The Justice Department Has Apple's Number
Apple (NAS: AAPL) attracts controversy like Las Vegas attracts sequined shirts and discount buffets. It goes with the territory when you're the biggest, baddest consumer-facing company in the world. But it still has to be awkward for Cupertino when the Department of Justice attacks the company from two different angles simultaneously.
Stop beating that dead horse!
On Thursday, the DoJ told Apple that it can't kick Eastman Kodak (OTC: EKDKQ.PK) while it's down. The bankrupt photography expert tussled with Apple in a variety of courts and trade commissions before filing for Chapter 11 protection, and Apple wanted to lift that automatic halt to the lawsuits. Apple believes that Kodak "misappropriated" the technologies described in an image preview patent and that Kodak doesn't have a legal leg to stand on. Bankruptcy judge Allan Gropper would have none of it.
For one thing, the judge thinks it's "inappropriate" to send attack dogs for the jugular when Kodak is just barely alive to begin with. "The first 45 days are difficult in any bankruptcy case; the debtor has dozens of balls in the air, dozens of matters to take care of," the judge said in Thursday's proceedings. Why make a difficult situation even tougher?
For another, the patents in question are more than likely to be sold in bankruptcy auctions before any final judgment could be reached. If Apple really wants to get these cross-firing cases over and done with, it could simply sit down and work out a settlement with Kodak instead, Gropper says.
You say you want a revolution? Well, you know ...
Separately, the DoJ warned Apple and five of the nation's largest publishing houses that there's a price-fixing investigation coming their way. MacMillan, Penguin, Simon & Schuster, HarperCollins, and Hachette -- small cogs in larger media machines, one and all -- allegedly colluded with Apple's iBooks team to raise prices on e-books.
Amazon.com (NAS: AMZN) used low e-book prices as a tool for getting consumers to buy its Kindle readers, often setting $10 price tags or less on hot best-sellers. Apple changed all that with iBooks for the original iPad, moving to an "agency model" where publishers could set their own prices and just give Apple 30% of the revenue. The accused publishers then supposedly turned around and forced Amazon to accept similar terms. Barnes & Noble (NYS: BKS) then had to follow suit or lose fuel for its Nook e-reader. Before you know it, that was the end of cheap e-books.
The publishers claim that the agency model increases competition, but the government isn't buying that logic. I'd agree with the feds here: How can competition increase when prices go up?
However, as much as I don't mind criticizing Apple when it's doing wrong, I can't see anything horrific behind this particular action. Even if Apple's preference for agency pricing caused changes across the industry, Apple appears to have simply introduced the idea, and the publishers then did the dirty work. It's the free market in action, unseemly as it might feel.
Neither of these government actions is likely to hurt Apple much, of course -- they're more annoying than damaging. The e-book spat could change things in the publishing industry, though. Keep an eye on that sector with the help of our Foolish Watchlist feature if you're looking for a bloodbath.
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At the time this article was published Fool contributorAnders Bylundholds no position in any of the companies mentioned. The Motley Fool owns shares of Apple.Motley Fool newsletter serviceshave recommended buying shares of Amazon.com and Apple and creating a bull call spread position in Apple. Try any of our Foolish newsletter servicesfree for 30 days. We Fools don't all hold the same opinion, but we all believe that considering a diverse range of insights makes us better investors. Check outAnders' holdings and bio, or follow him onTwitterandGoogle+. We have adisclosure policy.