Apple Inc. is headed for a showdown with the U.S. government and dozens of states, which Friday urged that tough new restrictions be imposed on the company for illegally conspiring to raise e-book prices.
The changes proposed by the U.S. Department of Justice and 33 U.S. states and territories are designed to stop Apple from committing further antitrust violations after U.S. District Judge Denise Cote on July 10 said Apple had 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 is fighting back. In a court filing, it called the proposed injunction a "draconian and punitive intrusion" into its business that would hurt consumers and competition, and that it was "wildly out of proportion."
"The resulting cost of this relief -- not only in dollars but also lost opportunities for American businesses and consumers -- would be vast," it said.
Cote will weigh both the arguments at an Aug. 9 hearing in her Manhattan courtroom. A damages trial might follow.
Despite Apple's protests, analysts have said the bigger issue for the Cupertino, Calif.-based company in this case might be damage to its reputation, not financial harm.
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.
The government's plan, which still needs court approval, would require that Apple end its contracts with the five publishers and be banned for five years from entering contracts that would effectively raise prices of e-books sold by rivals.
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.
Apple would also be blocked from cutting deals with providers of movies, music and TV programs for its iPad tablets and iPhones that would likely increase the prices at which rivals might sell such content. It would also require providers to lower prices for Apple if they lower them for rivals.