Unites States of America v. Apple, Inc. et al

Filing 363

DECLARATION of Lawrence E. Buterman in Support re: 361 Memorandum of Law in Support. Document filed by Unites States of America. (Buterman, Lawrence)

UNITED STATES DISTRICT COURT
FOR THE SOUTHERN DISTRICT OF NEW YORK

__________________________________________
)
)
)
Plaintiff,
)
)
v.
)
)
APPLE, INC., et al.,
)
)
Defendants.
)
__________________________________________)
UNITED STATES OF AMERICA,

Civil Action No. 12-cv-2826 (DLC)

__________________________________________
)
THE STATE OF TEXAS, et al.,
)
)
Plaintiffs,
)
)
v.
)
)
PENGUIN GROUP (USA) INC., et al.,
)
)
Defendants.
)
__________________________________________)

Civil Action No. 12-cv-03394 (DLC)

DECLARATION OF LAWRENCE E. BUTERMAN IN SUPPORT OF
PLAINTIFFS’ REVISED PROPOSED INJUNCTION

1

I, LAWRENCE E. BUTERMAN, hereby declare as follows:
1.

I am a Trial Attorney with the Antitrust Division of the Department of Justice,

counsel for the United States of America in U.S. v. Apple, Civil Action No. 12-cv-2826. I am
admitted to practice in the State of New York, the United States District Courts for the Southern
and Eastern Districts of New York and the United States Court of Appeals for the Second
Circuit, and am a member in good standing with this Court. I submit this declaration in support
of Plaintiffs’ revised proposed injunction against Apple.
2.

Attached as Exhibit 1 is a true and correct copy of Plaintiffs’ Revised Proposed

Injunction.
3.

Attached as Exhibit 2 is a true and correct copy of a document comparing

Plaintiffs’ Revised Proposed Injunction to Plaintiffs’ initial proposed injunction, submitted to the
Court on August 2, 2013. The comparison was generated using Microsoft Word.
4.

Attached as Exhibit 3 are true and correct copies of selected pages from the

deposition of Mr. Eddy Cue, conducted in this matter on March 12 and March 13, 2013.
5.

Attached as Exhibit 4 is a true and correct copy of a printout from the website of

Zappos.com, describing the company’s iPad shopping app, and the fact that it allows individuals
to purchase products from the app. The url is http://www.zappos.com/zappos-ipad-app
6.

Attached as Exhibit 5 is a true and correct copy of a screenshot taken from

amazon.com’s iPad shopping app, indicating that one can buy various good, including physical
books.

2

7.

Attached as Exhibit 6 is a true and correct copy of Apple’s “Getting Started with

In-App Purchase on iOS and OS X,” version 3.1, dated February 13, 2013. The document is
available at https://developer.apple.com/in-app-purchase/In-App-Purchase-Guidelines.pdf
8.

Attached as Exhibit 7 is a true and correct copy of an article by Claire Cain Miller

& Miguel Helft, published by the New York Times on February 1, 2011, entitled Apple Moves to
Tighten Control of App Store.
9.

Attached as Exhibit 8 is a true and correct copy of an article by David Carnoy,

published on CNET Reviews on June 9, 2011, entitled What Apple’s Latest Rules Change Means
for Kindle, Nook, and Kobo E-reader Apps.
10.

Attached as Exhibit 9 is a true and correct copy of a document produced by Apple

in this matter, bearing identification number APLEBOOK-03306618.
11.

Attached as Exhibit 10 is a true and correct copy of an October 2010 version of

Apple’s App Store Review Guidelines, produced by Apple in this matter, bearing identification
number APLEBOOK-03322259.
12.

Attached as Exhibit 11 are true and correct copies of documents produced by

Apple in this matter bearing identification numbers APLEBOOK-03345727, APLEBOOK03345725 and APLEBOOK-03345975.

Dated: August 23, 2013

Lawrence E. Buterman

3

EXHIBIT 1

UNITED STATES DISTRICT COURT
FOR THE SOUTHERN DISTRICT OF NEW YORK
__________________________________________
)
UNITED STATES OF AMERICA,
)
)
Plaintiff,
)
)
Civil Action No. 1:12-CV-2826
v.
)
)
APPLE, INC., et al.,
)
PLAINTIFF UNITED STATES’
)
FINAL JUDGMENT
Defendants.
)
__________________________________________)
and
)
THE STATE OF TEXAS, et al.,
)
PLAINTIFF STATES’
)
ORDER ENTERING
Plaintiffs,
)
PERMANENT INJUNCTION
)
v.
)
)
Civil Action No. 1:12-CV-3394 1
PENGUIN GROUP (USA) INC., et al.,
)
)
Defendants.
)
__________________________________________)

DENISE L. COTE,
UNITED STATES DISTRICT JUDGE
I. DEFINITIONS
As used in this Final Judgment and Order Entering Permanent Injunction:
A.

“Agency Agreement” means an agreement between an E-book Publisher and an

E-book Retailer under which the Retailer acts as an agent of the Publisher and is paid a

1

Pursuant to the agreement of the parties and Court order, the proceedings in Texas et al. v. Penguin Group (USA) Inc.
et al., Civ. A. No. 1:12-CV-3394, have been bifurcated. Issues related to non-injunctive relief, including damages
and civil penalties, will be addressed in subsequent proceedings.

commission (or a portion of the Retail Price) in connection with the sale of one or more of the
Publisher’s E-books.
B.

“Apple” means Apple, Inc.

C.

“E-book” means an electronically formatted book designed to be read on a

computer, a handheld device, or other electronic devices capable of visually displaying E-books.
D.

“E-book App” means a software application sold or distributed through Apple’s

“App Store” relating to the reading, browsing, purchase, sale, recommendation, selection, or
cataloging of any book or E-book.
E.

“E-book Publisher” means any Person that, by virtue of a contract or other

relationship with an E-book’s author or other rights holder, owns or controls the necessary
copyright or other authority (or asserts such ownership or control) over any E-book sufficient to
distribute the E-book within the United States to E-book Retailers and to permit such E-book
Retailers to sell the E-book to consumers in the United States. Publisher Defendants are E-book
Publishers. For purposes of this Final Judgment, E-book Retailers are not E-book Publishers.
F.

“E-book Retailer” means any Person that lawfully sells (or seeks to lawfully sell)

E-books to consumers in the United States, or through which a Publisher Defendant, under an
Agency Agreement, sells E-books to consumers. Apple is an E-book Retailer. For purposes of
this Final Judgment, Publisher Defendants and all other Persons whose primary business is book
publishing are not E-book Retailers.
G.

“Effective Date” means the date, under Section VIII.A of this Final Judgment, on

which this Final Judgment takes effect.

2

H.

“External Compliance Monitor” means the person appointed by the Court to

perform the duties described in Section VI of this Final Judgment.
I.

“Final Judgment” means this document: the Final Judgment in United States v.

Apple, Inc., et al., Civil Action No. 1:12-CV-2826, and the Order Entering Permanent Injunction
in The State of Texas, et al. v. Penguin Group (USA) Inc., et al., Civil Action No. 1:12-CV-3394.
J.

“Hachette” means Hachette Book Group, Inc.

K.

“HarperCollins” means HarperCollins Publishers L.L.C.

L.

“Macmillan” means Holtzbrinck Publishers, LLC d/b/a Macmillan and

Verlagsgruppe Georg von Holtzbrinck GmbH.
M.

“Penguin” means Penguin Group (USA), Inc., The Penguin Group, a division of

U.K. corporation Pearson plc, The Penguin Publishing Company Ltd, Dorling Kindersley
Holdings Limited, and Penguin Random House, a joint venture by and between Pearson plc and
Bertelsmann SE & Co. KGaA, and any similar joint venture between Penguin and Random House
Inc.
N.

“Person” means any natural person, corporation, company, partnership, joint

venture, firm, association, proprietorship, agency, board, authority, commission, office, or other
business or legal entity, whether private or governmental.
O.

“Plaintiff States” means the States and Commonwealths of Alabama, Alaska,

Arizona, Arkansas, Colorado, Connecticut, Delaware, Idaho, Illinois, Indiana, Iowa, Kansas,
Louisiana, Maryland, Massachusetts, Michigan, Missouri, Nebraska, New Mexico, New York,
North Dakota, Ohio, Pennsylvania, Puerto Rico, South Dakota, Tennessee, Texas, Utah, Vermont,
Virginia, West Virginia, and Wisconsin and the District of Columbia.
3

P.

“Publisher Defendants” means Hachette, HarperCollins, Macmillan, Penguin, and

Simon & Schuster.
Q.

“Representative Plaintiff States” means, as of the Effective Date of this Final

Judgment, the States of Texas and Connecticut. The Plaintiff States may designate a different
Plaintiff State as a substitute Representative Plaintiff State at any time by communicating the
change in writing to Apple and the United States.
R.

“Retail Price” means the price at which an E-book Retailer or, under an Agency

Agreement, an E-book Publisher sells an E-book to a consumer.
S.

“Retail Price MFN” means a term in an agreement between an E-book Publisher

and an E-book Retailer under which the Retail Price at which an E-book Retailer or, under an
Agency Agreement, an E-book Publisher sells one or more E-books to consumers depends in any
way on the Retail Price, or discounts from the Retail Price, at which any other E-book Retailer or
the E-book Publisher, under an Agency Agreement, through any other E-book Retailer sells the
same E-book(s) to consumers.
T.

“Simon & Schuster” means Simon & Schuster, Inc.
II. APPLICABILITY

This Final Judgment applies to Apple and each of its affiliates, subsidiaries, officers,
directors, agents, employees, successors, and assigns, to any successor to any substantial part of
the business, and to all other Persons acting in concert with Apple and having actual notice of this
Final Judgment.
III. PROHIBITED CONDUCT

4

A.

Apple shall not enforce any Retail Price MFN in any agreement with an E-book

Publisher relating to the sale of E-books.
B.

Apple shall not enter into any agreement with an E-book Publisher relating to the

sale of E-books that contains a Retail Price MFN.
C.

