NYTimes: E-Book Antitrust Trial of Apple Is Set to Begin |
Posted: June 5, 2013 |
Government lawyers are set to face off against Apple this week in a Manhattan courtroom, trying to prove that the company conspired with publishers to raise prices in the e-book market. Eddy Cue, Apple's senior vice president for Internet software and services, negotiated the company's deals with book publishers.In the case, brought a year ago, the Justice Department accused Apple and five book publishers of conspiring to raise e-book prices. The idea, the government said, was to allow publishers to set their own prices rather than letting retailers do so. Their motivation, according to the Justice Department, was to defend themselves against Amazon, which was setting the price of most new e-books at $9.99 and becoming increasingly dominant in the market. Simon & Schuster, HarperCollins and the Hachette Book Group settled the day that charges were filed; Penguin and Macmillan settled months later. Complaints by Amazon, which now controls at least 60 percent of the e-book market, are widely believed to have incited the investigation. Amazon declined to comment. After the lawsuit was filed, the expectation was that e-book prices would drop sharply; the publishers that settled agreed to allow retailers to discount their e-books for two years. But the price drop has still not happened. A government victory against Apple, which would not involve monetary damages, might also not affect e-book prices. “Are consumers going to be better off as a result of any government win here?” said Charles E. Elder, an antitrust lawyer at Irell & Manella, which is not involved in the case. “That’s going to have to be seen depending on what happens to book publishing generally. It’s in trouble, and e-books are either the savior or they’re going to hasten the demise of book publishers.” Apple declined to comment, but has said it has done nothing wrong. “The e-book case to me is bizarre,” Timothy D. Cook, Apple’s chief executive, said during an onstage interview at a business conference last week in Southern California. “We’ve done nothing wrong there, and so we’re taking a very principled position of this. We were asked to sign something that says we did do something, and we’re not going to sign something that says we did something we didn’t do. And so we’re going to fight.” Apple certainly has the money to fight, and a brand to protect, at a time when its stock is sagging and its tax practices and manufacturing processes are under scrutiny. Yet it is bigger than ever — with hundreds of millions of its iPhones and iPads in the hands of customers all over the globe. The trial, before Judge Denise L. Cote of United States District Court, is expected to feature testimony from chief executives from the five publishers, who will offer a window into their world of fierce price negotiations. But the star witness may well be Mr. Jobs, even though he died in October 2011. In the case, the government cast Apple as the “ringmaster” of the conspiracy. It said that when the company entered the e-book industry in 2010 with the introduction of the iPad, it wanted to pressure Amazon to raise its prices above its uniform $9.99 for new e-books. At the time, publishers’ agreements to sell e-books were made under the so-called wholesale model of print books; publishers charged retailers about half the cover price for a book, and the retailers then set their own prices. The government said Mr. Jobs had persuaded publishers to agree to agency pricing, which allowed publishers to set their own prices for e-books, giving Apple a 30 percent commission for books sold in its online store. The publishers’ contracts with Apple included a “most favored nation” clause, requiring that no other retailer sell e-books for a lower price; if they did, the publisher would have to match the price of the e-book in Apple’s store. That, the Justice Department said, resulted in higher prices that harmed consumers. Around the same time, the five publishers renegotiated their contracts with Amazon to the agency model. In its case, the government said the result was that the price of newly released e-books went up to $12.99 and $14.99, evidence that a price-fixing conspiracy had taken place.
In pretrial papers, the government said part of its evidence would be this e-mail from Mr. Jobs to James R. Murdoch, an executive of News Corporation, which owns Harper Collins: “Throw in with Apple and see if we can all make a go of this to create a real mainstream e-books market at $12.99 and $14.99.”In court this week, Apple will be relying on Eddy Cue, its senior vice president for Internet software and services who also negotiated deals with the book publishers, to give more context to Mr. Jobs’s e-mail. The government also pointed in its pretrial filings to a quote from Mr. Jobs’s authorized biography, in which he conceded that he had “told the publishers, ‘We’ll go to the agency model, where you set the price, and we get our 30 percent, and yes, the customer pays a little more, but that’s what you want anyway.’ ” In its own pretrial filings, Apple said the quotations from Mr. Jobs were edited and taken out of context in the government’s papers. The company said that even before it entered the e-book market, publishers were getting fed up with Amazon’s uniform e-book pricing and were planning to delay the release of e-books. That caused Barnes & Noble to push for agency agreements with publishers, Apple said. In its defense, Apple has also picked out e-mail conversations for ammunition. It cites one Amazon executive who found it “hysterical” that Amazon used “Jedi mind tricks” to get publishers to do what it wanted. Furthermore, Apple says that the average selling price of an e-book dropped after it entered the market. The trial will cap a difficult year for the industry, with five of the six major publishers grappling with the aftermath of the lawsuit. But the industry’s woes began long before. E-books have caused a monumental disruption in the last five years, as a once-fledgling technology has taken hold for millions of readers. In 2009, e-books made up 1 percent to 3 percent of publishers’ total sales, but now account for 20 percent. Publishers have also faced a transformed retail environment. Borders went out of business in 2011, leaving Barnes & Noble as the only major national bookstore chain. Barnes & Noble has its own troubles and is considering a move that would split its retail stores from its struggling e-reader division. Two of the biggest publishers, Penguin and Random House, announced last fall that they would merge, a deal that is expected to be completed later this year. John Sargent, the chief executive of Macmillan, which settled in February, has insisted that the company did not engage in collusion. He said it had no choice but to settle after receiving an estimate of the possible damages. “I cannot share the breathtaking amount with you, but it was much more than the entire equity of our company,” Mr. Sargent said in an e-mail to authors, illustrators and agents. Meanwhile, many new e-books have been released at presettlement prices, among them “Silken Prey” by John Sandford and “A Delicate Truth” by John le Carré, both new releases whose e-books were offered on Amazon for $12.99 last week. Some have been released at less than $10. “There hasn’t been an aggressive amount of cost-cutting from Amazon,” said Michael Norris, a senior analyst for Simba Information who studies the publishing industry. “Slashing the prices down to nothing isn’t going to get them much if it’s not going to attract multitudes of people to their platform. In the couple of years since that pricing discussion began, Amazon released the Kindle Fire, and a lot of their attention these days is focused on video content.”
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