Department of Justice wants Apple banned from cutting low-cost deal with e-book publishers

NEW YORK (Reuters) - Apple Inc should face several restrictions to protect consumers and promote competition after a judge found it illegally conspired to raise e-book prices, federal and state officials said on Friday.

The changes proposed by the U.S. Department of Justice and 33 U.S. states and territories will be reviewed by U.S. District Judge Denise Cote in Manhattan, who on July 10 concluded that Apple violated antitrust law by playing a "central role" in a conspiracy with five major publishers to raise e-book prices.

"Under the department's proposed order, Apple's illegal conduct will cease, and Apple and its senior executives will be prevented from conspiring to thwart competition," said Bill Baer, head of the Justice Department's antitrust division.

Apple did not immediately respond to requests for comment. The Cupertino, California-based company has said it did not conspire to fix prices and planned to appeal Cote's decision.

A hearing on remedies is scheduled for August 9 and a damages trial may follow.

Analysts have said the bigger issue for Apple in the case may be reputational damage, not financial damage. Amazon.com Inc commands about 65 percent of the U.S. e-books market, while Apple's share has been estimated in the single digits.

LIMITS ON DEALMAKING

The proposed plan, which requires court approval, calls for Apple to end existing agreements with the publishers, and be banned for five years from entering e-book distribution contracts designed to keep prices high.

The publishers included Lagardere SCA's Hachette Book Group Inc, News Corp's HarperCollins Publishers LLC, Pearson Plc's Penguin Group (USA) Inc, CBS Corp's Simon & Schuster Inc and Verlagsgruppe Georg von Holtzbrinck GmbH's Macmillan. All settled with U.S. regulators.

pple would also be prevented from cutting deals with suppliers of e-books, movies, music, TV shows and other content for its iPad tablets and iPhones that would likely increase the prices at which rivals may sell such content.

Regulators also want Apple to treat e-book rivals that use its platforms more fairly.

For two years, it would be required to let retailers such as Amazon and Barnes & Noble Inc provide hyperlinks to their own stores within their e-book apps, making it easier for consumers to compare prices.

Apple would also be required to hire a full-time internal antitrust compliance officer and employ a court-appointed external monitor to ensure its compliance with antitrust law.

Government officials said the changes would permit Apple to compete "vigorously and lawfully" in the e-books market and take into account its "pervasive disregard" for the antitrust laws.

"APPLE SEIZED THE MOMENT"

Federal and state officials accused Apple of conspiring with the publishers in late 2009 and early 2010, as the iPad was being launched.

They said the conspiracy caused some e-book prices to rise to $12.99 or $14.99 from the $9.99 that Amazon charged. A core alleged element was the use of "agency agreements" in which publishers set prices and paid 30 percent commissions to Apple.

Evidence damaging Apple's case included emails from Steve Jobs, its chief executive, that the officials said reflected a desire to boost prices.

"Taking advantage of the publisher defendants' fear of and frustration over Amazon's pricing," Cote concluded, "Apple seized the moment and brilliantly played its hand."

In their settlements, the publishers agreed to pay more than $166 million for consumers' benefit. None admitted wrongdoing.

The case is U.S. v. Apple Inc et al, U.S. District Court, Southern District of New York, No. 12-02826.

(Reporting by Jonathan Stempel in New York; Editing by Lisa Von Ahn and Andre Grenon)

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