Wednesday, June 05, 2013

DOJ vs. Apple: E-book price-fixing case begins

On Monday, the Justice Department began presenting its case against Apple regarding alleged e-book price fixing. DOJ lawyer Lawrence Buterman laid the case out in one sentence:
Apple knowingly and actively participated in a scheme to raise e-book prices.
The Justice Department sued Apple and five publishers in the matter in April of last year. However, Apple is the sole remaining defendant in the case. with the five publishers -- Pearson Plc's Penguin Group, News Corp.'s HarperCollins Publishers Inc., CBS Corp.'s Simon & Schuster Inc., Hachette Book Group Inc. and MacMillan -- all having settled with the DOJ.

Why then, is Apple continuing to litigate its case? Apple attorney Orin Snyder said:
Apple is going to trial because it did nothing wrong.
Snyder claimed, in his three-hour opening statement, that Apple's dealings with the publishers by no means involved collusion. He said the discussions were “contentious and hard-fought ... in some cases knock-down, drag-out fights."

At the time of the alleged "deal," Apple was preparing to launch its new iBookstore as well as the iPad. At the time,'s Kindle dominated the e-book market, with 90 percent of all e-books sold being Kindle versions in January 2010. Apple launched the iPad and iBookstore in April of 2010.

Meanwhile, publishers had been quietly unhappy with Amazon's e-book pricing. Amazon had standardized at $9.99 as the cost of a new e-book. To be clear, this was below the wholesale price that paid publishers, but it was an attempt to gain market share and acceptance -- which worked.

However, although was taking a loss, the low price point meant that brick-and-mortar booksellers with printed books and other e-book retailers could not compete. In addition, just as with other products, book buyers would "showroom," meaning they would shop in a brick-and-mortar store, but then return home to buy online.

The publishers wanted to return to what is called the "agency model." Under that model, publishers -- not or some other retailer -- set an e-book's selling price and the retailer takes a fixed percentage of the revenue. While under this model, publishers actually made less than they did with, they agreed to the deal with Apple for the reasons outlined above.

Apple and publishers agreed to an "agency model" rather than traditional retail/wholesale. Under this model, publishers actually made less than they had with Amazon.

One of the government's potential pieces of evidence comes directly out of Steve Jobs' official bio, where a full quote is:
We told the publishers, "We'll go to the agency model, where you set the price, and we get our 30%, and yes, the customer pays a little more, but that's what you want anyway." They went to Amazon and said, "You're going to sign an agency contract or we're not going to give you the books."
Last week, U.S. District Court Judge Denise Cote, who is overseeing the case, said she was leaning toward the DOJ's arguments. That was brought up by Synder on Monday.

Cote said that it is customary for her to share her pretrial views if both parties agree and that it is not an uncommon practice in either New York or California courts. She added,
You had months to think about whether you wanted my pre-trial views or not. My view was a tentative view…The deck is not stacked against Apple unless the evidence stacks the deck against Apple.
The case is United States v. Apple Inc et al, U.S. District Court, Southern District of New York, No. 12-02826.

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