Antitrust Law Daily Wrap Up, TOP STORY—S.D. N.Y.: Apple required to change contracting practices with e-book publishers, hire antitrust monitor, (Sep 6, 2013)

By Jeffrey May, J.D.

Apple Inc. will be required to modify its existing agreements with the major e-book publishers and to appoint an external monitor to oversee its internal antitrust compliance policies, under a the terms of a final judgment approved by the federal district court in New York City yesterday. The final judgment provides the injunctive relief sought by the U.S. Department of Justice and a number of state attorney generals after Apple was found to have orchestrated a conspiracy among the publishers to fix retail prices for e-books (U.S. v. Apple, Inc., September 5, 2013, Cote, D.).

The final judgment limits Apple’s contracting practices with e-book publishers. Specifically, Apple is prohibited from enforcing any retail price most favored nation (MFN) clauses or entering into new agreements with such clauses. In addition, Apple may not enter into an agreement with one of the publishers that settled the government’s price fixing charges “that restricts, limits, or impedes Apple’s ability to set, alter, or reduce the Retail Price of any e-book or to offer price discounts or any other form of promotions to encourage consumers to purchase one or more e-books.” The length of that restriction varies based on the publisher between 24 months and 48 months.

Apple also is prohibited from retaliating against a publisher for refusing to enter into an agreement with Apple relating to the sale of e-books. Further, the company can not share information about a publisher’s business plans with other publishers.

App Store restrictions. With respect to Apple’s App Store, the company must not discriminate against e-book apps. It must treat them the same way its treats all other apps sold or distributed through the App Store.

The government had initially called for a provision requiring Apple, for two years, to permit any e-book retailer, such as Amazon or Barnes & Noble, to include in its e-book app a hyperlink to its own e-bookstore, without paying any fee or commission to Apple “to reset competition among trade e-book retailers and deny Apple the benefits of its conspiracy.” Apple had argued that the proposed provision was “untethered to the actual findings of antitrust liability in this case.” The additional language was not included in the final judgment as approved by the court.

Antitrust compliance. The court also will appoint an External Compliance Monitor under the terms of the final judgment. The External Compliance Monitor will have the power and authority to review and evaluate Apple’s existing internal antitrust compliance policies and procedures and the training program required by the final judgment. The cost of the external monitor will be incurred by Apple. Among other compliance obligations, Apple must, within 30 days, the company designate a non-employee to serve as Antitrust Compliance Officer. In addition, certain employees in Apple iTunes and App Store businesses must receive comprehensive and effective training annually on the meaning and requirements of the final judgment and the antitrust laws.

Duration. An original remedy proposed by the government had called for a ten-year duration. The term of the final judgment was limited to five years; however, the plaintiffs may seek a limited number of one-year extensions should circumstances warrant.

Justice Department reaction. “We’re pleased that the court has issued an order supporting the Department of Justice’s efforts to address Apple’s illegal price fixing conduct,” said Bill Baer, Assistant Attorney General in charge of the Department of Justice Antitrust Division, in a September 6 statement. “Consumers will continue to benefit from lower e-books prices as a result of the department’s enforcement action to restore competition in this important industry. By appointing an external monitor to ensure future compliance with the antitrust laws, the court has helped protect consumers from further misconduct by Apple. The court’s ruling reinforces the victory the department has won for consumers.”

Apple has reportedly pledged to appeal the final judgment.

This is Case No. 12 Civ. 2826 (DLC).

Attorneys: Mark W. Ryan for U.S. Department of Justice. Gabriel Gervey, Office of the Attorney General of Texas, and W. Joseph Nielsen, Office of the Attorney General of Connecticut, for plaintiff States. Orin Snyder (Gibson, Dunn & Crutcher, LLP) for Apple, Inc.

Companies: Apple, Inc.

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