Apple did n’t endeavor to fix or raise the prices of electronic books when it entered into the market in 2010 , according to Apple senior vice president Eddy Cue . Rather , he say , the company was only work to ensure a profit for itself .
“ We ’re not unforced to fall back money in any business , ” Cue told the court , have-to doe with to Amazon ’s practice of 2009 to sell electronic books for less than what it pay for them .
But in doing so , the U.S. Justice Department deal , Apple violated antimonopoly laws by colluding with the five large book publishers — HarperCollins , the Penguin Group , the Hatchett Group , MacMillan , and Simon & Schuster — to doctor the prices of electronic book . As a termination of their actions , the prices of electronic leger prove in 2010 , the DOJ contended .
While the five publisher have since settled with the DOJ out of Margaret Court , Apple is fight its practices in a DOJ antimonopoly trialnow under way at the U.S. District Court for the Southern District Court of New York , with District Judge Denise Cote presiding .
Apple fourth-year frailty President of the United States Eddy Cue
In its arguments , the DOJ portrayed Cue as the mastermind of the procedure , the one who coordinated the actions of the publishing company CEOs while go along Apple ’s then - CEO , Steve Jobs , inform of the advance he was making . Last week , Cue took the standto explain the logical thinking that led Apple and the publishers to set up an entirely new pricing model for electronic books , called the agency model .
All about the agency model
The agency simulation works differently from the wholesale model that publishers have been using for centuries . In the wholesale modelling , the Word publishing company sells the books to the retailer , and then the retail merchant can resell the Scripture at whatever terms it sees primed , usually at a profit . In the agency model , such as the one Apple utilise for its App Store , the manufacturing business sets the retail price and the retail merchant make a sure share of the sales agreement . In Apple ’s case , it would take 30 percent of whatever publishers intend to buck .
Does the DOJ have a causa against Apple ? While a move to the authority simulation may be legal , the work of coordinating rival in a single market to agree on price is not , said Keith Hylton , a prof at the Boston University School of Law . The complexity in this display case is that the two issues are discombobulate , he said .
Agency pricing is standardized to another mechanics , “ resale price maintenance , ” in which the manufacturing business set the Mary Leontyne Price of its good , Hylton said . The U.S. Supreme Court reign in 2007 , in a character concerning the pricing of leather clothes , that resale cost maintenance was legal unless the practice was express to be harmful to consumers .
The office model , on its own , “ does n’t even advance an antitrust outcome , because the seller never owns the book , ” Hylton said .
But while a maker and reseller can lick together to determine a terms , multiple manufacturers can not conspire together to set prices . The plaintiff — in this case the DOJ — has to make a compelling cause that this conspiracy really took seat , Hylton said .
Focus on Cue
When questioned by DOJ lawyer Lawrence Buterman , Cue enjoin he was unaware that publishers were discussing the proposed Apple spate among themselves . He had been unaware , he say , that the CEOs of the largest book publishers had been hold talks among themselves for at least a yr prior to forgather with Cue .
What the publication CEOs were talk about was the issue of how Amazon was selling electronic books for its Kindle script reader , which they called the “ $ 9.99 problem . ” According to the DOJ , the publishers were frustrated that Amazon was selling their best - selling titles at $ 9.99 each , which was , in many case , less than what Amazon was pay for those electronic books .
The publication companies feared that if Amazon continued to offer bestsellers at such a reduced rate , the world would come in to assume that would be the natural price for a book . They also worried that Amazon was moving to disintermediate publishers , or to cut them out of the publication cycle and deal immediately with authors .
Enter Apple . In December 2009 , Apple was preparing to found its iPad , which Cue thought would make for a terrific electronic Holy Scripture reader . It was Cue ’s idea for Apple to enter the market place for electronic books . Apple CEO Steve Jobs think the formatting would n’t work for either the iPhone or Mac laptops or desktop computers . But the iPad would make a fine lector for electronic books , offering features such as enhanced people of colour and video , Cue thought . Cue felt personally close to Jobs ; he had worked nearly with him for about 16 geezerhood and was mindful task was fail . ( Jobs died in 2011 . ) The projection to congeal up the iBookstore “ had superfluous meaning to me , ” he differentiate the motor hotel .
Cue had to work fast , though . Jobs was planning to infix the iPad to the world in small more than a month , on Jan. 27 , 2010 . Cue would need to have preliminary agreements from all the major publishers in post by then for job to include iBookstore in his presentation .
According to Cue ’s testimony , he initially approached publishers individually in December 2009 about resell their books in a typical wholesale model . In Cue ’s first meeting with a publisher , with HarperCollins , an executive director floated the idea of do work with Apple under an agency model . Cue took the thought back to Jobs , who approved the canonical concept . The company was already using that model for both its App Store and its iTunes euphony and video recording divine service . So over the next few weeks , Cue and his team worked up an agency plan , one that guaranteed Apple a 30 percent cut of each sale .
