Apple Takes Aim at DOJ

Apple (NASDAQ:AAPL) has rejected the U.S. Department of Justice’s settlement proposal that would have the iPad maker dismantle its current e-book business structure with three major publishing houses. In a strongly-worded legal memo filed on Wednesday, Apple said that the proposed judgment would “terminate and rewrite Apple’s bargained-for contracts” before evidence, witness testimony, and disputed facts were resolved at trial. The Court’s decision would be final and irreversible.

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The memo is in response to a recent DOJ memorandum in support of a proposed settlement that asked the New York district court handling the case to hand down a decision without any further hearings. The government argued that a quick final judgment would be in the best interest of consumers as well as the settling parties, which would no longer have to pay legal fees for ongoing litigation.

But Apple disagrees. The statement below is taken directly from the memo Apple filed on Wednesday:

Apple has not settled with the Government; it denies the allegations against it and is actively defending this case. Apple has never participated in, encouraged, or sought to benefit from collusion. It has no objection to the Proposed Judgment’s bar on collusion. But the Government proposes to go much further…Nullifying a non-settling defendant’s negotiated contract rights by another’s settlement is fundamentally unfair, unlawful, and unprecedented. The Government does not cite a single case in which such relief was granted without a trial or merits determination.

At issue in the case is Apple’s so-called agency model, in which a publisher is free to set e-book pricing, but cannot offer the same content to another reseller at a lower price. According to the DOJ, Apple and its publishing partners used the business model to falsely inflate the price of e-books, hurting customers.

The agency model replaced the original e-book sales model created and employed by Amazon (NASDAQ:AMZN), which dominated the e-book industry at the time Apple was first entering it. At the heart of the matter, Apple argues, is the alleged conspiracy to force Amazon to adopt the agency model, and admits that “a settlement enjoining collusion or precluding publishers from forcing agency on Amazon would be appropriate.”

However, the government is seeking to reach a favorable judgment without a fair trial, Apple says, and is trying to justify “the termination of Apple’s contracts before trial on the grounds that they are causing ongoing harm,” despite the fact that there has yet to be any finding of antitrust violation. Apple claims the agency model hasn’t been proven to have forced publishers to adopt it with other resellers.

Furthermore, Apple says that Amazon, the driving force behind the government’s investigation, told a story that has yet to be scrutinized. According to the memo, government representatives talked with Amazon throughout the investigation, meeting with at least fourteen Amazon employees, but never under oath. And while the government did require Amazon to turn over documents, the number was only a fraction of what was required of others.

Penguin (NYSE:PSO), one of the book publishers named in the settlement, also filed opposition memos on Wednesday, in which it cited sales figures in support of the agency model. The DOJ “argues that, as the Government, it has access to ‘secret’ sales data from other retailers…But the DOJ never says what its secret data shows,” said Penguin.

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