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DoJ Undeterred by Furor Over Apple Antitrust Charges

By Erika Morphy MacNewsWorld ECT News Network
Jul 24, 2012 5:00 AM PT

The Department of Justice is not flinching in the face of criticism over its antitrust case against Apple and other e-book publishers.

DoJ Undeterred by Furor Over Apple Antitrust Charges

The agency filed suit this spring alleging that Apple and five of the six largest publishers in the U.S. violated section 1 of the Sherman Act. At the same time, it settled with three of the defendants -- Hachette, HarperCollins, and Simon & Schuster.

The settlement, if approved in court, would allow retailers to set their own prices for e-books. Also, publishers would not be allowed to discuss pricing with competitors for five years. Nor could they pressure retailers to abstain from offering customers discounts.

800 Out of 868 Disagree

As part of the settlement process, the public was invited to comment during a period of about two months. Some 868 comments were received, and the vast majority of them -- 800 -- were opposed to the settlement.

The Justice Department was not impressed with their arguments, however.

Fear of Unfettered Competition

Many of the critical comments were submitted by parties that "have an interest in seeing consumers pay more for e-books, and hobbling retailers that might want to sell e-books at lower prices," DoJ said in its response.

Those comments did not express frustration with the settlement or even the original complaint, DoJ said, but rather with the evolving nature of the publishing industry "in which the growing popularity of e-books is placing pressure on the prevailing model that is built on physical supply chains and brick-and-mortar stores."

In short, the critics want unfettered competition to be replaced by industry collusion, Justice said.

About Amazon

Other comments said the price-fixing was necessary to reduce Amazon's huge share -- 90 percent, according to some reports -- of the e-book market. Apple's entry in this space, according to this story line, is leading to erosion of Amazon's market share.

That was the main thrust behind Apple's argument against the settlement.

"Amazon is by any measure or standard the industry monopolist, a dominant presence in the ebook and physical book marketplace," its attorneys wrote. "It routinely uses its leverage across both markets to impose its will on authors and publishers."

The DoJ shrugged off that argument as well, noting that Apple's entry into the e-book market was not immediately successful.

"It was, in fact, Barnes & Noble's entry -- prior to Apple -- that took significant share away from Amazon," the DoJ noted, "and many of the touted innovations were in development long before Apple decided to enter the market via conspiracy."

Apple is justified in its frustration -- at least in part -- Darren Bush, a professor of law at the University of Houston Law Center, told MacNewsWorld.

"The Justice Department would rather focus on Section 1 violations of the Sherman Act instead of Section 2 violations," he said.

Briefly, section 1 violations pertain to coordinated, or group, behavior. Section 2 deals with monopolization and attempted monopolization by a single firm.

In recent years, the DoJ has been putting more weight on Section 1 violations because those are easier for it to win, said Bush. "Section 2 is harder, because you have to do something with the dominant firm -- the remedy is harder. Also, the Supreme Court has made it clear it doesn't like Section 2 cases."

Unfamiliarity With Sherman

The Justice Department also suggests that some critics do not understand U.S. antitrust law because they assert that the department is trying to impose a business model on this industry by forbidding agency agreements.

Justice does not object to agency agreements -- "only to the collusive use of agency to eliminate competition and thrust higher prices onto consumers," it said.

There are other issues that count against Apple, said Jonathan Askin, a professor at Brooklyn Law School.

"The real issue that makes Apple a bigger threat to competition, relative to Amazon and other e-book vendors, is the fact that Apple tethers its books and applications directly to its own hardware," he told MacNewsWorld.

"If the consumer owns Apple hardware, that consumer is largely beholden to Apple software, Apple applications, Apple e-books, and Apple pricing," Askin explained. "Market dominance and control over the hardware gives Apple inordinate control over the software and its pricing."

The Department of Justice and Apple did not respond to our requests for further details.

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