Apple shall not enter into any agreement with a Publisher Defendant that restricts,

limits, or impedes Apple’s ability to set, alter, or reduce the Retail Price of any E-book or to offer
price discounts or any other form of promotions to encourage consumers to purchase one or more
E-books. The prohibitions in this Section III.C shall expire, for agreements between Apple and a
Publisher Defendant, on the following dates:
1.

For agreements between Apple and Hachette: 24 months after the

Effective Date of this Final Judgment;
2.

For agreements between Apple and Harper Collins: 30 months after the

Effective Date of this Final Judgment;
3.

For agreements between Apple and Simon & Schuster: 36 months after

the Effective Date of this Final Judgment;
4.

For agreements between Apple and Penguin: 42 months after the Effective

Date of this Final Judgment; and
5.

For agreements between Apple and Macmillan: 48 months after the

Effective Date of this Final Judgment.
D.

Apple shall not (1) retaliate against or punish, (2) threaten to retaliate against or

punish, or (3) urge another Person to retaliate against or punish any E-book Publisher for refusing
to enter into an agreement with Apple relating to the sale of E-books or for the terms on which the
5

E-book Publisher sells E-books through any other E-book Retailer. This provision does not
require Apple to enter into an agreement with an E-book Publisher or E-book Retailer, or seek to
prevent Apple from negotiating terms of agreement in good faith.
E.

Apple shall not communicate, directly or indirectly, to any E-book Publisher (1) the

status of its contractual negotiations with any other E-book Publisher; (2) the actual or proposed
contractual terms or business plans or arrangements it has with any other E-book Publisher, or (3)
any non-public competitively sensitive information it learns from any other E-book Publisher,
including, but not limited to:
a.

the E-book Publisher’s business plans or strategies;

b.

the E-book Publisher’s past, present, or future wholesale or retail prices or

pricing strategies for books licensed or sold in any format (e.g., print books, E-books, or audio
books);
c.

any terms in the E-book Publisher’s agreement(s) with any retailer of books

licensed or sold in any format; or
d.

any terms in the E-book Publisher’s agreement(s) with any author.

Nothing in this Section III.E prohibits Apple from developing and offering to E-book
Publishers a standard form contract containing the terms on which Apple would agree to sell the
E-book Publishers’ E-books, and so informing an E-book Publisher that it is a standard from; nor
shall this prohibit Apple from publicly communicating the retail price of E-books available on the
iBookstore.
F.

Apple shall not enter into or maintain any agreement with any E-book Publisher or

supplier of any other form of content (e.g., music, other audio, movies, television shows, or apps)
6

where such agreement likely will increase, fix, or set the price at which other E-book Retailers or
retailers of other forms of content can acquire or sell E-books or other forms of content.
Nothing in this Section III.F prohibits Apple from entering into or maintaining an
agreement with an E-book Publisher or supplier of any other form of content merely specifying
prices that Apple must pay for the content.
G.

Apple shall not enter into or maintain any agreement with any other E-book

Retailer where such agreement likely will increase, fix, stabilize, or set the prices or establish other
terms on which Apple or the other E-book Retailer sells E-books to consumers.
IV. REQUIRED CONDUCT
A.

On the Effective Date of this Final Judgment, Apple shall terminate any Agency

Agreement with a Publisher Defendant.
B.

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, through the App Store.
C.

Apple shall apply the same terms and conditions to the sale or distribution of an

E-book App through Apple’s App Store as Apple applies to all other apps sold or distributed
through Apple’s App Store, except that, for two years after the Effective Date of this Final
Judgment, Apple shall allow any E-book Retailer to provide a hyperlink to its website or
e-bookstore in or through its E-book App without either compensating Apple for any sales of
E-books that follow consumers’ use of such hyperlink or requiring the E-book Retailer to include
functionality in the E-book App (e.g., a “buy button”) the use of which might impose an obligation
on the E-book Retailer to compensate Apple.
7

D.

Apple shall furnish to the United States and the Representative Plaintiff States,

within ten business days of receiving such information, any information that reasonably suggests
to Apple that its suppliers of any form of content (e.g., books, music, other audio, movies,
television shows, or apps) have impermissibly coordinated or are impermissibly coordinating on
the terms on which they supply or offer their content to Apple or to any other Person.
V. ANTITRUST COMPLIANCE
To ensure its compliance with this Final Judgment and the antitrust laws, Apple shall
perform the activities enumerated below in Sections V.A through V.J of this Final Judgment.
Within thirty days after the Effective Date of this Final Judgment, Apple’s Audit Committee, or
another committee comprised entirely of outside directors (i.e., directors not also employed by
Apple), shall designate a person not employed by Apple as of the Effective Date of the Final
Judgment to serve as Antitrust Compliance Officer, who shall report to the Audit Committee or
equivalent committee of Apple’s Board of Directors and shall be responsible for supervising
Apple’s performance of the following:
A.

furnishing a copy of this Final Judgment, within thirty days of its Effective Date, to

each of Apple’s officers and directors and to each of Apple’s employees engaged, in whole or in
part, in activities relating to Apple’s iBookstore;
B.

furnishing a copy of this Final Judgment in a timely manner to each officer,

director, or employee who succeeds to any position identified in Section V.A of this Final
Judgment;
C.

ensuring that each person identified in Sections V.A and V.B of this Final

Judgment receives at least four hours of training annually on the meaning and requirements of this
8

Final Judgment and the antitrust laws, such training to be delivered by an attorney with relevant
experience in the field of antitrust law;
D.

obtaining, within sixty days after the Effective Date of this Final Judgment and on

each anniversary of the Effective Date of this Final Judgment, from each person identified in
Sections V.A and V.B of this Final Judgment, and thereafter maintaining, a certification that each
such person (a) has read, understands, and agrees to abide by the terms of this Final Judgment; and
(b) is not aware of any violation of this Final Judgment or the antitrust laws or has reported any
potential violation to the Antitrust Compliance Officer;
E.

conducting, in consultation with the External Compliance Monitor, an annual

antitrust compliance audit covering each person identified in Sections V.A and V.B of this Final
Judgment, and maintaining all records pertaining to such audits;
F.

communicating annually to Apple’s employees that they may disclose to the

Antitrust Compliance Officer, without reprisal, information concerning any potential violation of
this Final Judgment or the antitrust laws;
G.

taking appropriate action, within three business days of discovering or receiving

credible information concerning an actual or potential violation of this Final Judgment, to
terminate or modify Apple’s conduct to assure compliance with this Final Judgment; and, within
seven days of discovering or receiving such information, providing to the United States, the
Representative Plaintiff States, and the External Compliance Monitor a description of the actual or
potential violation of this Final Judgment and the corrective actions taken;
H.

furnishing to the United States, the Representative Plaintiff States, and the External

Compliance Monitor on a quarterly basis electronic copies of any non-privileged communications
9

with any Person containing allegations of Apple’s noncompliance with any provisions of this Final
Judgment or the antitrust laws;
I.

maintaining, and furnishing to the United States, the Representative Plaintiff

States, and the External Compliance Monitor on a quarterly basis, a log of all oral and written
communications, excluding privileged or public communications, between or among any person
identified in Sections V.A or V.B of this Final Judgment and
1.

any person employed by or associated with another E-book Retailer, relating, in
whole or in part, to E-books, devices for reading E-books, or E-book Apps; or

2.

employees or representatives of two or more E-book Publishers, relating, in whole
or in part, to E-books, devices for reading E-books, or E-book Apps,

including, but not limited to, an identification (by name, employer, and job title) of the author and
recipients of and all participants in the communication, the date, time, and duration of the
communication, the medium of the communication, and a description of the subject matter of the
communication; and
J.

providing to the United States, the Representative Plaintiff States, and the External

Compliance Monitor annually, on or before the anniversary of the Effective Date of this Final
Judgment, a written statement as to the fact and manner of Apple’s compliance with Sections III
and IV of this Final Judgment.
VI. EXTERNAL COMPLIANCE MONITOR
A.

The Court shall appoint an External Compliance Monitor to undertake the

responsibilities and duties described in this Section VI. On or before the Effective Date of this

10

Final Judgment, the United States and the Representative Plaintiff States jointly shall recommend
to the Court one or more persons to serve as External Compliance Monitor.
B.

The External Compliance Monitor shall have the power and authority to monitor

Apple’s compliance with the terms of this Final Judgment, to review and evaluate Apple’s existing
internal antitrust compliance policies and procedures, and to recommend to Apple changes to
address any deficiencies in those policies and procedures.
C.

The External Compliance Monitor shall conduct an initial review to assess whether

Apple’s internal antitrust compliance policies and procedures in existence at the time of his or her
appointment are reasonably designed to detect and prevent violations of the antitrust laws.
Within 180 days of his or her appointment by the Court, the External Compliance Monitor shall
provide a written report to Apple, the United States, and the Representative Plaintiff States setting
forth his or her assessment of Apple’s internal antitrust compliance policies and procedures and, if
appropriate, making recommendations reasonably designed to improve Apple’s policies and
procedures for ensuring antitrust compliance.
D.

The External Compliance Monitor may, at any time prior to the expiration of this

Final Judgment, provide one or more additional written reports to Apple, the United States, and the
Representative Plaintiff States setting forth additional recommendations reasonably designed to
improve Apple’s policies and procedures for ensuring antitrust compliance. The External
Compliance Monitor may provide such additional reports on his or her own initiative or at the
request of the Court, the United States, or the Representative Plaintiff States.
E.

Apple shall adopt, within 60 days after it receives a report from the External

Compliance Monitor concerning its internal antitrust compliance policies and procedures, all
11

recommendations to which it does not object as unduly burdensome, impractical, or costly. If
Apple objects to any recommendation as unduly burdensome, impractical, or costly, it shall
propose in writing to the External Compliance Monitor, the United States, and the Representative
Plaintiff States, within 30 days after it receives the report, an alternative policy, procedure, or
system designed to achieve the same objective or purpose. If Apple and the External Compliance
Monitor fail, after good faith discussions, to agree on an alternative policy or procedure within 30
days of Apple’s objection to a recommendation, Apple shall promptly adopt the External
Compliance Monitor’s initial recommendation or, after consultation with the United States and the
Representative Plaintiff States, apply to this Court within 14 days for relief.
F.

