Government pressures Apple to let Amazon and others link to e-books within their iOS apps


The U.S. government Friday offered Apple a proposal to settle an e-book price-fixing case which the technology giant recently lost. Among the requirements: end current agency agreements with the publishers involved, allow Amazon and others to provide external links to e-books within their iOS apps and institute a five-year probation from signing any new e-book distribution deals.

The proposed “remedy” offered by the US Department of Justice, while imposing some restrictions on Apple, could bypass potential fines reportedly near $500 million…

“Under the department’s proposed order, Apple’s illegal conduct will cease and Apple and its senior executives will be prevented from conspiring to thwart competition in the future,” said Bill Baer, Assistant Attorney General leading the DOJ’s Antitrust Division, in the government’s statement.

Ending agency agreements is also a boon for Amazon, which employs so-called wholesale model where the online retailer sets the e-book prices themselves and has a virtual monopoly on the amount of fees paid to publishers.

Under Apple’s agency agreement used throughout iTunes, iBookstore publishers set the prices themselves, with Apple taking its customary 30 percent cut on all proceeds. This has resulted in slightly higher-price e-books on the iBookstore, but also greater revenues for publishers.

As GigaOm notes:

While it’s slightly unclear from this language, it sounds as if the government wants to force Apple to allow in-app purchasing, at least on ebook apps, without taking its customary 30 percent commission.

(We’ve checked with the DOJ for clarification.) The proposal is likely to rile Apple because the company does not currently allow app makers to direct customers to external “shops.”

In July, U.S. District Court Judge Denise Cote found Apple conspired with publishers to hike the price of e-books in an attempt to harm rival Amazon. In her ruling, Cote said Apple “played a central role” in the conspiracy.

The e-book publishers involved had all settled with the government, leaving Apple the lone holdout.

iBooks (three up, MacBook, iPad, iPhone)

The government alleged that in 2010, just prior to unveiling the iPad, Apple conspired with five of the six e-book publishers, essentially raising prices above Amazon’s lower amount, in an effort to break the online retailer’s lock on e-book sales.

Before the case went to court, Simon & Schuster, Hachette Book Group, HarperCollins, MacMillan and Penguin reached settlements ranging from $12 million to $75 million.

Perhaps the most onerous requirements in today’s proposed settlement are the request to end contracts with the 5 publishers, not sign any new e-book contracts for five years and allow e-book retailers to sell titles within their iOS apps.

Apple earlier had forced Amazon to drop a built-in store from its Kindle iOS app.

The government agency would also require Apple to pay for a third-party compliance officer to train Apple executives and ensure the remedy’s orders are carried out.