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Wednesday, May 23, 2012, 03:40 pm PT (06:40 pm ET)

Apple says DoJ lawsuit 'fundamentally flawed,' could harm consumers

In a Tuesday court filing with the U.S. District Court in Manhattan, Apple claims that the Department of Justice's antitrust lawsuit regarding alleged e-book price fixing sends the wrong message to the market by retroactively questioning a 'perfectly proper' business strategy.

Apple reiterated its initial stance that it did not collude with five major book publishers to artificially inflate the prices of e-books sold through the iBookstore in an attempt to dethrone market leader Amazon, reports Reuters.

"For Apple to be subject to hindsight legal attack for a business strategy well-recognized as perfectly proper sends the wrong message to the market," the company said in Tuesday's court filing. "The government's complaint against Apple is fundamentally flawed as a matter of fact and law."

Going further, Apple claims it created an option to Amazon in a veritable vacuum of competition, alluding that the lawsuit could discourage new entrants to the market and thus be harmful to consumers.

"Apple's entry into e-book distribution is classic procompetitive conduct," Apple said.

From Apple's filing:
The Government sides with monopoly, rather than competition, in bringing this case. The Government starts from the false premise that an eBooks “market” was characterized by “robust price competition” prior to Apple’s entry. This ignores a simple and incontrovertible fact: before 2010, there was no real competition, there was only Amazon.

The DoJ first filed suit against Apple in April, alleging that the company colluded with Simon & Schuster, Hachette, Penguin, Macmillan and HarperCollins to fix the price of e-books under the so-called "agency model."

In short, the agency model allows publishers to set content prices in exchange for a "most favored nations clause" that bars the houses from selling e-books to competing retailers at lower prices. The strategy is diametrically opposed by the "wholesale model" used by Amazon which lets resellers incentivize purchasing by offering products at below-cost prices.

iBooks


The Justice Department asserts that the alleged collusion cost e-book buyers millions of dollars on particular popular titles since the iBooks launched alongside the original iPad in 2010.

"Apple’s entry spurred tremendous growth in eBook titles, range and variety of offerings, sales, and improved quality of the eBook reading experi- ence. This is evidence of a dynamic, competitive market. These inconvenient facts are ignored in the Complaint," Apple said. "Instead, the Government focuses on increased prices for a handful of titles. The Complaint does not allege that all eBook prices, or even most eBook prices, increased after Apple entered the market."

Earlier in May it was revealed that the government had cited an email from Apple co-founder Steve Jobs as a proof that the companies conspired to boost fair market prices, though the Cupertino company denied that the quote was "accurately characterized."

Fighting alongside Apple are publishing houses Macmillan and the Penguin Group, while HarperCollins Publishers, Simon & Schuster and Hachette Book Group all settled out of court.