Apple and the publishers had their hearing before Judge Cote today on the penalties she’s considering imposing. There was more interesting news in the run-up to it, of course. First, GigaOm reports that the Department of Justice filed a response (available here as PDF) to the publishers’ en masse complaint about being punished twice.

The response said, essentially, that they don’t want to do anything to the publishers, and all their proposals target Apple. And the DoJ even pointed out how similar the publishers’ argument was to Apple’s argument back when the publishers were settling, just as I did yesterday. And it notes that

Indeed, the very fact that the Publisher Defendants have banded together once again, this time to jointly oppose two provisions in the Proposed Final Judgment that they believe could result in lower ebook prices for consumers, only highlights why it is necessary to ensure that Apple (and hopefully other retailers) can discount ebooks and compete on retail price for as long as possible.

I’m not sure how much credit that argument would have with Judge Cote, given that this is the judge who limited amicus briefs in the publisher settlement hearing to five pages each. Would she really have preferred to read five separate substantially-identical briefs rather than the one she got?

From the same GigaOm story, Judge Cote requested and Apple filed a list of evidence (PDF) from the hearing that it feels was “improperly admitted, excluded, or disregarded.” Mostly it centers around excluded testimony, but Apple also claims there were “serious credibility issues” with witnesses from Google and Amazon (pot and kettle much, guys?). and complained that the court excluded Amazon’s internal business practices and pricing algorithms from discovery so they couldn’t use that information in the trial.

Apple also requested (PDF) a stay of further proceedings pending its appeal of the guilty verdict, or, barring a stay, that trial be delayed until October of 2014. The Department of Justice disagrees (PDF), pointing out that for all Apple claims it has a good chance on appeal, all it offers by way of proof is a restatement of the same arguments that failed to sway Judge Cote in the first place. “More than three-and-a-half years after it entered into a price-fixing conspiracy with publishers, it is time for Apple to face the consequences for violating the antitrust laws.”

And both Kobo and the Consumer Federation of America requested permission to file amicus briefs in support of the Department of Justice. I couldn’t find their briefs, but Publishers Weekly has the next best thing in the form of an article by Battle of $9.99 author Richard Albanese which recaps them in detail. (He also has an article covering the publishers’ response and the evidentiary matters above.)

Kobo supported the proposal that Apple be required to restore commission-free in-app sales to e-book apps, It noted that its new customer conversions on iOS devices fell by 75%, from 75,000 sales per month to fewer than 20,000, after Apple initiated its restrictions in 2011.

“E-books are frequently sold through e-book apps, which Apple makes available to customers through its Apple App store,” Kobo attorneys argue. “For Kobo and other e-book retailers to serve as effective competitors to Apple, their potential customers must be able to discover that these retailers actually sell e-books, a fact which is not readily apparent to an Apple iOS device user who encounters these competitors through apps on Apple iPads and iPhones.”

The Consumer Federation of America also supports the DoJ, calling the suggested penalties appropriate in light of the severity of the violation and Apple’s continuing unrepentance.

Those were the preliminaries. The hearing itself took place and has seen some good coverage from CNet, Reuters, and the Wall Street Journal—as well as another Publishers Weekly article by Albanese. Judge Cote has some different ideas on what penalties to impose than the Department of Justice. She does not want to regulate the app store, and would prefer to restore competition without messing with its “flexibility and management.” She also does not think an external antitrust compliance monitor is needed if Apple’s in-house pro-competition efforts are sufficient.

Rather than a five year prohibition on agency pricing, Judge Cote said she is considering restricting Apple to negotiating with a single publisher at a time, beginning in two years and allowing several months for each negotiation, to prevent any possibility of further collusion. And she also denied Apple’s request for a stay, meaning that whatever punishments are imposed will commence right away, even before Apple has the chance to appeal. She will make her decision after all parties have time to consider her proposals, and could call another hearing later this month. No date has yet been set for the damages phase of the trial.

Judge Cote also noted that neither Apple nor the publishers seem to be very sorry for what they did:

“This was a rough and tumble game played with high stakes…and the consumer suffered,” Cote said, adding that Apple and the publishers have made no public showing or remorse or contrition. “They are, in a word, unrepentant.”

Apple and the publishers really don’t seem to know when to give up, do they? Though personally, I hope they keep digging themselves in deeper for as long as they possibly can. The deeper they dig, the better the eventual penalties will end up being for the consumer.


  1. A clear view of this situation requires separating Apple from the publishers. The publishers admitted to collusion, albeit in a round about way, but Apple has not.
    Apple’s complaint that, “the court excluded Amazon’s internal business practices and pricing algorithms from discovery so they couldn’t use that information in the trial” could be a critical point on appeal. If Amazon were engaged in predatory pricing as alleged, the entire complexion of the proceedings would have been changed. Apparently, all the court had to go on was the assertion by the DoJ that Amazon’s eBook operations were “consistently profitable.” Without evidence and argument to the contrary, the court accepted that as fact.

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