Angry Apple makes hollow threat to bar Kindle, other e-book apps

'Apple is under no duty to allow other retailers to offer apps on the iPad,' company says in reply to DOJ's e-book price-fixing remedies

Apple on Friday responded to e-book price-fixing remedies proposed by the U.S. Department of Justice and 33 state attorneys general with, among other things, an implied threat that it could yank Amazon's Kindle app from its iPad and iPhone App Store.

"Apple is under no duty to allow other retailers to offer apps on the iPad," Apple said in its filing with a federal court.

The threat, however, was largely symbolic: If the court approves the government's proposal, Apple would not be allowed to drop any apps from its store.

The Cupertino, Calif. company's threat was part of its reply to the DOJ's proposal earlier on Friday. The remedies would force Apple to cancel existing e-book agreements with publishers, bar it from retaliating against publishers, and require that Apple let Amazon, Barnes & Noble and others include links to their e-book stores in their iOS apps.

The e-book retailers would be allowed to include links in their apps for two years, the DOJ said in its filing with the court. In a separate statement, the DOJ argued that the links would "reset competition to the conditions that existed before the conspiracy" and "let consumers ...easily compare Apple's prices with those of its competitors."

Such in-app links have been banned by Apple since 2011, when the company unveiled new App Store policies related to subscriptions and other digital content, saying that it deserved a 30% cut of all such revenue.

At the time, then-CEO Steve Jobs put it plainly: "Our philosophy is simple -- when Apple brings a new subscriber to the app, Apple earns a 30% share," he said in a February 2011 statement. "When the publisher brings an existing or new subscriber to the app, the publisher keeps 100% and Apple earns nothing."

Apple also said the new rules, which covered e-book publishers as well as newspaper and magazine publishers, required that content sellers remove links in their apps to external websites where customers could buy books or subscriptions.

Several months later, Amazon caved to Apple and removed links in its iOS apps that took customers directly to its Web-based store. Since then, Amazon's customers have had to exit the Kindle app, call up a browser and manually steer to the company's website to purchase a book. Other e-book retailers were forced to do the same to retain their apps in Apple's market.

Apple's own iBooks has been the exception; a button there lets customers buy books without exiting the app or opening a browser.

On Friday, Apple blasted the DOJ's suggestion that Apple exempt e-book retailers from long-standing App Store rules.

"Plaintiffs' proposed injunction would require Apple to carve out an exception to its blanket rule -- applicable to the more than 850,000 apps in the App Store -- that a commission applies to in-app sales of digital goods, and it would allow e-book retailers to make such sales commission-free," Apple complained.

The company also argued that the government's dictates about the App Store have no connection to the e-book pricing conspiracy case it lost in July when U.S. District Court Judge Denise Cote ruled that Apple had violated antitrust laws. Apple has already said it will appeal the case.

Most striking, Apple implicitly threatened to pull the apps of e-book retailers from the App Store.

"Apple is under no duty to allow other retailers to offer apps on the iPad in the first place, much less on terms that subsidize their operations," the company's lawyers said in Friday's filing. "Nevertheless, Apple allows all e-book retailer apps that are compliant with its policies -- including those offered by Amazon, Barnes & Noble and other competing e-book retailers -- to be offered in its App Store. It also permits consumers to download e-books purchased through another e-book retailer's website or bookstore onto its e-reader devices without charge."

Any move by Apple to pull apps, however, would be stymied by another provision in the DOJ proposal. "For any E-book App that any Person offered to consumers through Apple's App Store as of July 10, 2013, Apple shall continue to permit such Person to offer that E-book App, or updates to that E-book App," the remedies stated.

Later in the response, Apple called the commission exemption "outrageous," claimed that the App Store "indisputably benefits the nation's economy," and argued that the change would only cement Amazon's dominance of the e-book selling business.

The 30% commission on in-app purchases, and the popularity of the App Store, have been major contributors to Apple's bottom line. In the second quarter, the one most recently reported, Apple booked nearly $4 billion in revenue, or about 11% of its total, from the division that included the App Store, iTunes store and other services.

The DOJ remedies must past muster with the court, which will next meet Aug. 9 for a hearing on the proposal.

Gregg Keizer covers Microsoft, security issues, Apple, Web browsers and general technology breaking news for Computerworld. Follow Gregg on Twitter at  @gkeizer, on Google+ or subscribe to Gregg's RSS feed . His email address is gkeizer@computerworld.com.

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