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 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]