The Department of Justice recently revised their proposal to punish Apple for iBook antitrust violations, alleging that the Cupertino California company lied to the government about the manner in which the App Store operates and that changes to rules governing in-app purchases were designed to cripple Amazon’s competitive Kindle app. Notably, the new proposal cuts the injunction period from ten years to five years, while granting the government the ability to extend the injunction up to five times in one year increments, terms similar to the agreement the DOJ reached with Microsoft in their famous antitrust battle.
The DOJ has argued that although it wants to avoid a situation in which “changes in industry circumstances will cause the decree its usefulness and unnecessarily harm Apple,” the government believes that “five years might not be enough time to restore competition to the e-books market and to ensure that Apple changes its troublesome business practices to prevent a recurrence of the illegal conduct.” The federal judge in charge of the case agreed with a suggestion by Judge Denise Cote along with proposing to force Apple to renegotiate its deals with publishers on a staggered basis, rather than all at once. The DOJ mentioned this requirement will not allow the publishers to “negotiate collectively with Apple in order to effectuate contracts that will result in higher e-book prices.”
The injunction additionally would require Apple to allow other e-book retailers in the App Store to sell e-books on the device through their own online stores for a period of two years, which bypasses Apple’s in-app purchase program. At an earlier hearing, Apple’s counsel argued for the validity of forcing competitors’ e-book apps to use the system by saying that the company receives 30% of the sale for any products purchased from within an iOS app, even physical goods. The government ended up seizing the statement as evidence that Apple “misrepresented the factual circumstances” surrounded in the in-app purchases, saying that it “simply is not true that Apple receives a 30% commission from all retailers for all goods.” The DOJ has pointed to Amazon’s existing Amazon.com iPad app as well as the Amazon subsidiary Zappo’s iPad app as examples of apps where purchases “do not go through Apple’s payment system, and Apple does not receive a 30% commission on these physical goods.”
By citing an email from Steve Jobs, it was noted that Jobs previously suggested that Apple should “force them [Amazon] to use our far-superior payment system”, the government has argued that changes to the App Store’s policies in this area were “specifically to retaliate against Amazon for competitive conduct that Apple disapproved of.”
The DOJ has ended up rebuking Apple for colluding with publishers and organizing “a blatant price-fixing conspiracy to raise e-book prices and end retail e-book price competition.” The department also accused the company’s leadership of “willful and blatant violations of the law.” Furthermore, Eddy Cue, Apple’s senior vice president of Internet Software and Services, is specifically taken to task as the “ringmaster” behind the conspiracy.
We’ll have to wait and see what turn the issue takes next.
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