Judge Considers Limits on Apple’s Future E-Book Deals

In a sometimes testy hearing in United States District Court in Lower Manhattan, Judge Denise L. Cote said that she was considering a plan in which Apple would negotiate contracts with publishers in a staggered fashion — possibly six to eight months apart — to prevent them from engaging in another price-fixing conspiracy.

Judge Cote ruled in July that Apple colluded with publishers to raise the price of e-books before the introduction of its iPad in 2010. Those charges were brought against Apple and five major publishers by the Justice Department in 2012. The publishers all settled, but Apple held out and went to trial.

The judge’s proposal was a scaled-back version of the guidelines put forth by the government last week, when it suggested that Apple be forced to end its agreements with the five settling publishers and avoid entering similar agreements with producers of movies, TV and music. Apple responded by calling the proposal a “draconian and punitive intrusion” into its business.

The publishers who settled also objected to the Justice Department’s proposed remedy, saying that it would fundamentally change their existing settlements.

In court on Friday, Judge Cote said that she wanted an injunction to be tailored so that it would encourage innovation in a rapidly changing e-book business and yet prevent collusion on price in the future.

“I have no desire to regulate the App Store,” she said.

But Judge Cote also slammed the publishers for lacking “contrition” and said that she feared future collusion in the e-book market. Although the publishers eventually agreed to settlements, none of them admitted wrongdoing.

Judge Cote said that the publishers had played “a rough and tumble game” and engaged in “blatant price fixing.”

“None of the publisher defendants have expressed any remorse,” she said. “They are, in a word, unrepentant.”

Lawyers for Apple and the government said in court that they would meet in the next week and discuss the judge’s proposal. Another hearing is expected later this month.

Apple and the Justice Department declined to comment.

Hachette Book Group, HarperCollins and Simon & Schuster settled in April 2012; Penguin Group USA and Macmillan settled later. Penguin has since merged with Random House, which was not named in the lawsuit.

Bits Blog: U.S. Proposes Solutions for Apple’s E-Book Price-Fixing

E-Book Antitrust Trial of Apple to Begin

But the evidence in the case will not just determine whether Apple has violated antitrust laws. It will also tell a broader story of how the introduction of e-books created upheaval in the publishing industry — with guest appearances by major players like Amazon and Barnes & Noble and e-mails from the late Steven P. Jobs, Apple’s former chief executive.

In the case, brought a year ago, the Justice Department accused Apple and five book publishers of conspiring to raise e-book prices. The idea, the government said, was to allow publishers to set their own prices rather than letting retailers do so.

Their motivation, according to the Justice Department, was to defend themselves against Amazon, which was setting the price of most new e-books at $9.99 and becoming increasingly dominant in the market. Simon & Schuster, HarperCollins and the Hachette Book Group settled the day that charges were filed; Penguin and Macmillan settled months later.

Complaints by Amazon, which now controls at least 60 percent of the e-book market, are widely believed to have incited the investigation. Amazon declined to comment.

After the lawsuit was filed, the expectation was that e-book prices would drop sharply; the publishers that settled agreed to allow retailers to discount their e-books for two years. But the price drop has still not happened.

A government victory against Apple, which would not involve monetary damages, might also not affect e-book prices.

“Are consumers going to be better off as a result of any government win here?” said Charles E. Elder, an antitrust lawyer at Irell & Manella, which is not involved in the case. “That’s going to have to be seen depending on what happens to book publishing generally. It’s in trouble, and e-books are either the savior or they’re going to hasten the demise of book publishers.”

Apple declined to comment, but has said it has done nothing wrong.

“The e-book case to me is bizarre,” Timothy D. Cook, Apple’s chief executive, said during an onstage interview at a business conference last week in Southern California. “We’ve done nothing wrong there, and so we’re taking a very principled position of this. We were asked to sign something that says we did do something, and we’re not going to sign something that says we did something we didn’t do. And so we’re going to fight.”

