Judge Sets Restrictions for Apple on E-Books

But the judge, Denise L. Cote of Federal District Court in Manhattan, rejected some of the measures sought by the Justice Department, including extensive government oversight over Apple’s App Store.

In a filing this week, Judge Cote issued her final ruling on the penalties to be imposed on Apple after the long-running lawsuit against the technology giant filed by the Justice Department in April 2012.

The government accused Apple, along with five major book publishers, of illegally colluding to raise the price of e-books and of trying to curb Amazon’s influence in the publishing industry as Apple prepared to introduce its iPad in 2010.

All five publishers, Macmillan, HarperCollins, Simon & Schuster, Hachette Book Group and Penguin Group USA, have since settled, while saying that they did nothing wrong. Random House, which was not named in the lawsuit, merged with Penguin earlier this year.

But Apple, confident of its innocence and with the financial resources to fight in court, went to trial this summer. It defended itself with testimony from a string of high-ranking Apple executives, including Eddy Cue, the company’s senior vice president for Internet software and services, who led the negotiations with publishers.

In July, Judge Cote ruled against Apple in a nonjury trial, saying there was compelling evidence it had violated antitrust laws by conspiring with the publishers.

In her ruling this week, Judge Cote said that Apple may not enter into any agreement with the five settling publishers that “restricts, limits or impedes Apple’s ability to set, alter or reduce the retail price of any e-book.”

The ruling also said that Apple would be prohibited from discussing with any publisher its contractual negotiations with another publisher.

In addition, Judge Cote ordered that Apple cooperate with an external monitor who will evaluate and report on the company’s training reforms and antitrust compliance.

William J. Baer, the assistant attorney general, said in a statement on Friday that the Justice Department was pleased by the court’s ruling.

“Consumers will continue to benefit from lower e-books prices as a result of the department’s enforcement action to restore competition in this important industry,” he said. “By appointing an external monitor to ensure future compliance with the antitrust laws, the court has helped protect consumers from further misconduct by Apple. The court’s ruling reinforces the victory the department has won for consumers.”

Apple has said that it will appeal Judge Cote’s July ruling.

“Apple did not conspire to fix e-book pricing,” Tom Neumayr, an Apple spokesman, said in an e-mail on Friday. “The iBook-
store gave customers more choice and injected much-needed innovation and competition into the market.”

At a hearing in United States District Court in Manhattan last week, Judge Cote said that she wished to “intrude as little as possible” on Apple’s business.

Judge Issues Injunction Against Apple in E-Books Case

U.S. District Judge Denise Cote in New York also said she would appoint an external monitor to review Apple's antitrust compliance policies, procedures and training for two years.

The injunction was narrower than the U.S. Justice Department had sought, in line with Cote's statement last week that she wanted it "to rest as lightly as possible on how Apple runs its business."

The department had sought a broader injunction that could have affected Apple's agreements with suppliers of movies, music and TV shows.

Cote ruled on July 10 that Apple was liable for conspiring with five publishers to raise e-book prices above those established by the dominant retailer in the market, Amazon.com Inc.

The five publishers, all of which have settled with regulators, include Lagardere SCA's Hachette Book Group Inc, News Corp's HarperCollins Publishers LLC, Penguin Random House LLC, CBS Corp's Simon & Schuster Inc and Verlagsgruppe Georg von Holtzbrinck GmbH's Macmillan.

The terms of Friday's judgment will expire after five years, but Cote's order allows for extensions in one-year increments if necessary.

The Justice Department welcomed the injunction.

"Consumers will continue to benefit from lower e-book prices as a result of the department's enforcement action to restore competition in this important industry," Assistant Attorney General Bill Baer said in a statement.

Apple said it would appeal the injunction.

"Apple did not conspire to fix e-book pricing," said company spokesman Tom Neumayr. "The iBookstore gave customers more choice and injected much-needed innovation and competition into the market."

Apple's shares rose 0.6 percent to $498.22 (318.58 pounds) on Friday.

It faces a separate trial on damages demanded by states that are pursuing related claims.

The case is U.S. v. Apple Inc et al, U.S. District Court, Southern District of New York, No. 12-02826.

(Reporting by Nate Raymond; Editing by Eddie Evans and Ken Wills)

Judge Rules Against Apple in E-Books Trial

“Without Apple’s orchestration of this conspiracy, it would not have succeeded as it did in the spring of 2010,” the judge, Denise L. Cote of United States District Court in Manhattan, said in her ruling. She said a trial for damages would follow.

Government lawyers argued in court last month that Apple had colluded with five big American publishers to raise prices for electronic books across the publishing market.

The Justice Department brought the antitrust case against Apple and the publishers a year ago. The publishers settled their cases, but Apple executives insisted that the company had done nothing wrong, and the company continued to insist that on Wednesday.

“Apple did not conspire to fix e-book pricing and we will continue to fight against these false accusations,” Tom Neumayr, an Apple spokesman, said. “When we introduced the iBookstore in 2010, we gave customers more choice, injecting much needed innovation and competition into the market, breaking Amazon’s monopolistic grip on the publishing industry. We’ve done nothing wrong and we will appeal the judge’s decision.”

The Justice Department said the judge’s decision was a victory for people who buy e-books.

“Companies cannot ignore the antitrust laws when they believe it is in their economic self-interest to do so,” the Justice Department said in a statement. “This decision by the court is a critical step in undoing the harm caused by Apple’s illegal actions.”