The External Compliance Monitor shall file quarterly reports with the United

States, the Representative Plaintiff States, and the Court setting forth Apple’s efforts to comply
with the Final Judgment. To the extent such reports contain information that the External
Compliance Monitor deems confidential, such reports shall not be filed in the public docket of the
Court.
G.

If the External Compliance Monitor in the exercise of his or her responsibilities

under this Section VI discovers or receives evidence that suggests to the External Compliance
Monitor that Apple is violating or has violated this Final Judgment or the antitrust laws, the
External Compliance Monitor shall promptly provide that information to the United States and the
Representative Plaintiff States.
H.

Apple shall assist the External Compliance Monitor in performance of the

responsibilities set forth in this Section VI. Apple shall take no action to interfere with or to

12

impede the External Compliance Monitor’s accomplishment of its responsibilities. The External
Compliance Monitor may, on reasonable notice to Apple:
1.

interview, either informally or on the record, any Apple personnel, who

may have counsel present; any such interview to be subject to the reasonable convenience of such
personnel and without restraint or interference by Apple;
2.

inspect and copy any documents in the possession, custody, or control of

3.

require Apple to provide compilations of documents, data, or other

Apple; and

information, and to submit reports to the External Compliance Monitor containing such material,
in such form as the External Compliance Monitor may reasonably direct.
I.

Any objections by Apple to actions by the External Compliance Monitor in

fulfillment of the External Compliance Monitor’s responsibilities must be conveyed in writing to
the United States and the Representative Plaintiff States within ten calendar days after the action
giving rise to the objection.
J.

The External Compliance Monitor may hire, subject to the approval of the United

States, after consultation with the Representative Plaintiff States, any consultants, accountants,
attorneys, or other persons reasonably necessary to fulfilling the External Compliance Monitor’s
responsibilities. The External Compliance Monitor and any persons hired to assist the External
Compliance Monitor shall serve at the cost and expense of Apple, on such terms and conditions as
the United States, after consultation with the Representative Plaintiff States, approves, including,
but not limited to, the execution of customary confidentiality agreements. The compensation of
the External Compliance Monitor and any persons hired to assist the External Compliance Monitor
13

shall be on reasonable and customary terms commensurate with the individuals’ experience and
responsibilities. The External Compliance Monitor shall submit a quarterly expense report to the
United States and the Representative Plaintiff States.
K.

If the United States, after consultation with the Representative Plaintiff States, or

Apple determines that the External Compliance Monitor has ceased to act or failed to act diligently
or in a cost-effective manner, it may recommend that the Court appoint a substitute External
Compliance Monitor.
VII. PLAINTIFFS’ ACCESS
A.

For purposes of determining or securing compliance with this Final Judgment, or of

determining whether the Final Judgment should be modified or vacated, and subject to any legally
recognized privilege, from time to time duly authorized representatives of the United States
Department of Justice Antitrust Division or the Representative Plaintiff States, including, but not
limited to, consultants and other persons retained by the United States or the Representative
Plaintiff States, shall, upon written request of an authorized representative of the Assistant
Attorney General in charge of the Antitrust Division or a joint written request by authorized
representatives of each Representative Plaintiff State, and on reasonable notice to Apple, be
permitted:
1.

access during regular business hours to inspect and copy, or at the option of

the United States or the Representative Plaintiff States, to require Apple to provide to the United
States and the Representative Plaintiff States hard copy or electronic copies of all books, ledgers,
accounts, records, data, and documents in the possession, custody, or control of Apple, relating to
any matters contained in this Final Judgment; and
14

2.

to interview, either informally or on the record, Apple’s officers,

employees, or agents, who may have their individual counsel present, regarding such matters.
The interviews shall be subject to the reasonable convenience of the interviewee and without
restraint or interference by Apple.
B.

Upon the written request of an authorized representative of the Assistant Attorney

General in charge of the Antitrust Division or a joint written request by authorized representatives
of each Representative Plaintiff State, Apple shall submit written reports or respond to written
interrogatories, under oath, relating to any of the matters contained in this Final Judgment.
Written reports authorized under this paragraph may require Apple to conduct, at its cost, an
independent audit or analysis relating to any of the matters contained in this Final Judgment.
C.

No information or documents obtained by the means provided in this Section shall

be divulged by the United States or any Plaintiff State to any person other than an authorized
representative of the executive branch of the United States, the Attorney General’s Office of any
Plaintiff State, or the External Compliance Monitor, except in the course of legal proceedings to
which the United States or the relevant Plaintiff State(s) is a party (including, but not limited to,
grand jury proceedings), or for the purpose of securing compliance with this Final Judgment, or as
otherwise required by law.
D.

If at the time information or documents are furnished by Apple to the United States

and the Representative Plaintiff States, Apple represents and identifies in writing the material in
any such information or documents to which a claim of protection may be asserted under Rule
26(c)(1)(G) of the Federal Rules of Civil Procedure, and Apple marks each pertinent page of such
material, “Subject to claim of protection under Rule 26(c)(1)(G) of the Federal Rules of Civil
15

Procedure,” then the United States and the Representative Plaintiff States shall give Apple ten
calendar days notice prior to divulging such material in any civil or administrative proceeding.
VIII. ADDITIONAL PROVISIONS
A.

This Final Judgment shall take effect 30 days after the date on which it is entered.

If the Final Judgment is stayed, all time periods in the Final Judgment will be tolled during the
stay.
B.

This Court retains jurisdiction to enable the United States, the Representative

Plaintiff States, any other Plaintiff State (after consultation with the United States and the
Representative Plaintiff States), or Apple to apply to this Court at any time for, or to act sua sponte
to issue, further orders and directions as may be necessary or appropriate to carry out or construe
this Final Judgment, to modify any of its provisions, to enforce compliance, and to punish
violations of its provisions.
C.

This Final Judgment shall expire by its own terms and without further action of this

Court five years after its Effective Date, provided that, at any time prior to its expiration, the Court
may sua sponte or on the application of the United States or any Plaintiff State extend the Final
Judgment by one or more one-year periods, if necessary to ensure effective relief.
SO ORDERED:

DENISE L. COTE
UNITED STATES DISTRICT JUDGE
Dated:

16

EXHIBIT 2

UNITED STATES DISTRICT COURT
FOR THE SOUTHERN DISTRICT OF NEW YORK
__________________________________________
)
UNITED STATES OF AMERICA,
)
)
Plaintiff,
)
)
Civil Action No. 1:12-CV-2826
v.
)
)
APPLE, INC., et al.,
)
PLAINTIFF UNITED STATES’
)
FINAL JUDGMENT
Defendants.
)
__________________________________________)
and
)
THE STATE OF TEXAS, et al.,
)
PLAINTIFF STATES’
)
ORDER ENTERING
Plaintiffs,
)
PERMANENT INJUNCTION
)
v.
)
)
Civil Action No. 1:12-CV-3394 1
PENGUIN GROUP (USA) INC., et al.,
)
)
Defendants.
)
__________________________________________)

DENISE L. COTE,
UNITED STATES DISTRICT JUDGE
I. DEFINITIONS
As used in this Final Judgment and Order Entering Permanent Injunction:
A.

“Agency Agreement” means an agreement between an E-book Publisher and an

E-book Retailer under which the Retailer acts as an agent of the Publisher and is paid a

1

Pursuant to the agreement of the parties and Court order, the proceedings in Texas et al. v. Penguin Group (USA) Inc.
et al., Civ. A. No. 1:12-CV-3394, have been bifurcated. Issues related to non-injunctive relief, including damages
and civil penalties, will be addressed in subsequent proceedings.

commission (or a portion of the Retail Price) in connection with the sale of one or more of the
Publisher’s E-books.
B.

“Apple” means Apple, Inc.

C.

“E-book” means an electronically formatted book designed to be read on a

computer, a handheld device, or other electronic devices capable of visually displaying E-books.
D.

“E-book App” means a software application sold or distributed through Apple’s

“App Store” relating to the reading, browsing, purchase, sale, recommendation, selection, or
cataloging of any book or E-book.
E.

“E-book Publisher” means any Person that, by virtue of a contract or other

relationship with an E-book’s author or other rights holder, owns or controls the necessary
copyright or other authority (or asserts such ownership or control) over any E-book sufficient to
distribute the E-book within the United States to E-book Retailers and to permit such E-book
Retailers to sell the E-book to consumers in the United States. Publisher Defendants are E-book
Publishers. For purposes of this Final Judgment, E-book Retailers are not E-book Publishers.
F.

“E-book Retailer” means any Person that lawfully sells (or seeks to lawfully sell)

E-books to consumers in the United States, or through which a Publisher Defendant, under an
Agency Agreement, sells E-books to consumers. Apple is an E-book Retailer. For purposes of
this Final Judgment, Publisher Defendants and all other Persons whose primary business is book
publishing are not E-book Retailers.
G.

“Effective Date” means the date, under Section VIII.A of this Final Judgment, on

which this Final Judgment takes effect.

2

H.

“External Compliance Monitor” means the person appointed by the Court to

perform the duties described in Section VI of this Final Judgment.
I.

“Final Judgment” means this document: the Final Judgment in United States v.

Apple, Inc., et al., Civil Action No. 1:12-CV-2826, and the Order Entering Permanent Injunction
in The State of Texas, et al. v. Penguin Group (USA) Inc., et al., Civil Action No. 1:12-CV-3394.
J.

“Hachette” means Hachette Book Group, Inc.

K.

“HarperCollins” means HarperCollins Publishers L.L.C.

L.

“Macmillan” means Holtzbrinck Publishers, LLC d/b/a Macmillan and

Verlagsgruppe Georg von Holtzbrinck GmbH.
M.

