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Apple’s Eddy Cue Says He Didn’t Know of Publisher Talks

Eddy Cue, the Apple Inc. executive the government claims was the “chief ringleader” of a scheme to fix e-book prices, said he was unaware that publishing chief executive officers were talking with one another during six weeks of intense negotiations with Apple.

Cue, 48, took the stand today in the Justice Department’s civil antitrust case against Cupertino, California-based Apple, which is on trial in federal court in Manhattan. Cue testified that he didn’t know about any of the e-mails and more than 100 phone calls involving the CEOs of five of the biggest U.S. book publishers in late 2009 and early 2010.

Cue said he “struggled and fought” with the publishers, in individual talks before the introduction of the iPad, to get them to sign contracts to sell e-books on Apple’s iBookstore. Cue testified it’s his opinion the CEOs weren’t coordinating over their negotiations with Apple.

“If they were talking to one another, I would assume I would have had a much easier time getting those deals done,” Cue testified.

The government claims Cue led a conspiracy by the publishers to raise prices and pressure Amazon.com Inc. (AMZN), the biggest e-book seller, to abandon its practice of selling electronic versions of best-selling books for $9.99, at a loss.

Apple CEO

Apple denies it conspired to fix prices and is fighting the case, which U.S. District Judge Denise Cote will decide without a jury. Apple CEO Tim Cook, at an industry conference last month, called the Department of Justice’s case “bizarre.”

Justice Department lawyer Lawrence Buterman questioned Cue, trying to show that Apple took advantage of the publishers’ dislike of Amazon’s $9.99 e-book pricing to get them to raise prices across the industry.

The government claims Apple got the publishers to force Amazon and other e-book retailers to switch from a wholesale pricing model, under which the retailers set prices, to a “agency” pricing, which allowed the publishers to set the prices.

Apple’s contracts with the publishers gave Apple 30 percent of the retail price. A so-called “most-favored nation,” or MFN, clause in the contract allowed it to match low prices set by other e-book sellers.

24 Years

Cue, an Apple employee for 24 years, testified that he reported on the talks with publishers to Steve Jobs, the company’s cofounder who died in 2011.

Five publishers signed agency contracts with Apple: Verlagsgruppe Georg von Holtzbrinck GmbH’s Macmillan unit, CBS Corp. (CBS)’s Simon & Schuster, Lagardere SCA (MMB)’s Hachette Book Group, Pearson Plc (PSON)’s Penguin unit and News Corp.’s HarperCollins. All five settled with the government, avoiding trial.

A sixth publisher, Random House Inc., didn’t sign an agency agreement with Apple and isn’t involved in the U.S. suit.

Buterman today asked Cue about a Jan. 14, 2010, e-mail in which Cue presented Jobs with a set of proposed price tiers for e-books.

“I can live with this, as long as they move Amazon to the agent model too for new releases for the first year,” Jobs wrote in a draft response. “If they don’t, I’m not sure we can be competitive ...”

Cue testified that he explained to Jobs that the MFN clause meant that Apple could match Amazon prices even if it didn’t switch to agency pricing.

The case is U.S. v. Apple Inc. (AAPL), 12-cv-02826, U.S. District Court, Southern District of New York (Manhattan).

To contact the reporter on this story: Bob Van Voris in federal court in Manhattan at rvanvoris@bloomberg.net

To contact the editor responsible for this story: Michael Hytha at mhytha@bloomberg.net

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