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Wednesday, August 15, 2012, 11:00 pm PT (02:00 am ET)

Apple calls DoJ e-book settlement proposal unlawful, says trial is needed

In a strongly-worded legal memo filed on Wednesday, Apple opposed the U.S. Department of Justice's settlement proposal which would have the company dismantle its current e-book business structure with three major publishing houses.

Apple's filing, first reported by paidContent is in response to a recent DoJ memorandum in support of a proposed settlement, which asked the New York district court handling the case to hand down a decision without any further hearings. The government argues that a quick final judgment would be in the best interest of consumers as well as the settling parties, which would no longer have to pay fees for ongoing litigation.

Apple counsel disagrees, writing that the proposed judgment would "terminate and rewrite Apple's bargained-for contracts" before evidence, witness testimony and disputed facts are resolved at trial. The Court's decision would be final and irreversible, Apple says, noting that the company can't simply reinstate terminated contracts if it were to win a court trial in the future.

From Apple's memo:
Apple has not settled with the Government; it denies the allegations against it and is actively defending this case. Apple has never participated in, encouraged, or sought to benefit from collusion. It has no objection to the Proposed Judgment’s bar on collusion. But the Government proposes to go much further.[…]Nullifying a non-settling defendant’s negotiated contract rights by another’s settlement is fundamentally unfair, unlawful, and unprecedented. The Government does not cite a single case in which such relief was granted without a trial or merits determination.

At issue is Apple's so-called agency model, in which a publisher is free to set e-book pricing in a "most favored nations" agreement that forbids them from offering the same content to another reseller at a lower price. According to the DoJ, Apple and its publishing partners used the business plan to falsely inflate the price of e-books, thereby hurting consumers.

Apple claims a settlement would unlawfully penalize the company, and grants more relief than a negative post-trial decision would yield.

At the heart of the matter, says Apple, is the alleged conspiracy to force Amazon to adopt the agency model. To that end, "a settlement enjoining collusion or precluding publishers from forcing agency on Amazon would be appropriate." However, the government seeks to reach a favorable judgment without a fair trial, and "justifies the termination of Apple’s contracts before trial on the grounds that they are causing ongoing harm." There has yet to be any finding of antitrust violation, and Apple claims the agency model hasn't been proven to have forced publishers to adopt it with other resellers.



In a footnote to one of Apple's claims, the company takes aim at Amazon and the internet sales giant's role in the proceedings:
For example, many expressed concerns about the possibility that the Government has unwittingly placed a thumb on the scales in favor of Amazon, the industry monopolist. Amazon was the driving force behind the Government’s investigation, and it told a story to the Government that has yet to be scrutinized. Amazon talked with the Government repeatedly throughout the investigation, even hosting a two-day meeting at its Seattle headquarters. In all, the Government met with at least fourteen Amazon employees—yet not once under oath. The Government required that Amazon turn over a mere 4,500 documents, a fraction of what was required of others.

Two of the book publishers named in the settlement also filed opposition memos on Wednesday, with Penguin citing sales figures in support of the agency model. The company states the DoJ "argues that, as the Government, it has access to 'secret' sales data from other retailers—access that, for example, B&N lacks. But DOJ never says what its secret data shows."

Most recently, the DoJ dismissed 868 public comments in favor of Apple's e-book sales model, refusing to modify the proposed settlement's terms and alleging that Amazon's dominant market position has been overstated.

Apple suggests the Court defer judgment until after the case goes to trial in June 2013.