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DoJ dismisses pro-Apple arguments in defense of e-book settlement terms

In a response to 868 public comments regarding its Apple e-book price fixing case, the U.S. Department of Justice on Monday released a statement saying it will not modify the terms of a proposed settlement and alleges that Amazon's dominant market position has been overstated.

The DoJ's statement dismisses the 789 comments made by various companies and industry players opposing the body's proposed final judgment, writing them off as "self-serving" and instead lauds certain examples individually picked from 70 supportive letters, reports Fortune.

According to Fortune's Philip Elmer-Dewitt, the DoJ "sidesteps the central criticism" that claims the government would be siding with monopoly, in this case represented by Amazon, while not fostering competition in bringing an antitrust suit against Apple and five publishing houses. Three of those publishers, Simon & Schuster, Hachette and HarperCollins, immediately settled out of court.

The Justice Department first filed suit against Apple in April over an investigation alleging the iPad maker's so-called "agency model" agreement with book publishers bordered on price-fixing. Under the agency model a publisher can set the pricing for content under a "most favored natiions" agreement that forbids them from peddling the same property to another reseller at a lower price. The DoJ claims the way in which Apple and its publishing partners entered into the scheme can be considered an act of collusion, one that ultimately hurt consumers by falsely inflating e-book prices.

e-book chart

Chart illustrating purported halt of e-book price drop as result of Apple's "agency model." | Source: DoJ


The first paragraph of Monday's response neatly sums up the DoJ's argument (via PaidContent):
When Apple launched its iBookstore in April of 2010, virtually overnight the retail prices of many bestselling and newly released e-books published in this country jumped 30 to50 percent—affecting millions of consumers. The United States conducted a lengthyinvestigation into this steep price increase and uncovered significant evidence that theseismic shift in e-book prices was not the result of market forces, but rather came aboutthrough the collusive efforts of Apple and five of the six largest publishers in the country.That conduct, which is detailed in the United States’ Complaint against those entities, is per se illegal under the federal antitrust laws.

Apple argues that its entry into the e-book market disrupted a claimed monopoly by Amazon, which allegedly engaged in "predatory practices" and sold content based on a "wholesale model." Under the internet sales giant's pricing scheme, resellers are able to sell digital content purchased from publishers at below-cost prices to drum up sales.

The Justice Department denies Apple's claims and alleges: "despite its conspiritorial efforts, Apple's entry into the e-book market was not immediately successful. It was, in fact, Barnes & Noble's entry - prior to Apple - that took significant share away from Amazon." According to the body, Apple's "touted innovations" in the market were in development before the iPad maker decided to enter the business, though the response falls short of citing a source for the claims.

As Elmer-Dewitt notes, the DoJ's response presents somewhat of a double standard as it uses "highly charged language" to insist Apple's arguments be "stripped of [their] rhetoric."



Google and Microsoft's recently-announced tablets were cited in the response as evidence of a healthy e-book market post-lawsuit, though the claim is questionable at best considering the two companies are not presenting the devices as clear e-book competitors. The Intel-based version of Microsoft's Surface, for example, is set to be a full-featured tablet expected to run a complete version of Windows 8 when it launches later this year. Google has also launched the Nexus 7, a small form-factor tablet meant for multimedia and internet content consumption. While both devices have e-reader capabilities it is unlikely that either will be marketed as such.

Most recently the DoJ's lawsuit saw political opposition from Senator Charles Schumer (D-NY), who warned the case could "wipe out the publishing industry as we know it" by allowing Amazon to regain its dominant market position.