US judge considers limits on Apple in ebooks case

U.S. District Judge Denise Cote said she was weighing whether to restrict Apple for five years from entering deals with publishers that would prevent Apple from discounting ebook prices. Apple, the maker of the iPad and the iPhone, had as part of the alleged conspiracy given publishers control of pricing.

"My focus is on making sure we don't have collusive illegal activity again interfering with the ebooks market," Cote said.

But Cote, a judge in U.S. District Court in Manhattan, indicated she may not give everything sought by the U.S. Department of Justice and 33 U.S. states and territories, saying she may not require Apple to employ a court-appointed external monitor.

The Justice Department, which sued Apple in April 2012, claims the company conspired with major publishers to undercut the prevalent ebook pricing set by Amazon.com Inc, which at the time controlled 90 percent of the ebook market.

As a result, prices for new and best-selling ebook titles rose from $9.99 to $12.99 or $14.99, the government contends.

In July, Cote found Apple liable for violating federal antitrust laws, saying the company played a "central role" in the conspiracy with the five major publishers, which agreed in settlement to pay $166 million to benefit consumers.

The publishers include Lagardere SCA's Hachette Book Group Inc, News Corp's HarperCollins Publishers LLC, Penguin Random House LLC, CBS Corp's Simon & Schuster Inc, and Verlagsgruppe Georg von Holtzbrinck GmbH's Macmillan.

The government is now seeking an injunction against Apple. The company calls the Justice Department's proposal a "draconian and punitive intrusion" into its business.

At the hearing Friday, Cote said she was considering restricting the types of contracts Apple that could enter with the publishers for five years, a goal sought by the Justice Department.

The judge said for the first two years, Apple would be prohibited from entering contracts that restrict its ability to discount ebooks.

It would then on a staggered basis begin negotiating new agreements with publishers, with talks roughly half a year apart, she said.

"This means at no one point in time will Apple be able to renegotiate with all the publisher defendants at once," she said.

Under the Justice Department's proposal, Apple would also have to hire a full-time internal antitrust compliance officer and for 10 years use a court-appointed external monitor to ensure its compliance with whatever Cote orders.

Cote said her preference was to instead not require a monitor, but instead require Apple to have a "vigorous" in-house antitrust compliance program.

"I don't want to do more than is necessary here," she said.

Apple is planning to appeal Cote's July ruling on liability, a point its lawyer emphasized Friday.

Cote declined to put the case before her on hold pending appeal, though, and began scheduling proceedings that could ultimately lead to a damages trial.

Lawyers for the states and consumers haven't yet publicly alleged the damages suffered. Orin Snyder, a lawyer for Apple, at the hearing said damages could reach the "hundreds of millions of dollars."

As a hint of the fights to come, Synder said Apple intended to oppose certification of a class action brought by consumers, citing recent major U.S. Supreme Court rulings that have limited the ability of plaintiffs to litigate as a group.

"It's a brand new world in scrutinizing these kinds of alleged class injuries," Snyder said.

The case is U.S. v. Apple Inc et al, U.S. District Court, Southern District of New York, No. 12-02826.

© Thomson Reuters 2013