Judge Denise Cote yesterday signed a final order for injunctive relief in Apple's e-book price-fixing case. As ordered by the court at an August 27 hearing, the parties this week submitted a final, scaled-back injunction, which U.S. attorney Lawrence Buterman said conformed to the changes proposed by the court, and indicated that Apple and the DoJ were in agreement on the language.
The final injunction spares Apple from what Judge Cote had deemed the two most contentious proposals from the DoJ. First, the final injunction does not seek to regulate Apple's activities in the App Store, or intrude into other content markets, such as music or TV.
Regarding the App Store, the order states that Apple shall “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,” with a provision allowing Apple to change App Store terms “in a reasonable manner that does not discriminate against E-book Apps for competitive reasons.”
That language enables Apple to run the App Store without intrusion, while also guarding against Judge Cote’s stated concern that the App Store could be used as an "end run" around sanctions on the iBookstore.
Second, the final order employs only a scaled-back version of an external monitor. The monitor will focus on and oversee Apple’s internal antitrust policy and training, for just a two-year period, with a potential for one or more yearlong extension, if cause exists. The Government's last proposal asked for broader oversight for five years, plus five possible extensions.
In addition, the final order does not include a provision that, for two years, would have allowed e-book retailers to directly link to their own bookstores for in-app purchases without paying a commission to Apple. Cote said the provision was not likely to be effective in changing the competitive landscape of the e-book market since it would expire in two years, and ordered it stricken.
The 17-page agreement also includes a number of unchanged elements, many of which are common to the publishers’ settlements, such as a prohibition on the use of MFN’s for five years and other compliance measures, such as granting the DoJ the right to inspect Apple documents, and interview employees.
The judgment expires in five years, if it is not extended for cause.
In terms of how the agreement affects publishers, the proposal will no longer require that Apple terminate their current e-book deals with the five settling publishers, but “modify” them to conform to the order. The parties agreed to this change at the August 27 hearing, noting that Apple’s current deals had already been renegotiated following the publisher settlements.
The key modification, of course, is a provision that extends the time during which Apple must retain unlimited power to discount e-books, and staggers the order in which the five settling publishers will be allowed to renegotiate contracts with Apple that include restrictions on discounting.
Under the terms of the order, Hachette will be the first to be free to renegotiate a straight agency deal, 24 months "after the Effective Date of the Final Judgment." HarperCollins comes next, at 30 months. Simon & Schuster comes third, at 36 months. The final two publishers to settle come last, with Penguin allowed to renegotiate at 42 months after the Effective Date, and Macmillan, the last to settle with the DoJ, at 48 months—a full four years—after the Effective Date.
In crafting her final order, Judge Cote said she wanted to intrude as lightly as possible on Apple’s business while seeking to restore some measure of competition to the e-book business.
The final order represents a measure of closure to the long-running price-fixing saga, although the battle is far from over. Apple is planning a vigorous appeal of Cote’s July 10 decision. In addition, Apple and the states and the consumer class are on track for a May, 2014, trial on damages, and that battle is shaping up to be a contentious one.
At an August 9 hearing, Apple attorneys indicated that they planned to fight on a number of fronts, including disputing collateral estoppel—that is, the degree to which Judge Cote’s liability finding in federal antitrust case translates into liability in the state and consumer cases. Apple said they also planned to fight class certification, saying that recent Supreme Court decisions require a more detailed analysis of any potential harm.
Already, there are indications that the consumer class action battle could be a tough one, as the parties have asked the court to help resolve a discovery dispute. Judge Cote has also ordered the parties to resume settlement talks under the supervision of Judge Kimba Wood.
Meanwhile, in another sign that the price-fixing saga is drawing to a close, the court has set December 6 for a final approval hearing for the Macmillan and Penguin settlements. After approval, a newly combined fund of more than $162 million collected from the five publishers (not counting part of Minnesota's settlement award) will be distributed to consumers.
