The DOJ Only Wants to Control (and Limit) Apple's iTunes

iTunes OverlordThe U.S. Department of Justice doesn't want much, just control over Apple's entire iTunes business. This, because Apple had the audacity to do something that same DOJ had failed to do, which was bring competition to the ebook market.

We've covered the news aspect of this twice today—once explaining the DOJ's proposed remedy, and a second time explaining Apple's outraged response to that proposal. I found myself needing to rant about the bigger picture, though, because the big picture item is larger than Apple.

To me, the DOJ's suit was misguided and Apple's conviction is difficult to fathom, but the DOJ's remedy hands unprecedented power to Apple's competitors.

That proposed remedy would prohibit Apple from entering into publisher deals that result in Apple not having to compete on price (i.e. no MFN clause); force Apple to let Amazon, Barnes & Noble, and other book retailers sell books through App Store apps without paying Apple a cut; require Apple to hire two antitrust compliance positions that would have broad authority in the company; and, give the DOJ broad oversight over the rest of Apple's iTunes business.


It's the last component that Apple called draconian, unprecedented, punitive, and overreaching. It's Apple's job to frame this stuff in the most negative light it thinks it can get away with, of course, but I agree on at least three of those adjectives, draconian, punitive, and overreaching.

Total Control

I'll add perplexing. For the life of me, I can't understand why the DOJ wants—let alone thinks it deserves—control over Apple's iTunes business deals.

Look at the wording: under the proposed remedy, Apple would be prohibited from entering into any agreements with, "suppliers of e-books, music, movies, television shows or other content" that "are likely" to result in an increase in price for those same products at any Apple competitor.

That's total control over everything related to Apple's media business. It is apps, it is movies, it is TV shows, it is books, it is music, and it is everything else that might come down the pike. Everything.

Even though Apple has not been accused of violating antitrust regulations in those markets, or of colluding in a price fixing scheme with other parties in those markets, and even though there is a thriving market for all of those products—a thriving market where Apple is often the most expensive retailer—the DOJ is arguing that it should have oversight over Apple's entire media business.

That's pretty whacky to me, and it's why I agree with Apple that this remedy is punitive in nature. The DOJ is looking to punish Apple for fighting the charges in the first place. That may be understandable in that the DOJ believes that Apple did something wrong to begin with, but it doesn't make it right.

So Why?

I think the problem is that the DOJ has wrongly fixated on consumer pricing as the holy grail of consumer protection. I've argued repeatedly that in the book business, there is far more to what is good for consumers than price alone. In particular, there is the quality of the product, availability of the product, and in ebooks, there is the user experience itself.

As Amazon garners more and more power—now with the help of the DOJ—margins slip lower and lower. Already we have one less major publisher competing because Pearson and Penguin merged in June. No margins needs fewer new authors being groomed by the publishers and it means fewer and fewer editing resources.

My colleague at The Mac Observer, John Martellaro, noted to me earlier that framing the book business in terms of consumer price alone is a false narrative. I think he's right, and I think the DOJ has wrongly concluded that customer cost is the only issue, and that it has completely disregarded the preservation of competition as being in the consumer's interest.

How else can you explain that while the DOJ has gone after Apple and the five publishers it has:

  • Restored Amazon's ability to regain monopoly power in ebooks.
  • Hastened consolidation in the publishing world, which further consolidates power in Amazon's hands. Remember that Amazon is a publisher and a retailer.
  • Hastened the collapse of the book retailing market. Borders went under after this case started, and Barnes & Noble is struggling, in part because its Nook business can't compete with Amazon's dumping.
  • And if the remedy is adopted, it will eliminate Apple's ability to negotiate other content deals, which strengthens the power of Amazon and Google.

Going Back to the Beginning

There is no doubt that there is more competition in the ebook market today than there was when Apple entered that market in 2010. Amazon has gone from dumping ebooks to gain monopoly power to merely owning a majority share (about 65 percent) of the market. Of course, Amazon is free to dump again, but that's because of the DOJ.

It also seems fair to say that when Apple entered the market, neither Apple nor Amazon was doing anything illegal (note that Judge Cote and the DOJ disagree and that my legal opinions are worth their weight in HTML).

Yes, Amazon was dumping books to gain monopoly power, and yes, Apple's most favored nation clause resulted in higher consumer prices for some best sellers, but dumping isn't necessarily illegal, and price fixing when entering a market controlled by a vertical monopoly isn't necessary illegal, either.

Accordingly, I don't think the DOJ needed to do anything against either Apple or Amazon. But if the DOJ did feel compelled to do something, why go after the party that helped usher in improvements to the overall market?

I can't think of a single reason.

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