Apple conspired with publishers to increase ebooks prices, costing readers “hundreds of millions of dollars”, an antitrust trial heard yesterday.
In opening arguments reported by Reuters and others, Lawrence Buterman, a lawyer at the US Department of Justice, claimed Apple offered publishers a means to raise their prices from the low figures they were forced to accept with web bookseller Amazon.
Ultimately, the plan was to sell the digital tomes for iPads and iPhones at prices set by the publishers through Apple, which would take a 30 per cent cut, it is alleged.
"Apple told publishers that Apple - and only Apple - could get prices up in their industry," he told the southern New York court. The DoJ's opening dossier of evidence can be found here [PDF].
But the fruity firm's legal team retorted that the case was “bizarre”, adding that no market newcomer - especially one facing a dominant player like Amazon at a time of falling prices - had ever been sanctioned for anticompetitive practices.
The case hinges on whether Apple's suggested move to an agency model - in which the publishers set the ebook prices, and Apple and other retailers take a cut - facilitated a conspiracy to fix prices unfairly high.
The agency model differs from the usual wholesale model, in which retailers (such as Amazon) buy at cost from publishers and set their own prices on the open market.
Also in question are the "most favoured nation clauses" worked into the publishers' contracts with Apple, which stopped them from selling books to retailers at prices that undercut the prices agreed with Apple, it is claimed.
'The deck is not stacked against Apple'
During yesterday's opening remarks, the iPhone-maker's attorneys complained that the presiding US District Judge Denise Cote had earlier said the US government had "direct evidence" that Apple conspired with publishers, thus suggesting before the trial started that the Feds were capable of bagging the case.
But the judge hit back, and said both sides had asked for her view after she had pored over hundreds of documents submitted ahead of the non-jury proceedings.
"The deck is not stacked against Apple unless the evidence stacks against Apple," she said yesterday.
The Department of Justice cited statements made by the late Apple co-founder Steve Jobs to support its claims, including comments to the press after he unveiled the iPad, when he said that Apple’s ebook prices of $12.99 and $14.99 weren’t going to be higher than Amazon’s. When reporters asked him how iDevice ebooks would compete when Amazon was selling the digital works for $9.99, he replied: “That won’t be the case. The prices will be the same.”
In further evidence to support its allegations, the DoJ showed an email from Eliza Rivlin, then general counsel of publisher Simon & Schuster, who was horrified that Jobs had made the comments.
“I can’t believe Jobs made the statement… Incredibly stupid,” she wrote.
The Department of Justice's lawyers suggested Rivlin was incredulous because Jobs’ comments pointed out their conspiracy. But Apple lawyers said that the Feds were twisting the facts to paint a “sinister” picture of Apple.
"What the government wants to do is reverse engineer a conspiracy from a market effect," Cupertino attorney Orin Snyder said.
He added that all Apple had done was act in its own business interests to get the best deal from publishers before launching the iPad. He also contended that the most favoured nation (MFN) clauses in Apple’s contracts actually proved its innocence.
“If the fix was in with the publishers, why would Apple need an MFN?” he asked in court.
Apple is facing the US government alone after the five publishers accused in the case - Simon & Schuster, Penguin, Hachette, Macmillan and HarperCollins - all settled out of court. They’ve agreed to rip up the agency contracts in question and accept limitations on future deals with retailers, as well as handing back $164m to customers. ®