“Penguin” means Penguin Group (USA), Inc., The Penguin Group, a division of

U.K. corporation Pearson plc, The Penguin Publishing Company Ltd, Dorling Kindersley
Holdings Limited, and Penguin Random House, a joint venture by and between Pearson plc and
Bertelsmann SE & Co. KGaA, and any similar joint venture between Penguin and Random House
Inc.
N.

“Person” means any natural person, corporation, company, partnership, joint

venture, firm, association, proprietorship, agency, board, authority, commission, office, or other
business or legal entity, whether private or governmental.
O.

“Plaintiff States” means the States and Commonwealths of Alabama, Alaska,

Arizona, Arkansas, Colorado, Connecticut, Delaware, Idaho, Illinois, Indiana, Iowa, Kansas,
Louisiana, Maryland, Massachusetts, Michigan, Missouri, Nebraska, New Mexico, New York,
North Dakota, Ohio, Pennsylvania, Puerto Rico, South Dakota, Tennessee, Texas, Utah, Vermont,
Virginia, West Virginia, and Wisconsin and the District of Columbia.
3

P.

“Publisher Defendants” means Hachette, HarperCollins, Macmillan, Penguin, and

Simon & Schuster.
Q.

“Representative Plaintiff States” means, as of the Effective Date of this Final

Judgment, the States of Texas and Connecticut. The Plaintiff States may designate a different
Plaintiff State as a substitute Representative Plaintiff State at any time by communicating the
change in writing to Apple and the United States.
R.

“Retail Price” means the price at which an E-book Retailer or, under an Agency

Agreement, an E-book Publisher sells an E-book to a consumer.
S.

“Retail Price MFN” means a term in an agreement between an E-book Publisher

and an E-book Retailer under which the Retail Price at which an E-book Retailer or, under an
Agency Agreement, an E-book Publisher sells one or more E-books to consumers depends in any
way on the Retail Price, or discounts from the Retail Price, at which any other E-book Retailer or
the E-book Publisher, under an Agency Agreement, through any other E-book Retailer sells the
same E-book(s) to consumers.
T.

“Simon & Schuster” means Simon & Schuster, Inc.
II. APPLICABILITY

This Final Judgment applies to Apple and each of its affiliates, subsidiaries, officers,
directors, agents, employees, successors, and assigns, to any successor to any substantial part of
the business, and to all other Persons acting in concert with Apple and having actual notice of this
Final Judgment.
III. PROHIBITED CONDUCT

4

A.

For five years after the Effective Date of this Final Judgment, Apple shall not

enforce any Retail Price MFN in any agreement with an E-book Publisher relating to the sale of
E-books.
B.

For five years after the Effective Date of this Final Judgment, Apple shall not enter

into any agreement with an E-book Publisher relating to the sale of E-books that contains a Retail
Price MFN.
C.

For five years after the Effective Date of this Final Judgment, Apple shall not enter

into any agreement with a Publisher Defendant that restricts, limits, or impedes Apple’s ability to
set, alter, or reduce the Retail Price of any E-book or to offer price discounts or any other form of
promotions to encourage consumers to purchase one or more E-books. The prohibitions in this
Section III.C shall expire, for agreements between Apple and a Publisher Defendant, on the
following dates:
1.

For agreements between Apple and Hachette: 24 months after the

Effective Date of this Final Judgment;
2.

For agreements between Apple and Harper Collins: 30 months after the

Effective Date of this Final Judgment;
3.

For agreements between Apple and Simon & Schuster: 36 months after

the Effective Date of this Final Judgment;
4.

For agreements between Apple and Penguin: 42 months after the Effective

Date of this Final Judgment; and
5.

For agreements between Apple and Macmillan: 48 months after the

Effective Date of this Final Judgment.
5

D.

Apple shall not (1) retaliate against or punish, (2) threaten to retaliate against or

punish, or (3) urge another Person to retaliate against or punish any E-book Publisher for refusing
to enter into an agreement with Apple relating to the sale of E-books or for the terms on which the
E-book Publisher sells E-books through any other E-book Retailer. This provision does not
require Apple to enter into an agreement with an E-book Publisher or E-book Retailer, or seek to
prevent Apple from negotiating terms of agreement in good faith.
E.

Apple shall not communicate, directly or indirectly, to any E-book Publisher (1) the

status of its contractual negotiations with any other E-book Publisher; (2) the actual or proposed
contractual terms or business plans or arrangements it has with any other E-book Publisher, or (3)
any non-public competitively sensitive information it learns from any other E-book Publisher,
including, but not limited to:
a.

the E-book Publisher’s business plans or strategies;

b.

the E-book Publisher’s past, present, or future wholesale or retail prices or

pricing strategies for books licensed or sold in any format (e.g., print books, E-books, or audio
books);
c.

any terms in the E-book Publisher’s agreement(s) with any retailer of books

licensed or sold in any format; or
d.

any terms in the E-book Publisher’s agreement(s) with any author.

Nothing in this Section III.E prohibits Apple from developing and offering to E-book
Publishers a standard form contract containing the terms on which Apple would agree to sell the
E-book Publishers’ E-books, and so informing an E-book Publisher that it is a standard from; nor

6

shall this prohibit Apple from publicly communicating the retail price of E-books available on the
iBookstore.
F.

Apple shall not enter into or maintain any agreement with any E-book Publisher or

supplier of any other form of content (e.g., music, other audio, movies, television shows, or apps)
where such agreement likely will increase, fix, or set the price at which other E-book Retailers or
retailers of other forms of content can acquire or sell E-books or other forms of content.
Nothing in this Section III.F prohibits Apple from entering into or maintaining an
agreement with an E-book Publisher or supplier of any other form of content merely specifying
prices that Apple must pay for the content.
G.

Apple shall not enter into or maintain any agreement with any other E-book

Retailer where such agreement likely will increase, fix, stabilize, or set the prices or establish other
terms on which Apple or the other E-book Retailer sells E-books to consumers.
IV. REQUIRED CONDUCT
A.

On the Effective Date of this Final Judgment, Apple shall terminate any Agency

Agreement with a Publisher Defendant.
B.

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, on the same terms and conditions between Apple and such Person or
on terms and conditions that are more favorable to such Personthrough the App Store.
C.

Apple shall apply the same terms and conditions to the sale or distribution of an

E-book App through Apple’s App Store as Apple applies to all other apps sold or distributed
through Apple’s App Store, except that, for two years after the Effective Date of this Final
7

Judgment, Apple shall allow any E-book Retailer to provide a hyperlink to its website or
e-bookstore in or through its E-book App without either compensating Apple for any sales of
E-books that follow consumers’ use of such hyperlink or requiring the E-book Retailer to include
functionality in the E-book App (e.g., a “buy button”) the use of which might impose an obligation
on the E-book Retailer to compensate Apple.
D.

Apple shall furnish to the United States and the Representative Plaintiff States,

within ten business days of receiving such information, any information that reasonably suggests
to Apple that its suppliers of any form of content (e.g., books, music, other audio, movies,
television shows, or apps) have impermissibly coordinated or are impermissibly coordinating on
the terms on which they supply or offer their content to Apple or to any other Person.
V. ANTITRUST COMPLIANCE
To ensure its compliance with this Final Judgment and the antitrust laws, Apple shall
perform the activities enumerated below in Sections V.A through V.J of this Final Judgment.
Within thirty days after the Effective Date of this Final Judgment, Apple’s Audit Committee, or
another committee comprised entirely of outside directors (i.e., directors not also employed by
Apple), shall designate a person not employed by Apple as of the Effective Date of the Final
Judgment to serve as Antitrust Compliance Officer, who shall report to the Audit Committee or
equivalent committee of Apple’s Board of Directors and shall be responsible for supervising
Apple’s performance of the following:
A.

furnishing a copy of this Final Judgment, within thirty days of its Effective Date, to

each of Apple’s officers and directors and to each of Apple’s employees engaged, in whole or in
part, in activities relating to Apple’s iBookstore;
8

B.

furnishing a copy of this Final Judgment in a timely manner to each officer,

director, or employee who succeeds to any position identified in Section V.A of this Final
Judgment;
C.

ensuring that each person identified in Sections V.A and V.B of this Final

Judgment receives at least four hours of training annually on the meaning and requirements of this
Final Judgment and the antitrust laws, such training to be delivered by an attorney with relevant
experience in the field of antitrust law;
D.

obtaining, within sixty days after the Effective Date of this Final Judgment and on

each anniversary of the Effective Date of this Final Judgment, from each person identified in
Sections V.A and V.B of this Final Judgment, and thereafter maintaining, a certification that each
such person (a) has read, understands, and agrees to abide by the terms of this Final Judgment; and
(b) is not aware of any violation of this Final Judgment or the antitrust laws or has reported any
potential violation to the Antitrust Compliance Officer;
E.

conducting, in consultation with the External Compliance Monitor, an annual

antitrust compliance audit covering each person identified in Sections V.A and V.B of this Final
Judgment, and maintaining all records pertaining to such audits;
F.

communicating annually to Apple’s employees that they may disclose to the

Antitrust Compliance Officer, without reprisal, information concerning any potential violation of
this Final Judgment or the antitrust laws;
G.

taking appropriate action, within three business days of discovering or receiving

credible information concerning an actual or potential violation of this Final Judgment, to
terminate or modify Apple’s conduct to assure compliance with this Final Judgment; and, within
9

seven days of discovering or receiving such information, providing to the United States, the
Representative Plaintiff States, and the External Compliance Monitor a description of the actual or
potential violation of this Final Judgment and the corrective actions taken;
H.

furnishing to the United States, the Representative Plaintiff States, and the External

Compliance Monitor on a quarterly basis electronic copies of any non-privileged communications
with any Person containing allegations of Apple’s noncompliance with any provisions of this Final
Judgment or the antitrust laws;
I.

maintaining, and furnishing to the United States, the Representative Plaintiff

States, and the External Compliance Monitor on a quarterly basis, a log of all oral and written
communications, excluding privileged or public communications, between or among any person
identified in Sections V.A or V.B of this Final Judgment and
1.

any person employed by or associated with another E-book Retailer, relating, in
whole or in part, to E-books, devices for reading E-books, or E-book Apps; or

2.

employees or representatives of two or more E-book Publishers, relating, in whole
or in part, to E-books, devices for reading E-books, or E-book Apps,

including, but not limited to, an identification (by name, employer, and job title) of the author and
recipients of and all participants in the communication, the date, time, and duration of the
communication, the medium of the communication, and a description of the subject matter of the
communication; and
J.

providing to the United States, the Representative Plaintiff States, and the External

Compliance Monitor annually, on or before the anniversary of the Effective Date of this Final

10

Judgment, a written statement as to the fact and manner of Apple’s compliance with Sections III
and IV of this Final Judgment.
VI. EXTERNAL COMPLIANCE MONITOR
A.

