DOJ Wants More Control Over Apple Sales Policies

| Analysis

The U.S. Department of Justice is claiming Apple's in-app purchase policies were designed specifically as a retaliation against Amazon and has revised its proposed punishment for the iPhone and iPad maker in its ebook price fixing case. Now the DOJ wants the court to force Apple to change its in-app purchase policies for all types of sales and not just digital content like ebooks.

DOJ says it wants more control over Apple's businessDOJ says it wants more control over Apple's business practices

In its new proposed remedy, the DOJ said that Apple has misrepresented its in-app purchase policies, and presented a 2011 email from then CEO Steve Jobs where he talks about how to compete with Amazon's Kindle and keep users from moving to Android-based Devices. Mr. Jobs stated,

The first step might be to say they must use our payment system for everything, including books (triggered by the newspapers and magazines). If they want to compare us to Android, let's force them to use our far superior payment system.

The DOJ recently won its ebook price fixing case against Apple and has been pushing for harsh remedies ever since. Apple, along with several book publishers were accused of colluding to force the price of books higher. The publishers all settled out of court to avoid the possibility of losing at trial, but Apple chose to defend itself and ultimately lost its case.

Apple argued that it was simply trying to find a way to compete in the ebook market and was negotiating independent deals with each publisher. Part of those negotiations included changing from the traditional model where retailers set the price of books to one where publishers set the price and stores take a cut of the sales. By switching to a model where publishers control book prices, the DOJ said they were in a position to artificially raise prices.

Apple and the publishers said that Amazon was selling books below cost, driving their competition out of the market.

While the DOJ may have won its case, the fight is far from over. Apple is appealing the ruling and has called out several points during the trial where the Judge overseeing the case allegedly made errors -- points that will no doubt come up during the appeal process.

The DOJ, and by extension the U.S. Government, is essentially handing the book market to Amazon and setting the price consumers will pay regardless of what books actually cost. For Amazon, it's a great deal because it can continue conducting business just as it has. For consumers, they'll most likely pay lower prices for books and ebooks purchased through Amazon, at least for now.

As more book retailers go out of business Amazon will gain even more of the market. When the online retailer controls enough of the market it can raise prices if it wants, although there isn't any guarantee that will happen. Selling at a loss forever, however, isn't a sustainable business model, so Amazon will need to find a place to make up the difference, and the easiest place to do that is through higher book prices.

Apple has argued that it did nothing wrong and plans to continue defending its actions. Assuming Apple loses its appeal, the fight still won't be over and could eventually work its way to the U.S. Supreme Court. For now, it's still business as usual for Apple and Amazon: Apple controls the cut it takes from in-app purchases, and Amazon continues to sell books at the same prices it always has.

[Thanks to Gigaom for the heads up]

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Comments

skipaq

The day this administration leaves office will be a day of rejoicing all over the business world.

thinkman

This ineffectual government agency (this is true of many of them) attacks Apple, yet does nothing to rein in the real bandits (a list too long to mention)!

dtm1

Apple doesn’t pay enough to the Obama admin & democrats in bribes, wait scratch that - in lobbyist “donations” to the same. Government getting even so the money will roll in in the future. Why Clinton went after Microsoft - they too at the time didn’t pay “their fair share” to the weasels of DC. MS does now. Apple too will in the future no doubt. The Lobbying fees will increase substantially now.

On top of Obama and democrats hating capitalism - well not the part of extorting their cut for themselves from successful companies that they believe they “deserve” in their minds.

Bob Forsberg

This social manipulation by Holder and others at his inept agency unable to keep its own house in order should quietly hide for the rest of the current administration to avoid its own prosecution of “Fast & Furious” where real crimes by the DOJ were actually committed and American citizens died.

wab95

Jeff, skipaq et al:

I was going to post a comment about Apple’s next move in appealing this case, but I appear to have wandered into a site for the US Republican National Convention, or is it the Tea Party?

Not to interrupt the discussion thread, but it seems to me that in both the USA and Europe, (and if memory serves, more than member of the US Congress from both sides of the aisle) politicians have had nothing but harsh words for the ‘capitalism’ being practised by Apple a few months back, and in the USA in particular, both Repubs and Dems insisted that they wanted those tax dollars ferried from overseas and deposited in US coffers. STAT. At the same time, across the pond, members of the EU had nothing but scathing contempt to pour on Ireland for its tax-friendly business environment, wherein Apple keeps a warm and happy hearth.

I think this is less about partisan US politics, when viewed from a global perspective, than it is about the arrows that Apple’s success and prominence attract from anyone with an agenda, an axe to grind or a point to make, be they the Chinese, the Americans, the Europeans, labour, environmentalists, or the fans of the competition. The US DOJ, following hard on the heels of their congressional colleagues (in both parties, permit me to repeat), is just one of the latest to strike a blow at what they perceive to be wrong with an industry that they believe to be in need of fixing (agree with them or not), using Apple as their whipping post. A very public and visible whipping post, to be sure. In global economic prosperity and a booming economy, sadly not the case anywhere on the planet - even in far away China, none of these people would have much time for such posturing, but they have a mandate to make things better than they are, and are willing to burn down the house to do so. Scapegoats must be found, and sacrificed on the alter of the prosperity gods. If they are appeased, prosperity might be restored to earth.

Regarding how Apple might respond to this latest salvo, whatever they do, I would argue, they must not take a page from their Chinese playbook and be humble and contrite. Right for China; poison in this case. Rather, this is one instance in which they need to take the judicial system, the US (and European) government(s) and the business community to school on what does and does not constitute free enterprise and a competitive market.

As much as I admire certain aspects of Amazon and their business model (few consumers don’t), I don’t want to awaken one day to a world in which they are the book market.

Amazon’s sights and ambitions are global.

Thank you, gentlemen. Forgive the intrusion.

Tiger

They’re changing their name.

It is now the Department of Just Us.

The pronunciation was confusing people.

Imagestealer

Lucky Apple…  I see that your national Mafia (AKA the U.S. Government) enforcers are escalating their demands.  Thuggery abounds.

Apple needs to fight this on all fronts.  Since when has it become illegal to conduct business?  Land of the free my frozen butt !

An interested Canadian observer.

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