Apple, E-Books And The DOJ: Even If You're Right You're Wrong

| About: Apple Inc. (AAPL)

Apple (AAPL) and its publishing partners, including units of CBS (CBS) and News Corp. (NWS), seem ready to go to the mattresses against the Justice Department's antitrust unit, which seems ready to sue them over fixing the price of eBooks.

Reports indicate an action may be filed as early as today.

This may be the dumbest move Tim Cook has made yet, and the merits of his case have nothing to do with it.

Simply put, having Justice Department lawyers around is bad for any company. Especially antitrust lawyers. Especially tech companies. That's due to the peculiarities of the antitrust law - actions that seem perfectly natural in any other context take on a whole new meaning when you're seen as trying to create, or enforce, monopoly rents.

The result is that stuff has to be saved, things have to be remembered and (more important) hands have to be stayed before they do many normal business activities.

Every tech company the Justice Department has ever gone after - IBM (IBM), the former AT&T, and (most especially) Microsoft (MSFT) can attest to this fact. All were transformed and grievously damaged by their antitrust cases.

The media companies involved can compartmentalize all this. The textbook business faces an existential threat from technology. It's a life-or-death struggle for these companies, trying to maintain their market control with books becoming magnetic ink. Barriers to entry are falling, distribution costs are dropping to zero, so it's easy to see why they would fight anyone, and bear any risk, in order to keep what they have.

But Apple does not need this tsuris. There is no guarantee that, once government investigators become involved, the issue will be limited to eBooks.

Philip Elmer-Dewitt of Fortune notes that Apple has plenty of cash to fight this. That's not the issue. The issue is what happens when lawyers go into other departments, into operating departments, and when any agreement comes into force.

You may say, well Microsoft fought the law and won. But it took 15 years. And what happened to the company in the meantime? It lost its lead in technology, because its people weren't allowed to think different, they had lawyers and product managers and outsiders around them all the time saying "no" to things. It becomes a form of self-censorship, which runs completely counter to the creative process. And it drives good people out the door.

I get it. Apple wants the 30% it gets on music and apps and everything else to apply equally on books. It fought hard for its advantages and it is unwilling to give them up.

But Apple is Microsoft now. And I know from having covered the story what the presence of Department of Justice lawyers did to Microsoft, over many, many years. That's a path I wouldn't wish on my worst enemy.


Disclosure: I am long AAPL, MSFT.