The Court shall appoint an External Compliance Monitor to undertake the

responsibilities and duties described in this Section VI. On or before the Effective Date of this
Final Judgment, the United States and the Representative Plaintiff States jointly shall recommend
to the Court one or more persons to serve as External Compliance Monitor.
B.

The External Compliance Monitor shall have the power and authority to monitor

Apple’s compliance with the terms of this Final Judgment, to review and evaluate Apple’s existing
internal antitrust compliance policies and procedures, and to recommend to Apple changes to
address any deficiencies in those policies and procedures.
C.

The External Compliance Monitor shall conduct an initial review to assess whether

Apple’s internal antitrust compliance policies and procedures in existence at the time of his or her
appointment are reasonably designed to detect and prevent violations of the antitrust laws.
Within 180 days of his or her appointment by the Court, the External Compliance Monitor shall
provide a written report to Apple, the United States, and the Representative Plaintiff States setting
forth his or her assessment of Apple’s internal antitrust compliance policies and procedures and, if
appropriate, making recommendations reasonably designed to improve Apple’s policies and
procedures for ensuring antitrust compliance.
D.

The External Compliance Monitor may, at any time prior to the expiration of this

Final Judgment, provide one or more additional written reports to Apple, the United States, and the
Representative Plaintiff States setting forth additional recommendations reasonably designed to
11

improve Apple’s policies and procedures for ensuring antitrust compliance. The External
Compliance Monitor may provide such additional reports on his or her own initiative or at the
request of the Court, the United States, or the Representative Plaintiff States.
E.

Apple shall adopt, within 60 days after it receives a report from the External

Compliance Monitor concerning its internal antitrust compliance policies and procedures, all
recommendations to which it does not object as unduly burdensome, impractical, or costly. If
Apple objects to any recommendation as unduly burdensome, impractical, or costly, it shall
propose in writing to the External Compliance Monitor, the United States, and the Representative
Plaintiff States, within 30 days after it receives the report, an alternative policy, procedure, or
system designed to achieve the same objective or purpose. If Apple and the External Compliance
Monitor fail, after good faith discussions, to agree on an alternative policy or procedure within 30
days of Apple’s objection to a recommendation, Apple shall promptly adopt the External
Compliance Monitor’s initial recommendation or, after consultation with the United States and the
Representative Plaintiff States, apply to this Court within 14 days for relief.
F.

The External Compliance Monitor shall file quarterly reports with the United

States, the Representative Plaintiff States, and the Court setting forth Apple’s efforts to comply
with the Final Judgment. To the extent such reports contain information that the External
Compliance Monitor deems confidential, such reports shall not be filed in the public docket of the
Court.
G.

If the External Compliance Monitor in the exercise of his or her responsibilities

under this Section VI discovers or receives evidence that suggests to the External Compliance
Monitor that Apple is violating or has violated this Final Judgment or the antitrust laws, the
12

External Compliance Monitor shall promptly provide that information to the United States and the
Representative Plaintiff States.
H.

Apple shall assist the External Compliance Monitor in performance of the

responsibilities set forth in this Section VI. Apple shall take no action to interfere with or to
impede the External Compliance Monitor’s accomplishment of its responsibilities. The External
Compliance Monitor may, on reasonable notice to Apple:
1.

interview, either informally or on the record, any Apple personnel, who

may have counsel present; any such interview to be subject to the reasonable convenience of such
personnel and without restraint or interference by Apple;
2.

inspect and copy any documents in the possession, custody, or control of

3.

require Apple to provide compilations of documents, data, or other

Apple; and

information, and to submit reports to the External Compliance Monitor containing such material,
in such form as the External Compliance Monitor may reasonably direct.
I.

Any objections by Apple to actions by the External Compliance Monitor in

fulfillment of the External Compliance Monitor’s responsibilities must be conveyed in writing to
the United States and the Representative Plaintiff States within ten calendar days after the action
giving rise to the objection.
J.

The External Compliance Monitor may hire, subject to the approval of the United

States, after consultation with the Representative Plaintiff States, any consultants, accountants,
attorneys, or other persons reasonably necessary to fulfilling the External Compliance Monitor’s
responsibilities. The External Compliance Monitor and any persons hired to assist the External
13

Compliance Monitor shall serve at the cost and expense of Apple, on such terms and conditions as
the United States, after consultation with the Representative Plaintiff States, approves, including,
but not limited to, the execution of customary confidentiality agreements. The compensation of
the External Compliance Monitor and any persons hired to assist the External Compliance Monitor
shall be on reasonable and customary terms commensurate with the individuals’ experience and
responsibilities. The External Compliance Monitor shall submit a quarterly expense report to the
United States and the Representative Plaintiff States.
K.

If the United States, after consultation with the Representative Plaintiff States, or

Apple determines that the External Compliance Monitor has ceased to act or failed to act diligently
or in a cost-effective manner, it may recommend that the Court appoint a substitute External
Compliance Monitor.
VII. PLAINTIFFS’ ACCESS
A.

For purposes of determining or securing compliance with this Final Judgment, or of

determining whether the Final Judgment should be modified or vacated, and subject to any legally
recognized privilege, from time to time duly authorized representatives of the United States
Department of Justice Antitrust Division or the Representative Plaintiff States, including, but not
limited to, consultants and other persons retained by the United States or the Representative
Plaintiff States, shall, upon written request of an authorized representative of the Assistant
Attorney General in charge of the Antitrust Division or a joint written request by authorized
representatives of each Representative Plaintiff State, and on reasonable notice to Apple, be
permitted:
1.

access during regular business hours to inspect and copy, or at the option of
14

the United States or the Representative Plaintiff States, to require Apple to provide to the United
States and the Representative Plaintiff States hard copy or electronic copies of all books, ledgers,
accounts, records, data, and documents in the possession, custody, or control of Apple, relating to
any matters contained in this Final Judgment; and
2.

to interview, either informally or on the record, Apple’s officers,

employees, or agents, who may have their individual counsel present, regarding such matters.
The interviews shall be subject to the reasonable convenience of the interviewee and without
restraint or interference by Apple.
B.

Upon the written request of an authorized representative of the Assistant Attorney

General in charge of the Antitrust Division or a joint written request by authorized representatives
of each Representative Plaintiff State, Apple shall submit written reports or respond to written
interrogatories, under oath, relating to any of the matters contained in this Final Judgment.
Written reports authorized under this paragraph may require Apple to conduct, at its cost, an
independent audit or analysis relating to any of the matters contained in this Final Judgment.
C.

No information or documents obtained by the means provided in this Section shall

be divulged by the United States or any Plaintiff State to any person other than an authorized
representative of the executive branch of the United States, the Attorney General’s Office of any
Plaintiff State, or the External Compliance Monitor, except in the course of legal proceedings to
which the United States or the relevant Plaintiff State(s) is a party (including, but not limited to,
grand jury proceedings), or for the purpose of securing compliance with this Final Judgment, or as
otherwise required by law.

15

D.

If at the time information or documents are furnished by Apple to the United States

and the Representative Plaintiff States, Apple represents and identifies in writing the material in
any such information or documents to which a claim of protection may be asserted under Rule
26(c)(1)(G) of the Federal Rules of Civil Procedure, and Apple marks each pertinent page of such
material, “Subject to claim of protection under Rule 26(c)(1)(G) of the Federal Rules of Civil
Procedure,” then the United States and the Representative Plaintiff States shall give Apple ten
calendar days notice prior to divulging such material in any civil or administrative proceeding.
VIII. ADDITIONAL PROVISIONS
A.

This Final Judgment shall take effect 30 days after the date on which it is entered.

If the Final Judgment is stayed, all time periods in the Final Judgment will be tolled during the
stay.
B.

This Court retains jurisdiction to enable the United States, the Representative

Plaintiff States, any other Plaintiff State (after consultation with the United States and the
Representative Plaintiff States), or Apple to apply to this Court at any time for, or to act sua sponte
to issue, further orders and directions as may be necessary or appropriate to carry out or construe
this Final Judgment, to modify any of its provisions, to enforce compliance, and to punish
violations of its provisions.

16

C.

Unless this Court grants an extension, thisThis Final Judgment shall expire by its

own terms and without further action of this Court tenfive years after its Effective Date, provided
that, at any time prior to its expiration, the Court may sua sponte or on the application of the United
States or any Plaintiff State extend the Final Judgment by one or more one-year periods, if
necessary to ensure effective relief.
SO ORDERED:

DENISE L. COTE
UNITED STATES DISTRICT JUDGE
Dated:

17

EXHIBIT 3

1

UNITED STATES DISTRICT COURT
SOUTHERN DISTRICT OF NEW YORK
--------------------------------x
UNITED STATES OF AMERICA,
Plaintiff,
vs.

CASE NO.
12-CV-2826(DLC)

APPLE INC., et. al,
Defendants.
--------------------------------x
VIDEOTAPE DEPOSITION OF EDDY CUE
TUESDAY, MARCH 12, 2013
Palo Alto, California
10:05 a.m.

Reported by:
KIMBERLEE SCHROEDER, CSR, RPR, CCRR
Job No.: 29197

11
1

10:07:15

2

10:07:22

3

10:07:23

4

10:07:25

Reporter to mark as Exhibit 1 a copy of your

5

10:07:28

deposition transcript.

