Apple Unhappy With DOJ's Punitive Proposal, Seeks to Curb Amazon

On August 3, according to foreign media reports, the U.S. Department of Justice and 33 states submitted a series of sentencing recommendations to the U.S. District Court in Manhattan, asking the presiding judge in the case against Apple for its involvement in an e-book price-fixing conspiracy to order Apple to cancel existing agreements with five major publishers. In response, Apple accused the Department of Justice of seeking a court order that is "too harsh and punitive" to regulate Apple's e-book sales.

In a legal filing submitted to the court, Apple stated: “The plaintiffs' proposed order constitutes a severe and punitive interference with Apple's business. The order proposed by the plaintiffs has no precedent.”

Other measures include requiring Apple to terminate its conspiratorial agreements with the five major publishers that raised e-book retail prices, and prohibit it from signing new e-book distribution agreements for five years.

Additionally, the U.S. Department of Justice requested the appointment of an external monitor to oversee Apple’s antitrust policies, with the monitor’s salary being borne by Apple.

This sentencing request by the U.S. government will force Apple to find new ways to collaborate with publishers, potentially affecting Apple's music sales and other media businesses. In 2012, Apple generated $12.9 billion in revenue from the sale of e-books, music, movies, software, and services, accounting for 8.2% of its total annual revenue. Apple launched its e-book business in 2010, enhancing the appeal of its newly introduced iPad tablet as a reading device.

Market research firm Avondale Partners LLC analyst John Bright said in an interview with the media: "From a financial perspective, this will have almost no impact on Apple. However, from a strategic perspective, it will be a setback for Apple. I think Apple now has to find other ways to price e-books. They will continue to collaborate with existing publishers but must develop different solutions."

Prior Ruling of Price Fixing

U.S. District Judge Denise Cote ruled on July 10 that Apple conspired with book publishers to raise e-book retail prices.

The recommendations submitted on Friday still need to be approved by the judge to take effect, with a hearing scheduled for August 9.

Bright pointed out: "These proposals will enhance competition in the e-book market. Generally, increased competitiveness in an industry often leads to a decrease in product or service prices." Bright rated Apple stock as "outperform" and set a target price of $600 per share.

As of Friday's close, in regular trading on the Nasdaq Stock Market, Apple's shares closed at $462.54 per share, up 1.3%.

Aimed at Amazon

In April 2012, the U.S. Department of Justice sued Apple and the five major U.S. publishers, accusing Apple of manipulating e-book prices sold through iBookstore via the so-called "agency pricing model." Under this model, content providers cannot sell the same e-books through other channels at lower prices.

This differs from the "wholesale-retail" model used by market leader Amazon. In the latter model, distributors purchase e-books from content providers and then determine their own retail prices. The U.S. Department of Justice claimed that the conspiracy between Apple and the publishers was intended to prevent Amazon from continuing to sell best-selling e-books at low prices of $9.99.

Industry insiders say that the series of recommendations proposed by the Department of Justice on Friday represents a victory for Apple's competitors, as consumers will be able to conveniently purchase e-books through iPads and iPhones in the future.