DOJ fires back at Apple over e-book suit

The Justice Department defended its proposed settlement with a group of electronic-book publishers in a federal court filing on Monday and fired back at criticism from Apple.

The department's Antitrust Division sued Apple and five publishers in April, accusing them of colluding to raise the price of e-books. Apple and two publishers, Macmillan and Penguin Group, are fighting the charges. But the other three publishers — Hachette, HarperCollins and Simon & Schuster — agreed to settle with the government.

Justice said it has broad discretion to set the terms of antitrust settlements and argued critics of the deal are just trying to protect their own profits.

"Many critics of the settlements view the consequences of the conspiracy — higher prices — as serving their own self-interests, and they prefer that unfettered competition be replaced by industry collusion that places the welfare of certain firms over that of the public," the department wrote in Monday's filing.

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A federal court in New York is now considering whether to approve the settlement between DOJ and the three publishers.

A host of companies and associations, including Apple, Barnes & Noble and the Authors Guild, filed comments with the court, urging it to scrap the planned settlement.

Sen. Charles Schumer (D-N.Y.) also wrote an op-ed in The Wall Street Journal earlier this month blasting the Justice Department's handling of the case.

The critics argue that the lawsuit and the proposed settlement will only allow Amazon to regain dominance of the e-book industry, ultimately hurting consumers.

According to the Justice Department's lawsuit, Apple and the five publishers were unhappy that Amazon was driving down the price of e-books. Amazon had set the price of all of its e-books at $9.99.

Justice officials said the companies conspired to set up a new business model, called the agency model, which raised the price of many e-books by about $2 to $3.

Under agency pricing, the publishers, not bookstores, set the retail price of e-books. 

The settlement with the three publishers would require them to abandon their agency-pricing agreements with Apple and other retailers and would bar them from setting up similar agreements for two years.

But the critics argue that the agency model helped to free the e-book market from Amazon's dominance. Under the old model, Amazon controlled about 90 percent of the market, but after the publishers instituted the new pricing scheme, Amazon's share fell to 60 percent.

"The end loser of this unnecessary and burdensome regulatory approach will be the American public, who will experience higher overall average e-book and hardback prices and less choice, both in how to obtain books and in what books are available," Barnes & Noble wrote in its filing with the court.

The Justice Department noted that the purpose of antitrust law is to protect competition, not competitors. The government also insisted that it is not imposing a business model on the industry. 

The agency model itself is not illegal, DOJ wrote, but the backroom collusion that established it was.

The department said it is reasonable to insist that the companies abandon any agreements that were crafted illegally and not to enter similar deals for two years.

"This brief cooling-off period will ensure that the effects of the collusion will have evaporated before defendants seek future agency agreements, if any," the government wrote.

DOJ also claimed that it was Barnes & Noble's entrance into the e-book market, and not the agency agreements, that most significantly eroded Amazon's market share.

"The proposed final judgment will help to restore competition, not end it," DOJ wrote.