last for five years — but the court can extend it for “one or more one-year periods” after that, either on its own or at the request of the DOJ or the states. Apple may seek a stay of the injunction pending its appeal.

The DOJ cheered the decision: “The court’s ruling reinforces the victory the department has won for consumers,” DOJ antitrust assistant attorney Bill Baer said.

No MFNs with any publisher

Judge Cote’s injunction forbids Apple from enforcing most-favored-nation clauses in any ebook publishing contracts for five years, and also forbids the company from entering into any book publishing contracts that contain them for five years. Apple had wanted this provision to be less broad, relating only to MFN clauses with the five publishers in the case who have already settled. Instead, it applies to all publishers.

Sorry, DOJ: You can’t mess with the way Apple sells App Store content

The DOJ had wanted to change Apple’s in-app purchase policies, and had wanted to force Apple to allow competing ebook retailers — like Amazon (s AMZN) — to sell ebooks through their apps without taking its customary 30 percent commission. Luckily for Apple, none of that is included in the final injunction. (Judge Cote had already indicated that she wouldn’t try to regulate the App Store.)

Ebook discounts for a long time

As expected, Judge Cote will require Apple to stagger new contract negotiations with the settling publishers — HarperCollins, Hachette, Simon & Schuster, Penguin and Macmillan. As part of their original settlements, all of those publishers were required to enter new contracts with retailers that allowed the retailers to discount their books for two years. While those agreements are already under way, the clause in the injunction will significantly extend the amount of time that they’re required to allow discounting of their books (not just in the iBookstore but, in effect, with all other retailers).

Apple had already agreed to this, but had wanted to choose the order in which it would negotiate new contracts with the publishers. Nope, says Judge Cote, it has to be in this order (with Penguin and Macmillan, the last publishers to settle, getting punished by having to wait the longest to renegotiate contracts)

Screen Shot 2013-09-06 at 10.01.20 AM

An external monitor for Apple

For two years, Apple will be monitored by a court-appointed External Compliance Monitor to ensure that it complies with the terms of the order. Apple can suggest candidates for the position.

Here’s the injunction:

[scribd id=166019353 key=key-2ad6ky0w2a4c96c9wtcb mode=scroll]

11 Responses to “Judge lays down Apple’s punishment in ebooks case. It’s largely in line with what the feds wanted”

  1. It’s not too hard to see just how zealously the DOJ’s lawyers were looking after the interests of Amazon in their demands.

    Stringing out negotiating new contracts with these publishers over the next four years makes no legal sense. Begin them all now, but insist on secrecy, and there’d be no collusion. String them out, one after the other, and industry gossip, particularly in a city like Manhattan, will mean that each enters knowing the substance of the agreements of all those who’ve gone before.

    Stringing the negotiations out will, however, make it harder for Apple to compete with Amazon. It will also make each of these publisher more susceptible to pressure from Amazon. And that, I suspect, is its purpose.

    Also, what sense does it make to force each of these publishers to negotiate a separate contract when, for virtually every other publisher on the planet, both Amazon and Apple offer a fixed and unchangeable ‘take it or get lost’ contract?

    If the DOJ and the court really wanted to level the competitive playing field, it could insist on having one contract that applied to every publisher, large or small. The approach being ordered almost certainly means that each of the Big Six will get much better contracts than the Little Thousands. The fact that each of the six might get contracts that are better in different ways matters little.

    Oh how I loathe these DOJ lawyers!

  2. AAPL was childish to fail to negotiate after all the publishers settled. Either arrogance or poor legal advice – it could have gotten off with two years of restrictions but now has five.

  3. Bob Panick

    I think the judge made one mistake. She should have forced Apple to use an even playing field for in app purchases of books. If Amazon, BN and others can’t sell books through the app, then neither should Apple. When I still used iOS, that was a compelling option for iBooks.

    Since I’m no longer on Apple, I have that feature in Android and Windows 8. It’s definitely preferable to having to go to the web.

    • HacerLaPelota

      Apple isn’t stopping anyone from selling ebooks through their apps, it just requires that payments for such content go through their in-app payment system.

      Google added exactly the same rule in their Play store a few months ago, I quote: “Developers offering virtual goods or currencies within a game downloaded from Google Play must use Google Play’s in-app billing service as the method of payment.”

      In both Apple and Google’s cases the in-app billing service takes a 30% commission.

      • eBookNerds

        @HacerLaPelota this is not true. What you quoted was only for game apps. For eBooks it has something else:

        Developers offering additional content, services or functionality within another category of app downloaded from Google Play must use Google Play’s in-app billing service as the method of payment, except:

        – where payment is primarily for physical goods or services (e.g. buying movie tickets, or buying a publication where the price also includes a hard copy subscription); or
        – where payment is for digital content or goods that may be consumed outside of the application itself (e.g. buying songs that can be played on other music players).

        So as long as the eBook can be consumed outside of the application doesn’t have to go through in-app purchase on Google Play.