Apple Denies Conspiring With Publishers in E-Books Trial

Apple Inc. made a final pitch to defend itself against U.S. charges it led publishers in a scheme to fix the prices for electronic books, with the company’s lawyer telling a judge that it did nothing wrong.

“Apple did not conspire with a single publisher to fix prices in the e-books industry,” Orin Snyder, Apple’s lawyer, told U.S. District Judge Denise Cote yesterday in his closing argument at the end of a civil antitrust trial in Manhattan. “Apple acted lawfully and did not violate the antitrust laws.”

The government claims Apple and five of the biggest book publishers conspired to move the e-book market to a model that raised prices and harmed consumers. The trial focused on December 2009 and January 2010, when Apple was rushing to sign contracts with the publishers and build an iBookstore in time for the introduction of the iPad.

Snyder, in his 2 1/2-hour argument, told Cote that Apple’s entry into the e-book market, which had been dominated by Amazon.com Inc. (AMZN), lowered prices overall and helped consumers by bringing innovation and competition. He argued that the government “overreached” in its suit against Apple, claiming that a ruling for the U.S. Justice Department would be “unprecedented and dangerous” for companies.

‘Tentative View’

Cote, who will decide the case without a jury, interrupted Snyder repeatedly with questions. In a court conference before the trial, Cote told lawyers for both sides her “tentative view” was that the government has evidence Apple “knowingly participated in and facilitated a conspiracy to raise prices of e-books.”

During the trial, which began June 3, Cote heard testimony from top publishing executives and from Eddy Cue, the senior Apple executive on the negotiations. The government also introduced e-mails from Steve Jobs, the company’s deceased co-founder.

Cue, who took the stand for two days, testified that he felt pressure to put together the iBookstore in time for Jobs’s introduction of the iPad, because of his failing health. Jobs died in October 2011.

Snyder said that Apple negotiated with each of the publishers independently for its own advantage, over the course of six weeks. Jobs and Cue were strangers to the publishing world and weren’t ringleaders of a publishers’ price-fixing conspiracy, he argued.

Doesn’t Know

In response to a question from Cote, Snyder said Apple isn’t in a position to know whether the publishers conspired with one another without Apple’s participation.

Snyder challenged an exhibit introduced by the government to show a “spider web” of phone calls from Cue to the chief executive officers of the publishing houses. Snyder removed from exhibit calls of less than a minute and those that took place after the government claims the conspiracy was already in place. Only a handful of calls remained.

Apple is the last defendant remaining in the case after the five publishers sued by the government avoided trial by settling.

The settling publishers are 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. The No. 1 publisher, Random House Inc., isn’t involved in the U.S. suit.

Five Publishers

The U.S. sued Apple and the five publishers in April 2012. The government claims Apple pushed publishers to sign agreements letting it sell digital copies of their books under what’s known as the agency model. Under that model, publishers, and not retailers, set prices for each book, with Apple getting 30 percent.

Mark Ryan, a lawyer for the Justice Department, followed Snyder yesterday, arguing that Apple headed up “an old-fashioned, straightforward price-fixing agreement.”

Ryan said Apple took advantage of the publishers’ dislike of Amazon’s practice of selling new e-books for $9.99, less than their cost, offering a scheme that would fix their “Amazon problem” by forcing the Seattle-based online retailer to switch to agency pricing.

“The price that was set in a competitive marketplace was not a price they liked,” Ryan said.

The scheme had two objects, Ryan said: to raise e-book prices from $9.99 to $12.99 and $14.99 and make it harder for retailers to compete on price. Consumers lost in the process, he argued.

Disregard Cue

Ryan told Cote she should disregard the testimony of Cue and other Apple witnesses as not credible. He said Apple used pricing tiers and a provision allowing the company to match any lower book prices charged by other retailers to ensure that the publishers would force Amazon to switch to agency pricing.

“Why does it care, once it has price protection, whether or not the publishers follow through on what they said they wanted, which is to take control of pricing?” Cote asked Ryan.

“Pricing’s clearly an advantage for Amazon,” he answered. Forcing a switch to agency would “level the playing field,” allowing Apple to compete more effectively in the e-book market, he said.

The government is seeking an order barring Apple from alleged anticompetitive actions, including price fixing, in the market for digital books. The U.S. isn’t asking for money damages.

Private Plaintiffs

A group of states is also seeking fines and unspecified damages. If Apple is found liable in the trial, damages will be determined in a separate proceeding. A win for the government may fuel class actions by private plaintiffs seeking triple damages permitted under antitrust law.

At the time of the alleged conspiracy, Amazon, with its Kindle reader, sold nine out of 10 e-books bought by consumers, according to Apple.

Apple has iBookstores available in 155 countries, offering 1.75 million books for sale, Peter Oppenheimer, Apple’s chief financial officer, said during Apple’s earnings call with analysts in April.

Cote told the parties before the trial that she had drafted an opinion. She didn’t say yesterday when she will rule on the case.

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 New York at rvanvoris@bloomberg.net

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

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