Antitrust Law Daily Wrap Up, ANTITRUST NEWS: Justice Department rebuffs publishers’ objections to government's proposed injunctive relief against Apple in e-book pricing case, (Aug 9, 2013)

By Tobias J. Gillett, J.D., LL.M.

The Department of Justice, Antitrust Division has responded to objections raised by five publishers that settled federal and state antitrust actions, alleging that they participated in a conspiracy orchestrated by Apple Inc. to fix the prices of e-books, to the government's proposed remedies against Apple following the successful prosecution of the firm (U.S. v. Apple, Inc., Case No. 12 Civ. 2826 (DLC)). The letter to presiding District Court Judge Denise L. Cote answers a memorandum of law in opposition to the proposed relief the publishers filed with the federal district court in New York City on August 7.

In July, following a bench trial, the court found that Apple undertook to orchestrate the price fixing conspiracy as it prepared for the 2010 launch of its new iPad tablet device and its iBookstore. In an effort to force market leader Amazon Inc. to relinquish retail pricing authority and to raise e-book prices, Apple moved the industry from a wholesale model—where a publisher receives its designated wholesale price for each e-book and the retailer sets the retail price—to an agency model, where a publisher sets the retail price and the retailer sells the e-book as its agent, according to the court.

On August 2, the Justice Department and 33 states and territories filed a Memorandum of Law in Support of Proposed Injunction, advocating for injunctive relief to “halt Apple’s anticompetitive conduct, restore lost competition, and prevent recurrences of the same or similar violations of the antitrust laws.” The government contended that the proposed final judgment incorporated key aspects of the consent decrees entered against the settling publisher defendants—Hachette Book Group (USA), HarperCollins Publishers L.L.C., Simon & Schuster Inc., Holtzbrinck Publishers LLC, which does business as Macmillan, and Penguin Group (USA). However, it also included other requirements that the government contended were “tied to the Court’s specific findings regarding Apple’s misconduct.”

In its letter, the Justice Department rebuffs the publishers’ claim that the restrictions, under the guise of punishing Apple, punished them. The proposed final judgment does not seek to modify the publishers’ consent decrees or to punish the publishers, according to the Department; instead, the judgment “requires that Apple not enter into an agreement with any Publisher Defendant that restricts Apple’s ability to offer discounts,” and “that Apple terminate any Agency Agreement with a Publisher Defendant.”

The letter notes that the publishers had made “virtually the identical argument that Apple made in opposing the first three Publisher Defendants’ settlements with the United States.” Apple had contended that provisions requiring the publishers to terminate their agreements with Apple and limiting the types of agreements the publishers could form with Apple constituted an attempt to “terminate and rewrite Apple’s bargained-for contracts” and “penalize Apple in a manner inconsistent with the public interest and the law.” The letter asserts that the court found these arguments to be “without merit” because the settlement imposed no obligations on Apple and because the effect on Apple’s contractual rights would be de minimis since the contracts could be terminated on 30 days’ notice.

Similarly, the proposed final judgment imposes no obligation on the publishers, and the ability to terminate the agreements on 30 days’ notice would make any harm to Apple “negligible at best,” the Justice Department argues. The letter notes that the publishers did not cite any authority limiting the court’s ability to order relief based on the settlements with the publishers, and contends that “Apple should not be rewarded with the same terms received by those that chose to settle to avoid the risks of litigation.”

Moreover, although the Justice Department acknowledges that the practical effect of the proposed judgment would to extend the publishers’ “cooling off” period with Apple for three years more than the two years the publishers agreed to in their settlements, it asserts that “such a limited extension is necessary” to ensure retail price competition “for as long as possible.” The letter notes that “a necessary component of this Court’s decision finding Apple liable for horizontal price fixing is that the publishers themselves were engaged in a horizontal price-fixing conspiracy.” The fact that the publishers “banded together” to file their objections to provisions in the final judgment “that they believe could result in lower e-book prices for consumers” underscored the need to impose the longer term, according to the Justice Department.

Attorneys: Shepard Goldfein (Skadden, Arps, Slate, Meagher & Flom LLP) and C. Scott Lent (Arnold & Porter LLP) for HarperCollins Publishers L.L.C. Walter B. Stuart (Freshfields Bruckhaus Deringer US, LLP) for Hachette Book Group, Inc. James W. Quinn (Weil, Gotshal & Manges LLP) for Simon & Schuster Inc. Saul P. Morgenstern (Kay Scholer LLP) and Daniel F. McInnis (Akin Gump Strauss Hauer & Feld LLP) for Penguin Random House LLC. Joel M. Mitnick (Sidley & Austin LLP) for Holtzbrinck Publishers LLC.

Companies: Apple Inc.; Hachette Book Group Inc.; HarperCollins Publishers L.L.C.; Simon & Schuster Inc.; Penguin Group (USA) Inc.; Holtzbrinck Publishers, LLC.

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