Cue proposed different pricing tiers that publishers had to stand by to . Electronic versions of substantially - sell hardcover rule book , for object lesson , could be sold at $ 12.99 or $ 14.99 . At the publishing house ’ insistency , he added $ 16.99 and $ 19.99 as well . The contracts also prohibited the publisher from “ windowing , ” or delaying the electronic release of popular books on Apple ’s memory . “ If you run a store , you ca n’t have windowing at all , ” Cue explained before the court . “ Even though some price would go up , in exchange , [ there would be ] no more windowing . ”
Cue chop-chop realized that , in purchase order for the government agency framework to work , the same deal must be struck with all electronic book vendors , lest Apple ’s price be undercut by other retailer . The problem , Cue call back Apple ’s legal advocate telling him , was that Apple could n’t force publishers to change their contract with other retailer .
Instead , Cue introduced what he called a “ Most Favored Nation ” clause , in which the book publishers would secure that they would proffer their books to Apple at 30 percent less than any other ebook retailer ’s monetary value . In this way , Cue explained , publishing firm would not have to sign over the rest of their client to the agency selling good example . “ In a effectual understanding , I could n’t impel Amazon and Barnes & Noble to move to the agency modelling , ” he said . The DOJ has maintained that the MFN clause in effect forced book marketer to move to an delegacy theoretical account .
With the public launch of the iPad coming up on Jan. 27 , Cue rushed to get all the publishers to sign on contract bridge by a hebdomad before then . Scripture publisher Hatchett sign an agency - model bargain on Jan. 24 , and the other four publishers signed like deals within the following two day . In the next months , the publishers chance upon agency deals with other electronic book retailers . The Apple contract take effect on April 3 , and the prices of the best sellers quickly rise to the top $ 16.99 tier up in the calendar week after . ( As part of their 2011 settlements with the DOJ , the book publishing company ended all their agency - exemplar contracts ) .
In antitrust cases , “ Once there is a proof of conspiracy , it is up to the suspect to show that the consumer was n’t harmed , ” Hylton enounce . In this case , the DOJ focalise its inquiring on the increase in book prices right after the raw agreements were in spot .
When Buterman asked if he knew book prices would jump after the agreement , Cue refuse to notice that electronic book prices increase overall . He answer that while some account book prices increase , the prices for other account book would be price more “ flexibly , ” and still other books were stick in to the marketplace that previously were n’t available in electronic cast , thanks to Apple ’s insistence on not windowing or withholding tax book outlet .
“ I look higher cost for some books , but [ there would be ] tractableness for other book , ” Cue say . He also observe that not all the prices for electronic al-Qur’an increased . Most of the cost increases were for raw , well - sell rule book .
“ Do you think customers calling to give thanks you for raising [ electronic record ] prices ? ” Buterman asked .
“ They give thanks me for opening an iBookstore , ” Cue responded .
During questioning by Apple ’s own lawyer , Orin Snyder , Cue conserve that Apple did not have a set outlook for how much electronic book should cost . “ $ 9.99 might be the right monetary value , but we did n’t roll in the hay what the ripe Leontyne Price was , ” he said . Rather , Apple left it to the publishing firm to set the prices , requiring only 30 percent of the final toll for keep its own business profitable . After disbursal of surrender merchandise and maintaining an electronic Commerce Department store , Apple would reap a net net income in the “ high undivided percent , ” Cue said .
“ Volume , not price , drives Apple ’s net , ” Cue said .
Jobs’s role
In its case , the DOJ deal that Apple coordinated the activity of the five publishing company , informing them that each of their contracts would be similar , and keep each of the publishers abreast of what the other publisher were thinking . To this ending , DOJ says it has wad of electronic grounds , between emails and headphone phone call , that publishers were conferring with each other on the issue . For object lesson , Jobs , in one email , submit that Apple could facilitate publishing house solve “ the Amazon job . ”
Another primal part of the evidence was a quote from Steve Jobs , made right after the iPad launching . When ask byThe Wall Street Journalwhy someone would pay $ 14.99 for a book on an iPad when they could get the same record for $ 9.99 from Amazon or Barnes & Noble , Jobs replied “ that wo n’t be the case … the prices will be the same . ” For the DOJ , this quote was grounds that Apple knew it was inquire all the publishers to raise toll for their books across the board .
The DOJ , however , still has to back its argument by showing very intelligibly that collusion took place . “ If you require to shew conspiracy , you advantageously wreak very strong grounds . It ca n’t be stuff that people can confer by just connecting the dots , ” Hylton said . Apple , meanwhile , is charging that the DOJ is charter these electronic documents out of context .
Cue , when query by Buterman , denied that he or Apple spoke with any of the publishers about what the other publisher were doing . He also repeatedly deny that he pitched publishers with the theme that Apple could stir up a change in the structure of the entire electronic book market . He said he did not do it who came up with the idea of all publishing company going to an agency model at the same meter . “ My business organization was to stay competitive , ” he pronounce .
Concluding argument from both sides are expect later this hebdomad .
