Apple Faces Harsh Punishment for E-book Price Fixing

Source: JoeInQueens, via Wikimedia Commons
The Department of Justice today submitted a proposed remedy to the federal court that will issue penalties on Apple Inc. (NASDAQ: AAPL) next week following the court’s finding in early July that Apple conspired with publishers to fix the prices of e-books in the U.S. Thirty-three state attorneys-general joined with the DoJ to propose the penalties.

The DoJ proposes, among other things, to terminate Apple’s existing contracts with five publishers and to refrain for five years from entering new e-books contracts which would prevent Apple from competing on price. The company’s agency model, where the publishers set the price for an e-book and Apple took a 30% cut of the sale, would no longer be allowed.

To “reset competition to the conditions that existed before the conspiracy,” Apple would be required to allow other book retailers such as Inc. (NASDAQ: AMZN) and Barnes & Noble Inc. (NYSE: BKS) to offer links from their own retail apps so that users may compare prices. That requirement would remain in force for two year.

Apple is getting slapped hard because, as the court noted in its verdict, “Without Apple’s orchestration of this conspiracy, it would not have succeeded as it did in the Spring of 2010.”

Apple’s shares are up 1% ast $461.28 in the late afternoon today, in a 52-week range of $385.10 to $705.07.

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