Apple certainly has the money to fight, and a brand to protect, at a time when its stock is sagging and its tax practices and manufacturing processes are under scrutiny. Yet it is bigger than ever — with hundreds of millions of its iPhones and iPads in the hands of customers all over the globe.

The trial, before Judge Denise L. Cote of United States District Court, is expected to feature testimony from chief executives from the five publishers, who will offer a window into their world of fierce price negotiations. But the star witness may well be Mr. Jobs, even though he died in October 2011.

In the case, the government cast Apple as the “ringmaster” of the conspiracy. It said that when the company entered the e-book industry in 2010 with the introduction of the iPad, it wanted to pressure Amazon to raise its prices above its uniform $9.99 for new e-books.

At the time, publishers’ agreements to sell e-books were made under the so-called wholesale model of print books; publishers charged retailers about half the cover price for a book, and the retailers then set their own prices. The government said Mr. Jobs had persuaded publishers to agree to agency pricing, which allowed publishers to set their own prices for e-books, giving Apple a 30 percent commission for books sold in its online store.

The publishers’ contracts with Apple included a “most favored nation” clause, requiring that no other retailer sell e-books for a lower price; if they did, the publisher would have to match the price of the e-book in Apple’s store. That, the Justice Department said, resulted in higher prices that harmed consumers.

Penguin to Pay $75 Million in E-Book Settlement With States

That’s the thing with a tornado — even when you know it’s coming, you’re helpless, because you don’t know precisely where it will hit.

Room for Debate asks whether the White House crackdown is a defense of national security or an attack on the First Amendment.

Media Decoder Blog: Awaiting Merger With Random House, Penguin Settles E-Book Case

Penguin, trying to ensure a clean slate before its planned merger with Random House, announced late Tuesday that it was settling a lawsuit brought by the Department of Justice over the pricing of e-books.

In a terse statement the company said, “Penguin has always maintained, and continues to maintain, that it has done nothing wrong and has no case to answer.”

Nevertheless, the company said, it was agreeing to settle because of the impending merger between Random House, a division of the German media company Bertelsmann, and Penguin, a division of the English conglomerate Pearson. That deal, in which Bertelsmann will assume 53 percent control of the new company, was announced this past October as the publishing industry begins to consolidate to try to better meet the online challenge from Amazon.

The company said in its statement, “It is also in everyone’s interests that the proposed Penguin Random House company should begin life with a clean sheet of paper.”

In April, the Justice Department filed a lawsuit accusing five major publishing houses and Apple of conspiring to fix the price of e-books. These five had moved from a wholesale pricing model that allowed retailers to charge what they wanted to a system that allowed publishers to begin setting their own e-book prices, what was known as “agency pricing.”

The publishers had been looking for a way to prevent Amazon from pricing books below their actual cost, a practice that they said would hurt the entire industry over time. But the government said that the publishers “conspired” in e-mails, in telephone conversations and at lavish dinners to keep e-book prices artificially high.

Three big publishing houses — HarperCollins, Simon & Schuster and Hachette — settled with the Justice Department, but Penguin, Macmillan and Apple decided to fight the charges, until Penguin reversed course on Tuesday.

In the terms of a settlement that a judge approved in September, the three publishers that settled agreed to end contracts with Apple and with e-book retailers that contained restrictions on their ability to set prices, and agreed not to make such restrictive contracts for the next two years.

In May, when Penguin filed its response in United States District Court in New York, it argued that it was Amazon that treated books as “widgets.” It further argued that Amazon was “predatory” and a “monopolist” and that the government’s case was based on “innuendo.”

Penguin said in its statement on Tuesday that it still believed that agency pricing was just. “Penguin continues to believe that the agency pricing model has encouraged competition among distributors of both e-books and e-book readers and, in the company’s view, continues to operate in the interest of consumers and author.” it said.

The terms of the settlement with the Justice Department were not available, but people with knowledge of the details said that they were the same as those received by the other three publishers.

This post has been revised to reflect the following correction:

Correction: December 18, 2012

Because of an editing error, an earlier version of this post carried an erroneous byline.