6

10:07:31

referring to it from time to time over the next couple

7

10:07:33

of days, so I just want to have it -- I want you to

8

10:07:38

have it there, and we can refer to it when we need to.

9

10:07:42

its investigation on or about January 25th, 2011?
A.

I do.
MR. BUTERMAN:

A.

10

I'm going to ask the Court

I think that we'll probably be

Okay.
(Plaintiff's Exhibit 1 was

11

10:07:57

marked for identification.)

12

10:07:57

MR. BUTERMAN:

13

10:07:59

through it quickly.

14

10:08:03

that to be the transcript from your deposition?

15

10:08:18

16

10:08:19

17

10:08:20

18

10:08:26

There were a couple of documents that Apple

19

10:08:28

produced to us in this litigation earlier this week,

20

10:08:32

and I'm going to introduce them as exhibits and see if

21

10:08:35

maybe you can just tell me what you know about them.

22

10:08:39

Let me mark as Exhibit 2 a document bearing

23

10:08:42

24
25

A.

Q.

Just -- you can leaf

My question is:

Do you recognize

(Reviewing document.)
Yes, I believe it is.

Q.

Great.

Now, the next bit of housekeeping.

identification number APLEBOOK-03546224.
(Plaintiff's Exhibit 2 was

10:09:09

marked for identification.)

DAVID FELDMAN WORLDWIDE, INC.
450 Seventh Avenue - Ste 500, New York, NY 10123 1.800.642.1099

12
1

10:09:09

2

10:09:12

MR. BUTERMAN:

Then as Exhibit 3, a document

bearing identification number APLEBOOK-03546241.

3

(Plaintiff's Exhibit 3 was

4

10:09:34

marked for identification.)

5

10:09:34

MR. BUTERMAN:

6

10:09:36

going to be very general in nature, but please take as

7

10:09:40

much time as you need to familiarize yourself with the

8

10:09:43

documents.

9

10:09:43

A.

(Reviewing document.)

10

10:09:53

Q.

So, Mr. Cue, starting with Exhibit 2, can you

11

10:09:56

12

10:09:59

13

10:10:03

that we make available to all employees to describe

14

10:10:06

the way we do business on a worldwide basis.

15

10:10:11

16

10:10:14

"Business Conduct:

17

10:10:18

correct?

18

10:10:18

A.

That's correct.

19

10:10:19

Q.

How often do you receive a copy of this

20

10:10:22

21

10:10:23

A.

I don't recall that.

22

10:10:24

Q.

Do you recall ever receiving a copy of this

23

10:10:29

24

10:10:29

A.

Um, I don't recall.

25

10:10:32

Q.

Do you know if Apple has a policy to provide

Q.

Mr. Cue, my questions are

tell me what Exhibit 2 is?
A.

Q.

I believe this is a document that we create

And for the record, the document is entitled
The Way We Do Business Worldwide";

document?

document?

DAVID FELDMAN WORLDWIDE, INC.
450 Seventh Avenue - Ste 500, New York, NY 10123 1.800.642.1099

13
1

10:10:41

2

10:10:44

A.

I believe we do, but I don't know for sure.

3

10:10:47

Q.

Okay.

4

10:10:50

that document is entitled, "Antitrust and Competition

5

10:10:54

Law Policy"; correct?

6

10:10:57

A.

Correct.

7

10:10:57

Q.

And do you understand what this document is?

8

10:11:02

A.

I'm not sure.

9

10:11:04

Q.

Do you recall if you've ever seen it before?

10

10:11:07

A.

I don't recall.

11

10:11:09

Q.

And do you know whether this is a document

12

10:11:15

13

10:11:20

A.

Again, I don't know.

14

10:11:22

Q.

Okay.

15

10:11:35

16

10:11:37

A.

17

10:11:40

it's annual.

18

10:11:42

Q.

19

10:11:44

required to sign some sort of certification that

20

10:11:47

you've completed the training?

21

10:11:49

22

10:11:55

23

10:11:55

24

10:11:57

25

10:12:05

this document to all of its employees?

And then with respect to Exhibit 3,

that is regularly disseminated to Apple employees?

Are you required to complete any types

of annual training?

A.

I complete certain training.

I don't know if

I don't know the timing of it.

And once you complete training, are you

I don't recall.

Maybe.

It's all electronic,

so...
Q.

Benefits of working at Apple.
Can you tell me what your title is?

A.

Yes.

I'm senior vice president of internet

DAVID FELDMAN WORLDWIDE, INC.
450 Seventh Avenue - Ste 500, New York, NY 10123 1.800.642.1099

282
1

REPORTER'S CERTIFICATE

2
3

I, KIMBERLEE SCHROEDER, CSR 11414, duly

4

authorized to administer oaths pursuant to Section

5

30(c) of the Federal Rules of Civil Procedure, hereby

6

certify that the witness in the foregoing deposition

7

was by me duly sworn to testify the truth, the whole

8

truth and nothing but the truth in the within-entitled

9

cause; that said deposition was taken at the time and

10

place therein stated; that the testimony of the said

11

witness was reported by me and thereafter transcribed

12

by me and that the witness was given an opportunity to

13

read and correct said deposition and to subscribe the

14

same.

15

I further certify that I am not of counsel or

16

attorney for either or any of the parties to said

17

cause of action, nor in any way interested in the

18

outcome of the cause named in said cause of action.

19

I declare under penalty of perjury under the

20

laws of the State of California that the foregoing is

21

true and correct.

22

Dated this 13th day of March, 2013.

23
24

KIMBERLEE SCHROEDER, CSR, RPR, CCRR

25

DAVID FELDMAN WORLDWIDE, INC.
450 Seventh Avenue - Ste 500, New York, NY 10123 1.800.642.1099

EXHIBIT 4

Zappos App for iPad® Mobile Device | Zappos.com

Page 2 of 2

In our native shopping app for the iPad® mobile device, you’ll be able to search, browse, read reviews, collect
favorites, AND buy really awesome products from a brand selection most folks probably didn’t even realize we
carried.
At Zappos.com you can find super cool cases and accessories for your ipad mobile phone. We have iPad mobile
device cases, cell phone cases, headphones, and electronics. If you’re already familiar with all the things we carry,
then you’ll be extra pleased to learn that the full catalog of products is available through the app.
Our app hit over 10,000 downloads in its first week in the app store, ranked in the top 10 free app list, and spent
time in “New and Noteworthy” and the “What’s Hot” lists within the Apple app store.
We’re always looking for feedback and ideas, so please download it and give it a spin. We'd like to hear from you
via @Zappos_Mobile on Twitter. Bring on the good, the bad, and the not so pretty.
Try it. Rate it. We love you!
Download Now

ZAPPOS FAMILY CORE VALUE:

10. Be Humble

http://www.zappos.com/zappos-ipad-app

8/20/2013

EXHIBIT 5

EXHIBIT 6


Getting Started with In-App Purchase
on iOS and OS X
Version 3.1

February 23, 2013

Getting Started with In-App Purchase Overview
In-App Purchase gives you the flexibility to support a variety of business models in your iOS
apps and Mac apps. With In-App Purchase, you can offer your customers additional digital
content, functionality, services and even subscriptions within your paid or free app.
For example, In-App Purchase will allow you to sell:
• Digital books or photos
• Additional game levels
• Access to a turn-by-turn map service
• Subscriptions to digital magazines or newsletters
• Digital content hosted on Apple servers
In-App Purchase is implemented in your app via the Store Kit framework. Store Kit provides the
functionality to process payments for items offered in your app via the App Store and Mac App
Store. In-App Purchase uses the same business terms used for apps sold on the App Store and
Mac App Store. You receive 70% of the purchase price of each item you sell within your app,
paid to you on a monthly basis—no credit card fees apply.
This document describes in detail the types of business models supported by In-App Purchase
and gives you the information you need to create an In-App Purchase experience that users
find compelling, intuitive, and easy to use.

What to Sell
The catalog of items you plan to sell is a primary part of the In-App Purchase user experience.
Think carefully about what your business model is and what you want to sell in your
application.
There are four supported categories of In-App Purchase items that you may sell:
• Content
• Functionality
• Services
• Subscriptions
Items from the supported categories must fall within one of the following purchase types:
• Consumables
• Non-Consumables
• Auto-Renewable Subscriptions
• Free Subscriptions
• Non-Renewing Subscriptions
There are a handful of important guidelines to keep in mind as you design your application:
• You must deliver your digital good or service within your app. Do not use In-App
Purchase to sell real-world goods and services.
• You must make your In-App Purchase items available to all of the devices
registered to a user.

February 23, 2013

• You may not offer items that represent intermediary currency because it is
important that users know the specific good or service that they are buying.
• Items you offer for purchase may not contain, or relate to, pornography, hate
speech, defamation, or gambling (simulated gambling is acceptable).
• In-App Purchase items cannot be shared across applications or platforms.

In-App Purchase Types
Items offered via In-App Purchase fall within one of the five following purchase types. Make
sure to evaluate what the proper purchase type is for your item before you set up your In-App
Purchase product in iTunes Connect.
Consumables
Consumables are In-App Purchases that must be purchased each time the user needs that
item. Consumable In-App Purchases are available for both iOS apps and Mac apps.
Some examples of Consumable purchase types are:
• Supplies in a game (ammunition, health points, cheats, extra lives, etc)
• Accelerators used to decrease advancement time within an app
Non-Consumables
Non-Consumables are In-App Purchases that only need to be purchased once by the user and
are available to all devices registered to a user. This purchase type is used for services that do
not expire. Non-Consumable In-App Purchases are available for both iOS apps and Mac apps.
Non-Consumable content may be bundled in your app’s binary when you submit to the app
store, or it may be downloaded after the user makes the purchase. Starting with iOS 6.0 and OS
X Mountain Lion 10.8, your content can be hosted on Apple’s servers. This eliminates the need
for you to maintain a server to host content. There is no additional charge for using this
functionality. After the user makes a purchase, you can use the SKDownload class in Store Kit to
download the content to the user’s device. Hosted content is built using Xcode and uploaded
to iTunes Connect. Hosted content is particularly useful if you have large content to download,
but it can be used for any downloadable content. See the iTunes Connect Developer Guide for
details on how to configure hosted content in iTunes Connect, and the SKDownload class
reference for details on how to download the content using Store Kit.
Some examples of Non-Consumable purchase types are:
• Additional levels within a game
• Access to pro-features such as additional camera lenses or audio effects
• Lifetime subscription to a service
• Books and individual magazine issues
Auto-Renewable Subscriptions
Auto-Renewable Subscriptions allow the user to purchase episodic content or access to
dynamic digital content for a set duration time. At the end of each duration, the subscription
will renew itself, until a user opts out. The Auto-Renewable Subscription In-App Purchase type is
available for iOS apps only.

