updated 02:22 am EDT, Fri June 22, 2012
Justice Department requests discovery into next year
The US Department of Justice, which launched a surprise antitrust lawsuit on Apple and (now) two publishers in April over alleged "price-fixing" in Apple's development of an e-book marketplace, now want to extend the discovery period of the case into March of next year so it can gather more facts. Apple fired back at the request demanding a "speedy resolution" and reiterating its position that it has done nothing wrong.
Both sides will get to lay out their arguments in court in a hearing on Friday, with the government arguing that it needs the additional time to examine the full scope of the "conspiracy" and identify all the executives that may be involved as "co-conspirators." The Justice Department believes that Apple and the five major publishers acted in concert to keep e-book prices higher in an effort to break Amazon's then-monopoly.
Apple (and the two remaining publishers who haven't settled, MacMillan and Penguin Group) contend that Amazon's predatory pricing methods (it controlled over 90 percent of the e-book market prior to Apple's entrance) would have destroyed most publishers, especially smaller ones, and that in fact Apple's entry (along with the later emergence of Barnes & Noble's Nook) actually restored balance to the e-book marketplace.
Amazon, which has previously been known for bullying publishers that didn't cooperate with it, had been selling e-books at a loss in order to drive out competitors. When Apple was talking to publishers about the idea of entering the market, then-CEO Steve Jobs warned them that Amazon would eventually force royalty cuts so that it could continue to keep e-book prices artificially low, a tactic similar to the way Wal-Mart's predatory pricing closed US retail stores and manufacturers and increased US dependence on cheaper labor.
The core of the case revolves around a dispute over the "agency model" pricing Apple adopted, a long-standing practice in the publishing world. Amazon had used a "wholesale model," where publishers sell Amazon books at an agreed-on wholesale price and Amazon resells them for whatever it wants (including at a loss). The agency model lets publishers set the final selling price, and Apple gets a portion of that price (regardless of what it is).
In fact, Amazon is down to about 60 percent of the e-book market following the entry of Apple, Barnes & Noble and others. Prices have remained about the same, and in fact Apple continues to offer the only platform where users can read books from multiple and competing e-bookstores. Even competitors such as Barnes & Noble, who are not involved in the case, have sided with Apple against the DOJ's view. The Author's Guild, which represents most of the more successful authors in publishing, has also agreed with Apple's view of the case.
In its response, Apple said that its demand that the trial move forward reflects a "special urgency" because of the public interests at stake along with the harm that the charges have done to its reputation. It further argues that the "mere existance of litigation of this type creates marketplace uncertainties, which impact competitive conditions."