Lawyers for Apple and the US Justice Department have completed their closing arguments in the 'ebook price fixing' case.
"Word games," an "overreaching narrative" and a "case of inferences" were a few choice phrases from attorney Orin Snyder in his closing arguments for Apple Thursday in the US Department of Justice's antitrust, e-books price-fixing case against the company.
The DOJ brought the case against Apple and five of the largest book publishers in the US for allegedly conspiring to raise prices in the e-book market in 2010, in an effort to stop Amazon from pricing their best-selling electronic books at US$9.99.
The DOJ and Apple both made closing arguments Thursday before Judge Denise Cote. The five publishers have already settled the case for a cumulative $164 million, leaving Apple to defend its practices. Cote presided over the three-week, non-jury trial in the US Southern District Court of New York in Manhattan.
For Apple's summation, Snyder characterized the interactions Apple had with the five publishers as typical negotiations that accompany any business deal. At no point did Apple try to coordinate the activities of the publishers to fix prices. "The evidence does not show this," Snyder told the court, arguing that the DOJ made its case on "overreaching" interpretation of documents.
Snyder focused on the timeline between December 2009 and January 2010 to rebut the DOJ's assertions. He noted there was "turmoil" in the e-book market at the time, and that Apple executives, who had no prior knowledge of the market, were speaking with publishing heads just to hear their concerns. He offered multiple examples of disagreement between Apple and the publishers, in an effort to show that the parties were not acting in unison to fix prices.
The case stems from contracts Apple made with the publishers in 2010, just before it launched the iPad. In January that year, each publisher - HarperCollins, Penguin, Hachette, MacMillan, and Simon & Schuster - agreed to let Apple sell their books under a relatively novel business model, in which Apple would charge the prices the publishers had set and keep a 30 percent commission.
This approach, called the agency model, differed from the standard, decades-old wholesale model of book selling, in which the publisher, not the retailer, set the book prices. With the new approach, retailers "lost their ability to compete on price, including their ability to sell the most popular e-books for $9.99 or for other low prices," the DOJ charged in its complaint.
According to the testimony of Apple Senior Vice President Eddy Cue, publishers immediately wanted to move to the agency model when he initially approached them in December 2009 to secure electronic book rights for the iPad.
The publishers saw the agency model as the solution to Amazon pricing electronic versions of best sellers at $9.99, less than the online retailer paid for them in many cases. The publishers worried that Amazon, which had 90 percent of the e-book market at the time, was lowering the perceived price of books in consumers' eyes, and laying plans to cut publishers out of the picture and to deal with authors directly. The publishers met throughout 2009 to discuss the issue, according to Apple.
Cue proposed the agency model to then Apple CEO Steve Jobs, who liked the idea, given that Apple was using the same model for iTunes and its App store. So in early January, Apple proposed an agency model agreement with all the publishers, in which Apple would in effect get a fixed 30 percent commission for each sale.
Apple also added further provisions to the contract. It established a tier of price points for books. Best sellers, for instance, could be priced at $12.99 and $14.99 and, later at the publishers' insistence, $16.99 and $19.99. Apple mandated caps on how much publishers could charge for electronic books. It prohibited publishers from withholding best-selling titles from electronic release, and from delaying the release of some titles in electronic form, a practice known as windowing.
Finally, Apple added what it called a "most favored nation" (MFN) clause. The MFN stipulated that the publishers must offer their electronic books to Apple at 70 percent of the lowest price offered on the retail market elsewhere. In this way, Apple could match the lowest price of e-books elsewhere and still make its 30 percent cut.
The DOJ had argued that MFN was proof that Apple was trying to set prices for e-books not just for itself but for the entire industry. Snyder argued Apple was only looking out for its own best interest. Apple did not care what prices the publishers would charge, as long as Apple got its 30 percent cut. "If books were sold at $1.99, we'd make a ton of money," he said.
Snyder also pointed out that after Apple settled on the idea of including an MFN in its contract, it had no preference as to whether the publishers signed other retailers such as Amazon to an agency model. He showed various pieces of correspondence that Cue and Jobs had had with publishers to back this point.
Five of the six largest book publishers signed Apple agency contracts within a few days of each another in January (the sixth and largest publisher, Random House, abstained). Over the next few months, the publishers set up other agency agreements with other retailers, such as Amazon.
Immediately after the contracts took effect in April 2010, and publishers moved all their retailers to the agency model, prices of electronic books offered by both Amazon and Barnes & Noble increased by almost 20 percent, the DOJ calculated.