Apple is headed for a showdown with the US government and dozens of states, which on Friday urged that tough new restrictions be imposed on the company for illegally conspiring to raise ebook prices.
The changes proposed by the US Department of Justice and 33 US states and territories are designed to stop Apple from committing further antitrust violations after US District Judge Denise Cote said on Jul. 10 Apple had a “central role” in a conspiracy with five major publishers to raise ebook prices.
However, the proposed changes extend beyond e-books, potentially limiting Apple’s ability to negotiate for such content as movies, music and TV shows, and increasing regulatory oversight of other business areas such as the company’s App Store.
In a court filing, Apple called the proposed injunction a “draconian and punitive intrusion” into its business that would hurt consumers and competition, and was “wildly out of proportion” to the harm it was meant to address.
“The resulting cost of this relief — not only in dollars but also lost opportunities for American businesses and consumers — would be vast,” it said. Federal and state regulators disagreed.
“Under the department’s proposed order, Apple’s illegal conduct will cease and Apple and its senior executives will be prevented from conspiring to thwart competition,” said Bill Baer, head of the Justice Department’s antitrust division.
Despite Apple’s protests, analysts have said the bigger issue for the company in this case might be damage to its reputation, not financial harm.
Amazon.com commands about 65 percent of the US e-books market, while Apple’s share has been estimated in the single digits.
The government plan, which needs court approval, would require that Apple end its contracts with the five publishers and be banned for five years from entering contracts that would effectively raise prices of e-books sold by rivals.
The publishers are Lagardere SCA’s Hachette Book Group, News Corp’s HarperCollins Publishers, Pearson PLC’s Penguin Group (USA), CBS Corp’s Simon & Schuster and Verlagsgruppe Georg von Holtzbrinck GmbH’s Macmillan. All settled with US regulators.
Apple would also be unable to cut deals with providers of movies, music and TV programs for its iPad tablets and iPhones that would likely increase the prices at which rivals might sell such content.
Officials also want to make it easier for consumers to compare ebook prices by requiring Apple for two years to let Amazon, Barnes & Noble and other rivals provide links to their own stores within their iPad and iPhone apps.
Industry experts said the proposal, if adopted, could solidify Amazon’s dominance in the e-books market.
“Apple brought much-needed competition to the ebook market and now the government is trying to undermine them,” said Mark Coker, founder of Smashwords, an ebook publisher and distributor that works with Apple, Barnes & Noble and other companies.