[A2k] New York Times: Judge Rules Against Apple in E-Books Trial

Thiru Balasubramaniam thiru at keionline.org
Wed Jul 10 07:43:05 PDT 2013


http://www.nytimes.com/2013/07/11/technology/judge-rules-against-apple-in-e-books-trial.html

July 10, 2013

Judge Rules Against Apple in E-Books Trial

By BRIAN X. CHEN

A federal judge on Wednesday found that Apple violated antitrust law in
helping raise the retail price of e-books, saying the company “played a
central role in facilitating and executing” a conspiracy with five big
publishers.

“Without Apple’s orchestration of this conspiracy, it would not have
succeeded as it did in the spring of 2010,” the judge, Denise L. Cote of
United States District Court in Manhattan, said in her ruling. She said a
trial for damages would follow.

Government lawyers argued in court last month that Apple had colluded with
five big American publishers to raise prices for electronic books across
the publishing market.

The Justice Department brought the antitrust case against Apple and the
publishers a year ago. The publishers settled their cases, but Apple
executives insisted that the company had done nothing wrong.

The antitrust battle underscores the turmoil in the book industry as
readers shift from ink and paper to electronic devices like tablets and
smartphones, where they can buy content with the push of a button. While
the publishers want to embrace new media, they are also trying to protect
their profits and retain control of their businesses. Apple’s lawyers noted
at the trial that the publishers had long complained that
Amazon.com’s uniform pricing of $9.99 for new e-book titles was too low.

In his testimony, Eddy Cue, Apple’s senior vice president of Internet
software and services, who was in charge of negotiating deals with the
publishers, conceded that Apple opened the door for book publishers to
raise prices in its own e-book store. But he said that the company was not
intending to push Amazon, the dominant player in the e-book market, to
raise its prices, too.

“Amazon could have negotiated a better deal,” Mr. Cue said in his
testimony. “They had a lot more power.”

But the Justice Department said Apple’s deal with the publishers left
Amazon with no choice but to raise prices. When Apple entered the e-book
market in 2010, it changed the way publishers sold books by introducing a
model called agency pricing, where the publisher — not the retailer — sets
the price, and Apple took a cut of each sale. As a result, the publishers
were able to set e-book prices higher. Apple proposed price caps of $12.99
and $14.99.

Apple also included a condition in its contracts, called the most-favored
nation clause, requiring the publishers to allow Apple to sell e-books at
the same price as the books would be sold in any other store. Apple has
said the clause was intended to guarantee that its customers got the lowest
e-book prices, but the government argued that it defeated price competition.

The Justice Department said that the publishers used their relationship
with Apple, combined with the most-favored nation clause, to threaten
Amazon to switch to the agency model so they could raise prices. If Amazon
did not agree to those terms, the government said, the publishers intended
to withhold their e-books from the retailer until the more expensive
hardcover books had been on the market for awhile.

In the trial, government lawyers showed e-mails sent between Apple and the
publishers in the weeks leading up to the introduction of the iPad and the
opening of Apple’s e-book store.

One e-mail, written by Steven P. Jobs when he was chief executive of Apple,
was frequently brought up at the trial. In an e-mail conversation with Mr.
Cue about the contracts negotiated with the publishers, Mr. Jobs wrote: “I
can live with this, as long as they move Amazon to the agent model too for
new releases for the first year. If they don’t, I’m not sure we can be
competitive.” The Justice Department said this showed Apple’s intent to
help the publishers push Amazon to the agency model so they could raise
e-book prices.

But Apple’s lead counsel, Orin Snyder of Gibson, Dunn & Crutcher, contended
that the note written by Mr. Jobs was a draft. He showed a version of the
e-mail that did not have language about forcing Amazon to change the way it
sold books. At the trial, it was never fully resolved which version of Mr.
Jobs’s e-mail was actually sent to Mr. Cue. But the version presented by
the Justice Department indicated that it was written at a later time
and was signed “Steve,” suggesting that it might have been the final draft.

Judge Cote said the words of Mr. Jobs were compelling evidence against
Apple. They showed that Mr. Jobs, who died in 2011, was aware that the
publishers were unhappy with Amazon’s pricing of $9.99 for e-books, and
that Apple’s entry would drive up prices across the industry.

In one famous instance, Mr. Jobs made comments to a reporter after he
introduced the iPad and the iBookstore in January 2010. When asked why
consumers would purchase an e-book from Apple’s store instead
of Amazon.com, where e-books were $9.99, Mr. Jobs replied, “The prices will
be the same.”

“Apple has struggled mightily to reinterpret Jobs¹s statements in a way
that will eliminate their bite,” Judge Cote said. “Its efforts have proven
fruitless.”

In his arguments, Mr. Snyder tried to illustrate that the publishers
“fought tooth and nail” with Apple before agreeing to the terms, rather
than colluding with the company. In support of that argument, he showed
e-mails from the publishing executives arguing with Mr. Cue about the
contract terms.

On the last day of the trial, Mr. Snyder told Judge Cote that there was
much more at stake than the health of the book market. Mr. Snyder said a
ruling against Apple could stifle the way retailers do business with
media providers, including music labels and movie studios. Retailers
negotiating with content providers might feel pressured to “not utter a
word” about their discussions with other companies, he said. Businesses
negotiating deals with multiple partners often inform each party of what
the others have agreed to, he said, so they know they are being treated
fairly.



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