iPad 3 advert (flipping e-book page)

As you know, the United States Department of Justice (DoJ) in April 2010 filed an antitrust lawsuit against Apple over allegations that it conspired with five major publishers to raise prices of e-books sold on the iBookstore in order to break Amazon’s monopoly. Now, DoJ previously called Apple a facilitator and said email messages from Steve Jobs prove its guilt. U.S. District Judge Denise Cote believes the government will prevail and Reuters reports this morning that Apple is scheduled to square off with the government in a Manhattan courtroom later today.

Apple, of course, maintains its innocence. So, why all the fuss?

As you know, Amazon cuts deals with publishers based on the wholesale model, where they set the price. The online retail giant has successfully leveraged the model to sold electronic books below cost, hurting publishers in the process.

By contrast, Apple’s agency model allows publishers to set prices of their warez on iBookstore themselves, with Apple keeping 30 percent of the proceeds to itself. The problem is, Apple demanded that participating publishers do not undercut iBookstore prices on competing stores.

Reuters explains why this case will effectively set the rules for Internet commerce.

Among other things, the government lawsuit seeks to declare that certain provisions in the agreements between Apple and the publishers are unenforceable.

These provisions, known as most-favored-nation clauses, provided that if other e-bookstores sold the books at cheaper prices, then Apple could reduce its prices. The government has said this provided an incentive for the publishers to raise prices at other retailers.

The government is seeking an order blocking Apple from engaging in similar conduct rather than damages. If found liable, the news gathering organization warns, Apple could “still face damages in a separate trial by the state attorneys general and consumers pursuing class actions.”

Funny thing how DoJ isn’t suing the television industry because most-favored nation clauses are commonly found in agreements between record labels/Hollywood majors and retailers. It looks to me that Uncle Sam is attempting to make an example of Apple, all over again.

Publishers Hachette, HarperCollins, Macmillan, Penguin and Simon & Schuster all settled with DoJ in past. Moreover, Penguin earlier this month cut a $75 million settlement with the DoJ, leaving Apple a lone holdout in the lawsuit.

But Apple has no intention to bow to Uncle Sam.

According to Apple CEO Tim Cook’s D11 interview, the company intends to fight DoJ’s allegations.

“The e-book case to me is bizarre,” Cook said. “We’ve done nothing wrong there, and so we’re taking a very principled position.”

He also underscored Apple is not going to sign “something that says we did something we didn’t do,” adding that “we’re going to fight.”

What do you think Apple’s chances of winning the case are?

  • Kurt

    The leaders of the DOJ should be fired