It appears unlikely that the ruling will have an immediate effect on the book-buying public. The publishers who have already settled with the government are operating under the settlement’s terms, which prohibit publishers from restricting a retailer’s ability to discount books.

Since those settlements have gone into effect, prices on many newly released and best-selling e-books have gone down. One New York Times best-seller, “And the Mountains Echoed,” by Khaled Hosseini, is sold on Amazon.com for $10.99. But other e-books seem to have held closer to pre-settlement prices: “The Ocean at the End of the Lane,” by Neil Gaiman, is listed for $12.80 on Amazon.

The antitrust battle underscores the turmoil in the book industry as readers shift from ink and paper to electronic devices like tablets and smartphones, where they can buy content with the push of a button. While the publishers want to embrace new media, they are also trying to protect their profits and retain control of their businesses. Apple’s lawyers noted at the trial that the publishers had long complained that Amazon.com’s uniform pricing of $9.99 for new e-book titles was too low.

A recent survey of the publishing industry revealed that in the United States, e-books account for 20 percent of publishers’ revenue, more than $3 billion, up from 15 percent the year before. E-books have had a slower rate of adoption in Europe and the rest of the world, but analysts expect that major growth will develop in the next several years. A report by Forrester predicted that by 2017, Europe will be the largest e-book market in the world, generating revenue of $19 billion.

In his testimony, Eddy Cue, Apple’s senior vice president of Internet software and services, who was in charge of negotiating deals with the publishers, conceded that Apple opened the door for book publishers to raise prices in its own e-book store. But he said that the company was not intending to push Amazon, the dominant player in the e-book market, to raise its prices, too.

“Amazon could have negotiated a better deal,” Mr. Cue said in his testimony. “They had a lot more power.”

But the Justice Department said Apple’s deal with the publishers left Amazon with no choice but to raise prices. When Apple entered the e-book market in 2010, it changed the way publishers sold books by introducing a model called agency pricing, where the publisher — not the retailer — sets the price, and Apple took a cut of each sale. As a result, the publishers were able to set e-book prices higher. Apple proposed price caps of $12.99 and $14.99.

Apple Executive Defends Pricing in Case on E-Books

“Wow, we have really lit the fuse on a powder keg,” Mr. Jobs wrote in the e-mail dated Jan. 30, 2010, to Eddy Cue, Apple’s senior vice president of Internet software and services.

The e-mail was brought up as evidence during the second half of Mr. Cue’s testimony in a Manhattan courtroom on Monday, where much of the discussion focused on whether Apple intended to help the publishers raise Amazon’s prices.

Mr. Cue testified on Monday that Mr. Jobs’s e-mail was not a memo congratulating him about how Apple’s entry into the e-book market affected Amazon, causing it to switch to a business model called agency pricing, where the publishers, not the retailer, set the price of the books. Mr. Cue said Mr. Jobs was remarking on the company’s ability to “cause ripples” in the e-book industry, which was then largely dominated by Amazon.

While Mr. Cue conceded that some e-book prices had gone up as a result of agency pricing, he noted that many titles might not have become available in any digital store at all if Apple had not introduced agency pricing to the market. He said he had learned from his meetings with publishers that they were unhappy with Amazon’s uniform $9.99 pricing for e-books and that they were planning to use a tactic known as windowing — delaying the release of an e-book until after the more expensive hardcover had been in stores for a while.

Mr. Cue testified that both he and Mr. Jobs believed that “withholding books is a disaster for any bookstore.”

The Justice Department was not persuaded. Lawrence Buterman, a Justice Department lawyer, asked Mr. Cue whether he was aware that only 37 e-books had ever been windowed.

“The number doesn’t matter,” Mr. Cue said. “What matters is which books. Thirty-seven could be a huge number if it’s the right books.”

Both parties showed their evidence on a projector screen. Apple’s legal team used a MacBook to shuffle between evidence documents, stacking them side by side in split screens and zooming in on specific paragraphs.

In contrast, the Justice Department’s lawyers could show only one piece of evidence at a time. One video that Mr. Buterman played as evidence failed to produce the audio commentary needed to make his point.

In its antitrust case brought a year ago, the federal government is trying to cast Apple as the ringmaster that conspired with five big book publishers to raise e-book prices. The publishers have all settled their cases.

On Monday, the Justice Department’s lawyers homed in on a condition in Apple’s contracts with the publishers: the “most favored nation” clause, which required publishers to allow Apple to sell e-books at the same price as the books would be sold in any other store. Apple has said this clause existed to guarantee that Apple customers got the lowest e-book prices. But Mr. Buterman argued that it defeated Amazon’s ability to compete on price, and that it left Amazon with no choice but to switch to the agency model while allowing the publishers to raise prices.

Mr. Cue said he disagreed. He noted that Amazon had 90 percent of the e-book market before Apple entered the game.

“Amazon could have negotiated a better deal,” he said. “They had a lot more power.”

Lawyers for Apple and the government spent much of the hearing debating whether the e-mails exchanged between Apple executives and publishers illustrated Apple’s intent to help the publishers force Amazon’s hand. In one e-mail sent to Mr. Jobs, Mr. Cue was reviewing his meeting with the publishers, saying they were interested in solving the “Amazon issue.”

Mr. Cue said he was referring to the publishers’ ability to price books above Amazon’s uniform price of $9.99 in Apple’s iBookstore. Apple had proposed price caps of $12.99 to $14.99 for new releases. But he said this did not refer to enabling the publishers to force Amazon to raise prices, too.