Why Is Apple Still Wrangling Over E-Books?

Updated June 28, 2013, 6:37 p.m. ET

Why Is Apple Still Wrangling Over E-Books?

JESSICA E. LESSIN

A question hangs over Apple Inc.’s AAPL +0.70% e-books trial: Why is Apple fighting the U.S. Department of Justice when the book publishers the agency also sued chose to settle? The answer lies in part in what’s at stake. Apple says it is fighting the high-profile case, now in the hands of a federal judge, on the principle it did nothing wrong. But the company is defending a lot more than its tiny digital-books business. A win would help Apple maintain negotiating clout with media companies, which are searching for new ways to make money in markets shifting online. A loss could hamper its ability to compete with rivals like Amazon.com Inc. AMZN +0.05% to land increasingly important media deals on favorable terms.

The government in April charged Apple and five publishers with conspiring to drive up the price of e-books for a new offering on the iPad. The publishers all settled, while Apple, whom the government has frequently painted as the “ringmaster” of the operation, fought on.

While the government is only suing Apple over e-books, Apple uses a similar approach of trying to land partners by letting them set prices in other areas, like its app store. An ability to negotiate favorable terms is critical to its ability to compete with Amazon.com, which tries to offer lower digital prices.

“Apple is smart enough to realize what is potentially at risk for digital commerce generally,” said David Balto, a former policy director at the Federal Trade Commission. “They want to preserve their market power to disadvantage rivals and dictate the terms of competition.”

An Apple spokeswoman reiterated the company’s previous comment that the government’s accusation was “not true.”

Fighting the case is a gamble. It could expose Apple to restrictive government monitoring and private lawsuits.

The government is pushing for an “antitrust compliance program” and an “independent monitoring trustee,” programs that could allow the government to watch Apple routinely.

“Any time there is a monitor, there is someone sticking their nose in your future business and you aren’t comfortable,” said Jeffrey Jacobovitz, co-chair of the antitrust practice at Arnall Golden Gregory LLP. He added that Apple could face more class-action lawsuits.

Tech giants have for years been trying to one-up each other on content deals, to be able to offer full libraries of content to boost the appeal of their hardware or sell ads against.

Practically speaking, a government victory isn’t likely to affect iTunes’ existing business much. Publishers have already placated the government by reworking their deals. The government alleged that the initial model allowed Apple to conspire to raise prices.

The Justice Department also wants Apple to be prohibited from using retail-price “most-favored nation” clauses, which gave Apple the right to match any lower price a publisher offered another e-book distributor. Apple uses most-favored-nation clauses in other iTunes deals that the government hasn’t deemed illegal, say people familiar with them.

Apple Chief Executive Tim Cook has said that the company is fighting the case because it hasn’t done anything wrong. “We’re not going to sign something that says we did something we didn’t do and so we are going to fight it,” Mr. Cook said at the D: All Things Digital conference in May. The Wall Street Journal and All Things Digital are both owned by News Corp NWSA -0.34% .

Apple settled an antitrust case with the European Commission over e-book pricing last year. The EU pact isn’t believed to open the company to private lawsuits, while a judgment against the company in the U.S. could.

A lawyer for Apple argued during the trial that a ruling against the company would “send shudders through the business community” by imposing a chilling effect on how companies negotiate.

A ruling is expected in the coming weeks.