February 23, 2013

Examples of Auto-Renewable Subscription purchase types are:
• Recurring delivery of newspapers or magazine issues
• Monthly subscription to audio or video streaming feed
• Weekly membership to a dating service
• Business app providing cloud storage services
Free Subscriptions
Free Subscriptions are an extension of Auto-Renewable Subscriptions that permit the delivery
of free subscription content to Newsstand-enabled applications. The Free Subscription In-App
Purchase type is implemented in the same way as an Auto-Renewable Subscription, just
without any charges to the user. Free Subscriptions do not have expirations, but the user can
turn off the subscription at any time.
Non-Renewing Subscriptions
Non-Renewing Subscription allow the sale of services with a limited duration. Non-Renewing
Subscriptions must be used for In-App Purchases that offer time-based access to static content
and are only available to iOS apps.
Examples of Non-Renewing Subscription purchase types are:
• One week subscription to voice guidance feature within a navigation app
• Annual subscription to online catalog of archived video or audio

In-App Purchase Categories
Content
Content items include digital books, magazines, photos, artwork, game levels, game characters,
and other digital content that can be delivered within your application.
Users view the items they purchase as theirs to keep and permanent. Therefore be sure
purchased items are available in all instances of your app running on all the devices the user
owns, even after your app is deleted from a device, reinstalled, or downloaded to a new device.
To restore purchased items on a new device or after your app is reinstalled using the Store Kit
framework, your application simply calls the payment queue’s restoreCompletedTransactions
method. A transaction will be created and delivered for each already purchased item which
you’ll process similarly to that of a new payment request.
Consumable items are the one exception to the requirement that your content be available on
all the user’s devices. Consumable items are digital items that are used up or disappear after use
and can never be reused. Examples of consumable items include virtual poker chips, in-game
ammunition, or virtual supplies such as construction materials.
If you offer consumable digital items in your In-App Purchase store, it’s required that you mark
them as consumable when they are submitted via iTunes Connect and vitally important that
you describe the transient nature of these items in your item’s description. Consumable items
will not be included in the list of transactions returned after the Store Kit
restoreCompletedTransactions method is called.

February 23, 2013

You may choose one of the following ways to deliver digital content to users:
• Package the content with your app binary and enable it when the user makes a purchase.
• Download the content from your servers for use by your app when the user makes a
purchase.
• For non-consumable purchases, you may host the content on Apple's server for later
downloading to your app.
Digital content is typically Non-Consumable unless the content is expected to be used only
once in which case it would be Consumable. Here are some examples of digital content and
what purchase type would be applicable:
Example Content

Allowed

Purchase Type

Buy a digital book



Non-Consumable

Buy virtual poker chips for use within a single app



Consumable

VoIP minutes, U.S.A to Germany



Consumable

Buy an item for in-game use



Consumable if single use, otherwise NonConsumable

Here are additional examples of content that would not be allowed with details about why they
are not allowable:
Example Content

Allowed

Why Is This Not Allowed?

Buy a physical book

X

Physical items cannot be purchased

Buy virtual poker chips for use in multiple
apps

X

Items can only be used in the app where the
purchase is made

Functionality
You may sell and unlock additional functionality within your application using In-App Purchase.
Adding additional functionality to an app should generally be considered Non-Consumable.
Here are some examples of allowable additional functionality you might consider offering:
Example Added Functionality

Allowed

Purchase Type

Access to more game levels



Non-Consumable

Ability to save



Non-Consumable

Ability to manage more than one travel itinerary



Non-Consumable

February 23, 2013

Services
In-App Purchase also gives you a way to sell digital services within your application.
Digital services are usually either Non-Consumable or should be a Non-Renewing Subscription.
The differentiation would be whether access to the service is limited to a specific time period.
Here are some examples of services you might consider offering, and whether they are allowed:
Example Service

Allowed

Purchase Type

Six month access to business card scan services



Auto-Renewable Subscription

Voice transcription (no time restriction)



Non-Consumable

One year of VoIP telephone service



Non-Renewing Subscription

Here are additional examples of services that would not be allowed with details about why they
are not allowable:
Example Service

Allowed

Why Is This Not Allowed?

Plumbing repair service

X

Real-world services cannot be purchased

Courier delivery

X

Real-world services cannot be purchased

Web design services

X

Real-world services cannot be purchased

Subscriptions
Subscriptions and subscription renewals to content or services can be offered to customers for
purchase.
Renewal of an Auto-Renewing Subscription is handled automatically by the App Store. The user
will be reminded shortly before their subscription is about to renew and all the billing is
handled automatically by the App Store. Users can easily change their renewal frequency and
can opt-out of the renewal by turning off the Auto-Renew switch at least 24 hours before the
end of the current subscription period.
For Non-Renewing Subscriptions, if you want to allow users to renew their subscription, your
application must track the expiration manually. If the user chooses to renew their subscription
you have to initiate a new Store Kit purchase request. Tracking of the expiration date of initial
or renewed subscriptions is not handled by the App Store and is your responsibility.
Additionally, your application must include a mechanism to deliver the purchased NonRenewing Subscription In App Purchase to all iOS devices owned by a single user.

February 23, 2013

Here are some examples of allowable subscriptions and what purchase type they would be:
Example Subscription

Allowed

Purchase Type

Auto-Renewing Subscription to daily digital
newspaper



Auto-Renewable Subscription

Auto-Renewing Subscription to live TV streaming
service



Auto-Renewable Subscription

Subscription to monthly voice-guidance service



Non-Renewing Subscription

And some examples of subscriptions that would not be allowed:
Example Subscription

Allowed

Why Is This Not Allowed?

Auto-Renewing subscription to monthly voiceguidance service

X

Content is not episodic in nature (use NonRenewing instead)

Gym membership renewal

X

Subscription to non-digital service

Free subscription to provide preview of
magazine issues

X

Free subscriptions cannot be used to provide
previews of full content

Restoring Previous Completed Purchases
As described above, the different In-App Purchase types have different requirements for
whether previous purchases must be restored to users devices. This table summarizes the
requirements and what support Store Kit provides for tracking the previous purchases:
Restore
Required?

Transaction Restoration Mechanism

Consumable

No

Your server may track purchases and allow user to
restore

Non-Consumable

Yes

Use Store Kit’s restoreCompletedTransactions
method

Non-Renewing Subscriptions

Yes

Use iCloud or your own server to track purchases
and allow user to restore purchased subscriptions
to all iOS devices owned by a single user

Auto-Renewing Subscriptions

Yes

Use Store Kit’s restoreCompletedTransactions
method

Free Subscriptions

Yes

Use Store Kit’s restoreCompletedTransactions
method

In-App Purchase Type

Defining Your In-App Purchase Store
After you have decided what type of items you’re going to provide for In-App Purchase,
proceed by writing clear item descriptions, picking appropriate pricing, and designing an InApp Purchase store to showcase your items.
February 23, 2013

Item Descriptions
While the Store Kit framework provides the functionality to process payments via the App
Store, it’s up to your app to display what’s available for purchase. Spend some time crafting item
descriptions that accurately describe what each item and how the item is used within your app.
Be clear about:
• How an item can be used
• What’s included in the item
• What time period is covered by a subscription, subscription renewal, or service (when
applicable)
• Whether an item is consumable or not (unless you specify otherwise, users expect items
to be re-usable, re-downloadable, and permanent)
• Use a consistent item-naming convention for readability and differentiation of similar
items.
Since your application may be available in App Stores with a region specific currency and
language, your item’s localized description and pricing information should be pulled from the
App Store via Store Kit’s products request API. You’ll use the information returned from the
products request to populate the user interface you present to the customer for item selection
and purchase.
Item Pricing
Before you settle on a price for an item, think about how much users might be comfortable
paying, considering:
• How frequently they use the item
• How the item is used within your application
• What the non-digital equivalent of the item might cost
Use consistent pricing for similar types of items. In some cases, items might cost more than the
initial purchase price of your application. For example, if you sell an app that allows users to
subscribe to various digital magazines, a one-year subscription to a magazine might cost more
than your app. Users will understand that, for the subscription price, they get:
• A number of issues of their favorite digital magazine
• Reliable delivery of content
• The convenience of digital content that can accompany them wherever they go

Designing Your In-App Purchase Store
Your In-App Purchase store should be attractive, easy to understand, and simple to use.
Follow these design guidelines to help you meet this goal:
• Always display the name and cost of each item.
• Allow users to view a detailed description for each item.
• Group related items according to type.

February 23, 2013

• Ensure easy navigation through large catalogs of items. Avoid a long single list of items
that requires users to scroll and scroll.
• Always indicate when items are consumable.
• Ensure that users have to be very intentional about purchasing an item and that the
purchase process can’t be started by accident.
• Provide a “Check Inventory” button that allows users to check for items they might be
missing or that they’ve already purchased on another device. Keep in mind that
automatically initiating a restore of previous purchases (which will prompt the user for
their iTunes Store password) may be confusing to your users.

