Apple escapes App Store restrictions in e-book conspiracy punishment

After a court ruling stating that Apple led a conspiracy to raise e-book prices above those charged by Amazon, the Department of Justice (DOJ) proposed a broad range of punishments that would have impacted Apple’s contracts with book publishers and the company’s ability to control how competitors sell content on its platforms.

If the DOJ had its way, Apple would have faced restrictions related to music, movies, and TV shows, not just e-books. But in District Court Judge Denise Cote’s final judgment released yesterday (PDF), the DOJ didn’t get everything it wanted.

The injunction, set to take effect one month from now and expire five years later, prohibits Apple from enforcing retail price most-favored-nation (MFN) clauses in agreements with e-book publishers and from entering into any agreement with e-book publishers that contains a retail price MFN clause. With the publisher defendants (Penguin, HarperCollins, Hachette, Simon & Schuster, and Macmillan), Apple may not enter any agreement “that restricts, limits, or impedes Apple’s ability to set, alter, or reduce the Retail Price of any E-book” or offer discounts and promotions. The judgment also states that Apple must not retaliate against or punish e-book publishers for refusing to enter into agreements with Apple. The company is further prevented from telling e-book publishers anything about its contractual negotiations with other publishers.

These terms, designed to prevent the kind of tactics Apple used to coerce major book publishers into raising prices both on Apple’s bookstore and in Amazon’s, are in line with what the DOJ proposed. The government wanted restrictions on more than just books, though, with a proposed punishment stating that “Apple shall not enter into or maintain any agreement with any E-book Publisher or supplier of any other form of content (e.g., music, other audio, movies, television shows, or apps) where such agreement likely will increase, fix, or set the price at which other E-book Retailers or retailers of other forms of content can acquire or sell E-books or other forms of content.”

Instead of adopting something so broad, Cote merely required that Apple “not enter into or maintain any agreement with any other E-book Retailer where such agreement likely will increase, fix, stabilize, or set the prices or establish other terms on which Apple or the other E-book Retailer sells E-books to consumers.”

While the DOJ wanted Apple to terminate all agency agreements with the publishers who were defendants in this case, Cote ordered that Apple can simply modify the agreements to comply with her final judgment.

Cote also didn’t give the DOJ what it wanted when it came to restrictions Apple may place on e-book apps sold through its App Store. The DOJ wanted a provision preventing Apple from placing new restrictions on apps already in the store.

“For any E-book App that any Person offered to consumers through Apple’s App Store as of July 10, 2013, Apple shall continue to permit such Person to offer that E-book App, or updates to that E-book App, on the same terms and conditions between Apple and such Person or on terms and conditions that are more favorable to such Person,” the DOJ’s proposed judgment reads.

That provision does not appear in Cote’s order. Cote does order Apple to “apply the same terms and conditions to the sale or distribution of an E-book app through Apple’s App Store as Apple applies to all other apps sold or distributed through Apple’s App Store.” However, she did not accept a DOJ proposal that would have forced Apple to let e-book retailers provide hyperlinks to their bookstores in e-book apps without compensating Apple for resulting sales. That means Amazon and Barnes & Noble still won’t use their e-book apps to direct users to their online bookstores, since doing so would require them to add a “buy” button to their apps and give Apple 30 percent of sales revenue.