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DOJ, Apple lay out initial filings in e-book price-fixing trial

updated 01:04 pm EDT, Wed May 15, 2013

Bench trial is set to begin on June 3; Apple says no collusion

In advance of the bench trial in which Apple will have to fight off charges that it colluded -- and fostered collusion -- with publishers to raise prices on e-books, both the iPhone maker and the US Department of Justice have filed initial court documents to lay out their respective cases. At issue is both the use of Apple's "agency model" pricing scheme, as well as former CEO Steve Jobs' overtures to the major publishers -- seen by some as trying to wrangle publishers into raising prices.

Apple is facing charges of conspiracy to collude with the publishers to fix e-book prices. Although all the publishers eventually settled charges with the DOJ, none of them admitted to any guilt on either the conspiracy or price-fixing charges, and simply agreed to refrain from using the "agency model" for a period of time -- a possible sign that the case against them and Apple was weaker than the DOJ has claimed.

Apple has consistently denied the charges, saying the case against it relies on a willful misunderstanding of what it was trying to do, and pointing out that Apple's entry into the market broke an Amazon monopoly on e-book pricing that was built on predatory pricing and driving smaller publishers and booksellers out of business. It maintains that it drafted agreements with the publishers using old-fashioned negotiation and persuasion, and that each of the five agreements were separate that were only linked by the common use of the industry-standard "agency model."

From the DOJ's perspective, Jobs admitted that the agency model Apple wanted to use for pricing e-books -- where the publishers or content owners set the retail price -- would result in higher prices for consumers (by a dollar or two). Apple's agreement also had a "most favored nation" clause, where publishers that were selling through Apple could not sell for less with anyone else. The latter move was designed specifically to prevent Amazon from engaging in a "predatory pricing" model, where it would sell books at (in some cases) a significant loss with a view to increasing sales numbers and establishing itself as the only serious e-book market.

Apple's strategy worked: once it entered the market, Amazon had to stop selling e-books at a loss, since they gained no advantage from the practice. The market stabilized, going from 90 percent Amazon selling to around 60 percent -- creating the opportunity for others, such as Sony and Kobo, to also compete. The "agency model" has been in use in the publishing industry for generations; Amazon's "wholesale" model, by contrast, buys books at a set price from publishers and then can opt to discount them or sell them at a loss, a practice the publishing industry felt "devalued" e-books. The practice is often used by US "big box" stores to drive out smaller competitors.

Apple spokesman Tom Neumayr denied the charges, saying that Apple's actions allowed the market to expand and diversify beyond just Amazon. He also said the publishers each made their decisions to their respective contracts independently of each other, and that no collusion was involved. Apple's filing points out frequent objections and negotiations over Apple's terms from publishers before they would agree, appearing to prove that the publishers did not act as a single entity.

The trial is scheduled to begin on June 3. US District Judge Denise Cote had previously ordered Apple CEO Tim Cook to give a four-hour deposition on the matter, as he was also involved along with Jobs in the negotiations with publishers that eventually led to the creation of the iBookstore.

by MacNN Staff



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