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Judge Troubled by Apple's Proposed E-Books Settlement

The amount to be paid to consumers hinges on the outcome of Apple's appeal of an antitrust ruling.

Reuters / Yuya Shino

A U.S. judge on Thursday expressed concern over a proposed $450 million settlement of claims Apple conspired with five publishers to fix e-book prices, saying its provisions could drastically reduce money paid to consumers depending on appeals.

U.S. District Judge Denise Cote in Manhattan said she found “most troubling” a clause requiring Apple to pay only $70 million if an appeals court reversed her finding that the company is liable for antitrust violations and sent it back to her for further proceedings.

Speaking on a teleconference, Cote questioned if that would be fair and what might happen if the appeals court reversed her ruling on a minor issue. She also took issue with the lack of any requirement for Apple to pay interest while the appeals go forward.

“I’m concerned about the terms of the settlement,” she said.

The comments came a week after 33 U.S. states and territories and lawyers for a class of consumers submitted the settlement for Cote’s preliminary approval, and to avoid a scheduled Aug. 25 damages trial.

Cote scheduled the trial after ruling last July that Apple was liable for colluding with publishers to impede e-book competitors such as Amazon.

The publishers include Lagardere SCA’s Hachette Book Group Inc, News Corp.’s HarperCollins Publishers LLC, Penguin Group (USA), CBS Corp.’s Simon & Schuster and Verlagsgruppe Georg von Holtzbrinck GmbH’s Macmillan.

Cote’s ruling came in an April 2012 lawsuit by the U.S. Department of Justice and the state attorneys general.

These plaintiffs were expected to seek up to $840 million in damages but reached settlements in which the publishers would provide $166 million to e-book purchasers, reducing Apple’s exposure to $674 million.

The size of the Apple settlement depends on the outcome of the company’s appeal of Cote’s liability finding to the Second U.S. Circuit Court of Appeals.

If Apple loses its appeal, it would pay $400 million to consumers and $50 million to the state’s and plaintiffs’ lawyers.

In contrast, if Apple’s appeal is successful but the Second Circuit returns the case to Cote for further proceedings or a new trial, the company would pay just $70 million, with $50 million for consumers. If the Second Circuit reversed Cote outright and ended the case, Apple would pay nothing.

On Thursday’s call, Cote expressed concern that the middle scenario might be unfair to consumers by undervaluing their claims.

Steve Berman, a lawyer for the consumers, told her that such an outcome would result in a “much bleaker universe” for his clients.

“We thought given that unlikely scenario and the legal risk we would face it would be a good outcome for consumers,” he said.

After the call ended, Berman said the parties would consider Cote’s concerns. Apple did not respond to a request for comment.

The case is In Re: Electronic Books Antitrust Litigation, U.S. District Court for the Southern District of New York, No. 11-md-02293.

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