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From Antitrust Law Daily, August 8, 2013

Publishers object to government's proposed injunctive relief against Apple in e-book pricing case

By Jeffrey May, J.D.

Five publishers that settled federal and state antitrust actions, alleging that they participated in a conspiracy orchestrated by Apple Inc. to fix the prices of e-books, are objecting to the government's proposed remedies against Apple following the successful prosecution of the firm. Yesterday, the publishers filed a memorandum of law in opposition to the proposed relief with the federal district court in New York City (U.S. v. Apple, Inc., Case No. 12 Civ. 2826 (DLC)).

In July, following a bench trial, the court found that Apple undertook to orchestrate the price fixing conspiracy as it prepared for the 2010 launch of its new iPad tablet device and its iBookstore. In an effort to force market leader Amazon Inc. to relinquish retail pricing authority and to raise e-book prices, Apple moved the industry from a wholesale model—where a publisher receives its designated wholesale price for each e-book and the retailer sets the retail price—to an agency model, where a publisher sets the retail price and the retailer sells the e-book as its agent, according to the court.

On August 2, the Justice Department and 33 states and territories filed a Memorandum of Law in Support of Proposed Injunction, advocating for injunctive relief to “halt Apple’s anticompetitive conduct, restore lost competition, and prevent recurrences of the same or similar violations of the antitrust laws.” The government contended that the proposed final judgment incorporated key aspects of the consent decrees entered against the settling publisher defendants—Hachette Book Group (USA), HarperCollins Publishers L.L.C., Simon & Schuster Inc., Holtzbrinck Publishers LLC, which does business as Macmillan, and Penguin Group (USA). However, it also included other requirements that the government contended were “tied to the Court’s specific findings regarding Apple’s misconduct.”

In their court filing, the publishers objected to provisions in the proposed remedy that they claimed would effectively eliminate the use of the agency model for the sale and distribution of e-books for a period of five years. They contended that the restrictions, under the guise of punishing Apple, punished them. The proposed remedy conflicts with the terms of the consent decrees that they entered into with the government as final judgments, according to the publishers. They asked the court to modify the restrictions so that they conform with the limitations set forth in the settling publishers' final judgments.

The proposed relief “would not only deprive the Settling Defendants of the primary benefit of the bargain reached in their consent decree negotiations—continued use of the agency model and freedom of contract after two years—but it would undo all of the Settling Defendants' efforts pursuant to their consent decrees, impose significant additional burdens in renegotiating settled contracts and create an unnecessary and unfair disruption of their respective businesses,” they argued.

Attorneys: Shepard Goldfein (Skadden, Arps, Slate, Meagher & Flom LLP) and C. Scott Lent (Arnold & Porter LLP) for HarperCollins Publishers L.L.C. Walter B. Stuart (Freshfields Bruckhaus Deringer US, LLP) for Hachette Book Group, Inc. James W. Quinn (Weil, Gotshal & Manges LLP) for Simon & Schuster Inc. Saul P. Morgenstern (Kay Scholer LLP) and Daniel F. McInnis (Akin Gump Strauss Hauer & Feld LLP) for Penguin Random House LLC. Joel M. Mitnick (Sidley & Austin LLP) for Holtzbrinck Publishers LLC.

Companies: Apple Inc.; Hachette Book Group Inc.; HarperCollins Publishers L.L.C.; Simon & Schuster Inc.; Penguin Group (USA) Inc.; Holtzbrinck Publishers, LLC.

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