Submitting Catalog Items to iTunes Connect
Every item that you plan to offer for purchase within your you app must be submitted to the
App Store through iTunes Connect. When you submit an item, you specify its name,
description, pricing, a preview image, and other details, such as localized versions of the item
name and description.
Every item must also have a product identifier that is associated with your application and
uniquely identifies an item sold. Your application uses this product id to fetch localized item
descriptions and pricing information from the App Store and to request payments.
Your app’s rating must take into account the ratings for new or changed items. If your app’s
rating decreases it must be re-approved for sale on the App Store.
App and Catalog Item Updates
Updates to applications for bug fixes or new functionality, and updates or new items for
purchase, are bound by the same guidelines outlined in this article.
Document Revision History
Date

Notes

2013-02-23

Added details about hosted content. Updated examples of Auto-Renewable Subscriptions

2012-03-16

Updated to include Mac OS X support. Details about Non-Renewing Subscriptions.

Nothing herein is intended to modify the iOS Developer Program License Agreement, Mac Developer Program License
Agreement, the iOS Developer Program Enterprise License Agreement, the iOS Developer Program University Agreement,
the iOS Developer Program University Student License Agreement ("Agreement") and/or the App Store Review Guidelines,
as they may be modified by Apple from time to time. In the event of any conflict or inconsistency between the Agreement
or Guidelines and this document, the Agreement or Guidelines shall govern. Apple may at any time, and from time to
time, with or without prior notice to You modify this document as well as any features, functionality or services described
herein. You understand that any such modifications may require You to change or update Your Applications at Your own
cost. Apple shall not be liable for any losses, damages or costs of any kind incurred by You or any other party arising out
of or related to any modification or discontinuation of this document or any of the features, functionality or services
described here.

February 23, 2013

EXHIBIT 7

Apple Moves to Tighten Control of App Store - NYTimes.com

Page 1 of 2

• Reprints
This copy is for your personal, noncommercial use only. You can order presentation-ready copies for distribution to
your colleagues, clients or customers here or use the "Reprints" tool that appears next to any article. Visit
www.nytreprints.com for samples and additional information. Order a reprint of this article now.

February 1, 2011

Apple Moves to Tighten Control of App
Store
By CLAIRE CAIN MILLER and MIGUEL HELFT

SAN FRANCISCO — Apple is further tightening its control of the App Store.
Some application developers, including Sony, say Apple has told them they can no longer sell
e-books within their apps unless the transactions go through Apple’s system. Apple rejected
Sony’s iPhone application, which would have let people buy and read e-books from the Sony
Reader Store.
Apple said on Tuesday that it was still allowing customers to read e-books they bought
elsewhere within apps. For example, a Sony app could still access books the customer
bought earlier from Sony’s store.
But Steve Haber, president of Sony’s digital reading division, said on Monday that Apple had
told his company that from now on, all in-app purchases would have to go through Apple.
“It’s the opposite of what we wanted to bring to the market,” Mr. Haber said. “We always
wanted to bring the content to as many devices as possible, not one device to one store.”
Apps like the Kindle app from Amazon.com and the one that Sony submitted open up a
browser window when a user wants to buy something. This allows the app makers to argue
that technically the purchase is happening on the Web, not within the app.
Apple is now saying the app makers must allow those purchases to happen within the app,
not in a separate browser window, with Apple getting its standard 30 percent cut of the
transaction. At the moment this applies only to e-book purchases.
“We have not changed our developer terms or guidelines,” Trudy Muller, an Apple
spokeswoman, said Tuesday. “We are now requiring that if an app offers customers the
ability to purchase books outside of the app, that the same option is also available to
customers from within the app with in-app purchase.”

http://www.nytimes.com/2011/02/01/technology/01apple.html?_r=2&ref=technology&pag... 8/21/2013

Apple Moves to Tighten Control of App Store - NYTimes.com

Page 2 of 2

The requirement may signal a shift for Apple. The company has made more money selling
hardware than music, e-books or apps. If people could have access to more content from
more sources on their iPhones and iPads, the thinking went, then they would buy more
devices.
The move is also surprising, as Apple has indicated recently that it would be more
collaborative, not less, with magazine publishers and other content producers that want
more control over how to distribute content on the iPad.
“This sudden shift perhaps tells you something about Apple’s understanding of the value of
its platform,” said James L. McQuivey, a consumer electronics analyst at Forrester Research.
“Apple started making money with devices. Maybe the new thing that everyone recognizes is
the unit of economic value is the platform, not the device.”
This article has been revised to reflect the following correction:
Correction: February 3, 2011
An article on Tuesday about Apple’s tightening of its control of the App Store misstated part of
its policy. While the company is requiring e-book purchases within apps to go through its
payment system, customers can still use apps to access e-books and other content they bought
elsewhere. It is not the case that access to that content will be cut off.

http://www.nytimes.com/2011/02/01/technology/01apple.html?_r=2&ref=technology&pag... 8/21/2013

EXHIBIT 8

Page 3 of 10

◦ Sign in with
CNET Reviews

What Apple's latest rules change means for
Kindle, Nook, and Kobo e-reader apps
Apple's recent tweak to its in-app subscription rules has big implications for ereader apps. What's it all mean?
by David CarnoyJune 9, 2011 3:53 PM PDT
◦

With Apple's latest rules change, it now looks like e-reading apps won't have to be removed
from the App Store.
(Credit: Screenshot by David Carnoy/CNET)
Apple giveth and Apple taketh away.
Today, Apple decided to give a little, as it made some significant tweaks to its in-app subscription
rules that impact the fate of e-reader apps.
Apple had reportedly set a deadline of June 30 for developers to alter their apps to reflect the new
terms for subscriptions in the Apple Store, which required companies to give Apple a 30 percent cut
on sales their apps generate.

http://reviews.cnet.com/8301-18438_7-20070347-82.html

8/20/2013

Page 4 of 10

In the past, e-reading apps Kindle, Nook, and Kobo have avoided paying the cut by sending
customers to a Web-based interface outside the app. When Apple issued its App Store subscription
rules last February, however, it made conditions far stricter. The company would require third-party
developers to sell any available content from within the app--sales from which siphon Apple's
standard 30 percent commission that it was otherwise not receiving from the Web-based purchases.
Moreover, the vendors couldn't raise the in-app version of the price to help defer the money they'd
now owe to Apple--the rules further stipulated that the in-app price must be at "the same price or less
than it is offered outside the app."
In other words, the vendor--Amazon, Barnes & Noble, and so forth--would need to sacrifice 30
percent of all sales (and subscription) transactions, effectively requiring them to sell at a loss. (The
February changes were due to take effect on June 30.)
As one angry developer of the iFlow Reader app noted as his company went out of business, Apple's
new rules were impossible to comply with for many companies and that Apple was basically sending
an "eviction notice" to digital book sellers.
However, Apple's latest amendment to its in-app subscription rules appears to have loosened the
noose up while still choking off sales.
Let's start with the old rules:
11.13 Apps can read or play approved content (magazines, newspapers, books, audio,
music, video) that is sold outside of the app, for which Apple will not receive any portion
of the revenues, provided that the same content is also offered in the app using IAP [inapp purchase] at the same price or less than it is offered outside the app. This applies to
both purchased content and subscriptions.
Now here are the new updated rules:
11.13 Apps that link to external mechanisms for purchases or subscriptions to be used in
the app, such as a "buy" button that goes to a web site to purchase a digital book, will be
rejected.
11.14 Apps can read or play approved content (specifically magazines, newspapers,
books, audio, music, and video) that is subscribed to or purchased outside of the app, as
long as there is no button or external link in the app to purchase the approved content.
Apple will not receive any portion of the revenues for approved content that is subscribed
to or purchased outside of the app.
As it stands, you currently can't buy e-books from the Kindle, Nook, and Kobo apps, anyway. Instead,
they have a single "shop for books" button that boots up the Safari Web browser, where you can
purchase what you please from Amazon, Barnes & Noble, and Kobo.
According to the new rules, that shopping button will no longer exist. In other words, there can't be
any link out to a non-Apple store on the Web. You will, however, be able to read any e-books that
you've purchased directly from those e-bookstores.
Translation: The Kindle, Nook, and Kobo apps will simply become e-reading apps that will allow you
to sync your digital libraries across devices.

http://reviews.cnet.com/8301-18438_7-20070347-82.html

8/20/2013

Page 5 of 10

It looks like the 'Shop in the Kindle Store' button will be going away in both the iPad and
iPhone Kindle apps.
(Credit: Screenshot by David Carnoy/CNET)
Using the Kindle app and iPad as an example, now instead of accessing the Kindle Store by clicking
the "Shop in Kindle Store" in the top right corner of the home page in the app, you'll have to manually
open the Safari browser, buy an e-book, then return to the Kindle app to retrieve that purchase by
resyncing your account. It's one extra step, but not the end of the world.
When you buy an e-book in the Kindle Store online (on Amazon's Web site) from your computer,
you're given the choice of sending the e-book to whatever Kindle-enabled device you've linked to
your Amazon account. One would think that you'd still be able to send content to, say, your iPad, but
we haven't been able to confirm that with Amazon. (We put out e-mails to all three companies but
have yet to hear back about the rules change and what it means to their apps).
The long and short of it is while you can expect some changes (we don't know exactly when those
changes will happen, but as we said, Apple's original deadline was June 30), if you use an e-reader
app on your iOS device, you'll be able to continue accessing your library and presumably update it.
But it also appears that Apple's iBooks will be the only e-reader app that will have shopping links in
the app.
Can this all change tomorrow? Sure. Apple could go ahead and update its rules again. And there's
little bit of ambiguity in the phrase, "Apps can read or play approved content," which leaves the door
open for Apple to reject certain content for failing to living up to Apple's rules.
For now, though, it seems that at least Apple has softened up just enough to avert what probably
would have resulted in serious backlash from its users.

David Carnoy
Executive Editor David Carnoy has been a leading member of CNET's
Reviews team since 2000. He covers the gamut of gadgets and is a
notable e-reader and e-publishing expert. He's also the author of the

http://reviews.cnet.com/8301-18438_7-20070347-82.html

8/20/2013

Page 6 of 10

novels Knife Music and The Big Exit. Both titles are available as
Kindle, iBooks, and Nook e-books.
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