Apple e-book antitrust trial to wrap up Thursday


Eddy Cue, Apple's senior vice president of Internet Software and Services, center, exits Manhattan federal court following his testimony in the e-book pricing trial on June 13. (Louis Lanzano/AP)

NEW YORK — Apple and the Justice Department on Thursday will wrap up a federal antitrust trial focused on alleged price-fixing of e-books, but with broader implications for Internet companies racing to provide videos, radio and other media offerings over the Web.

After three weeks of testimony from executives of Apple, Amazon and Google and personal insights of late Apple chief executive Steve Jobs, attorneys will deliver five hours of closing statements and field questions from U.S. District Court Judge Denise Cote.

It is unclear when Cote will deliver her opinion on the case, but the press office of Manhattan district court on Wednesday afternoon estimated that a typical judge takes about two months to come to a decision.

And that opinion is being closely watched for its potential to set first-time boundaries on Apple, Amazon, Google, Netflix and other tech giants that have become the most powerful gateways for Internet entertainment, antitrust experts say. And the Obama administration has moved more aggressively to police the Internet industry, largely unfettered of rules, to ensure competition isn’t stifled.

“There are not a lot of cases that get litigated, so a decision will help develop and clarify the state of law for the 21st century economy. It’ll set an important precedent,” said Philip J. Weiser, dean of the University of Colorado law school and a former official at the DOJ.

At the heart of the lawsuit are two allegations by the government: Apple wanted to lift prices for e-books, and it facilitated a conspiracy with publishing houses to achieve that goal.

Apple has fiercely denied the allegations, saying it legally pursued deals with publishers and acted similarly to how it created arrangements with music labels and Hollywood studios to sell songs and videos on its massively profitable iTunes store.

The company has promised a dogged legal battle, prepared to appeal if Cote rules against it. Some experts say the case could reach the Supreme Court.

Legal experts question the benefits of such persistence.

Already, the three-week trial has revealed much about the highly secretive company. Testimony by Apple executives and e-mails by Jobs show the business tactics the company pursued to break into a market dominated by Amazon.

At first, Jobs didn’t want to sell digital books through the iTunes bookstore, according to Eddy Cue, senior vice president of Internet software and services, in his two days of testimony. But convinced that the iPad would create a rival platform to Amazon’s Kindle, Jobs became deeply involved in the creation of iBooks, from the way pages turned to the look of the iBooks retail platform, Cue said.

The DOJ called Cue the “chief ringleader of the conspiracy.” Prosecutors presented evidence of Cue racing to clinch deals with the biggest publishing houses in six weeks between December 2009 and the launch of the iPad on Jan. 27, 2010. According to the evidence, Cue made more than 100 calls to top publishing executives to coordinate a change in how e-books were priced. He flew to New York and sent numerous e-mails to Penguin, HarperCollins, Hachette, Simon & Schuster and Macmillan. All five publishers were also charged by the DOJ with price fixing and have settled with the government.

Jobs was intimately involved in the formation of iBooks, and Cue kept the CEO closely informed throughout his negotiations.

“Steve was nearing the end of life when we launched the iPad. . . . I wanted to be able to get that done in time for that because it was important to him,” Cue said, in a rare personal note.

To achieve that goal, Apple went along with frustrated publishers who wanted to change the way the whole digital books industry functioned. The book publishers wanted to have more control over prices offered to consumers and proposed an “agency model” where they could determine retail prices and Apple got a 30 percent cut of sales. At the time, Amazon had about a 90 percent share of digital books and set prices.

Key to Apple’s agreement to the new model — and at the center of Justice’s case — were so-called Most Favored Nation clauses that ensured Apple would get matching rates offered to rivals. Justice attorneys argued that the MFN clause in e-books contracts artificially kept prices high because Apple’s rivals weren’t motivated to drop prices below the $12.99 to $14.99 range targeted by iBooks and publishers.

Apple’s Cue agreed that some prices went up, particularly for best sellers and new releases, which publishers were holding back from Amazon because of its $9.99 price cap.

“Wow, we have really lit the fuse on a powder keg,” Jobs wrote in an e-mail to Cue, dated Jan. 30, 2010.

But Apple has argued that average e-book prices have gone down. Some economists brush off that notion, saying the most desired books have increased in price.

If it settles, Apple could face monetary damages. The five publishers in the original suit have agreed to pay more than $122 million in consumer damages to 33 states that have filed their own civil suits against Apple and the publishers.

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Cecilia Kang is a national technology reporter, writing about tech and Internet policies at the Federal Communications Commission and Federal Trade Commission and how regulations affect businesses and consumers.
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