What Apple Can’t Do

Apple is specifically prohibited from enforcing any existing contract or entering into any new contract with an ebook publisher that includes any form of “most-favored-nation” agreement with regard to pricing. Apple is also prohibited from entering into any agreement with any of the publishers that “restricts, limits or impedes Apple’s ability to set, alter or reduce” pricing or to “fix or set the price” that other ebook retailers can charge.

These provisions are specifically targeted toward agency agreements. Apple is also prohibited from retaliating or punishing any publisher for refusing to deal with Apple and is prohibited from communicating about contracts and/or contract negotiations with one publisher to any other publisher.

Apple will be required to modify or terminate any existing agreements that don’t comply with the prohibitions previously listed, including any agency agreement. Apple will also be required to apply the same terms and conditions to ebook apps that Apple applies to other apps sold through its App Store. This may require Apple to allow competing ebook apps, such as the Kindle app, to include a link to competing ebook vendors, something that Apple currently prohibits. However, the injunction does allow Apple to have some flexibility to establish new categories of apps with different terms and conditions, as long as Apple does not discriminate against ebook apps.

To ensure that Apple complies with both the specific terms of the injunction as well as state and federal antitrust laws generally, the court will appoint an external compliance monitor to serve as a watchdog over Apple. Apple will also be required to designate an internal antitrust compliance officer, conduct internal training and regular antitrust compliance audits, establish an internal whistleblower procedure for disclosure of antitrust violations, and provide logs of communications between Apple senior officers and ebook employees, and ebook retailers and publishers.

In an earlier court filing, the DOJ also had recommended that the court’s injunction include a provision applying the same restrictions imposed on ebook agreements to Apple’s other content suppliers, including music, other audio, movies, television shows, and apps. The court declined to include this in its final injunction, which many commentators had suggested was too broad.

The court also reduced the length of time covered by the injunction from the DOJ’s proposal of at least 5 years and up to 10 years to not more than 5 years. Some of the injunction’s provisions will expire in as little as 2 years. The court’s opinion did not explain the reason for the changes, but at an earlier hearing, Judge Denise Cote had commented that she wanted to “intrude as little as possible” on Apple’s business while still ensuring that Apple complied with antitrust law.

Notwithstanding these minor victories, Apple continues to assert that it did not “conspire to fix ebook pricing” and that its iBookstore “gave customers more choice and injected much needed innovation and competition into the market.” (Apple’s statement was emailed to several media outlets and cited by many; see The New York Times.)

Apple Plans to Appeal

Apple announced that it intends to appeal both the injunction and the court’s original decision finding that it had violated antitrust laws. The DOJ hailed the injunction as “a victory ... for consumers” that will “restore competition in this important industry.”

In addition to any appeal, the court will hold additional hearings in early 2014 to determine whether Apple should be required to pay any damages or penalties for its violations, and if so, how much those damages or penalties will be.

Notwithstanding the ongoing litigation, at least one commentator suggests that even if Apple is losing ebook battles, it still may be winning the war. Blogging for The Washington Post, commentator Brian Fung notes that Apple’s agency model had its intended effect of “chipping away” at Amazon’s ebook dominance, as Apple is reported to now hold about 20% of the ebook market.