Justice Dept.’s showdown with Apple over e-book pricing is set to enter courtroom


A digital book on an iPad. According to the Justice Department, Apple executives — including Steve Jobs, who died in 2011 — met with publishers, exchanged e-mails and held phone conversations setting up a scheme that would lift e-book prices. (Scott Eells/Bloomberg News)

Apple will appear Monday before a federal court in a stubborn quest to defend its name and beat down charges that it led a conspiracy to inflate e-book prices.

And as Apple fiercely protects its own image, the company will work to sully the reputation of its rival Amazon.com.

The Justice Department filed suit against Apple and five book publishers in April 2012, accusing them of price fixing in an effort to outflank Amazon in the market for e-books. All five publishers have settled with the government, but Apple has forged on to trial.

Amazon is not implicated in the Justice Department’s suit, but it will be dragged into what is expected to be a prolonged and nasty court battle, analysts say. Apple is seeking to disclose what it describes as incriminating e-mails that would portray Amazon as a firm that has ignored the interest of consumers. Amazon has argued with the court to keep those documents sealed.

“We’re taking a very principled position on this,” Apple chief executive Tim Cook said last week at the All Things D technology conference in California. “We were asked to sign something that says we did do something, and we’re not going to sign something that says we did something we didn’t do. And so we’re going to fight.”

Apple hopes to bring Amazon into what could be a weeks-long hearing at the U.S. District Court of the Southern District of New York in Manhattan, saying documents currently redacted by Amazon are “potentially embarrassing” and show that the retailing giant had also considered the same pricing model that is now under government scrutiny.

Apple wants to make public what it describes as Amazon’s “internal discussions about the inferiority” of its Kindle e-reader compared with the iPad, according to Apple’s attorneys at the firm O’Melveny & Meyers. “Amazon seeks to shield from public disclosure evidence that undermines” the Justice Department’s case, Apple’s attorneys argued in a letter to Judge Denise Cote last month.

Amazon declined to comment for this article, saying it does not comment on litigation. Justice Department officials declined to comment.

Apple’s case is the latest effort by the Silicon Valley giant to clear its name in courts and before regulators around the world amid criticism of how it has used patents, tax shelters and commercial deals to protect its dominance in some markets and edge into new businesses such as e-books.

Apple is notoriously secretive and controlling of its brand and product designs, but it has been forced to pry open its business to the public. It has opened up about its manufacturing and supply chain operations after criticism about working conditions at its Chinese contract factories. It discussed its financial strategies after a Capitol Hill investigation concluded that Apple had set up shell companies in Ireland to shield it from U.S. taxes. In its global war with Samsung over smartphone and tablet design patents, it revealed much about the culture of its design team and clues about future product lines.

“Their culture is to say, ‘If you don’t like what we’re doing, so be it,’ ” said Mark Cooper, research director for the Consumer Federation of America. But it is unclear what the company stands to gain from pursuing litigation, he said, particularly if it loses.

“Certain aspects of the Apple model are not very pretty when exposed to the light of day,” he said.

Last week, Cote said in a pre­trial teleconference that the government will “be able to show at trial direct evidence that Apple knowingly participated in and facilitated a conspiracy to raise prices of e-books, and that the circumstantial evidence in the case, including the terms of the agreements, will confirm that,” according to a report by Reuters. She described that view as “tentative,” saying she had read only some of the evidence.

Analysts, however, said the comments may reveal a great challenge for Apple.

The five publishers involved in the case — Penguin Group, HarperCollins, Simon & Schuster, Hachette Book Group and MacMillan — were charged with conspiring to create an “agency model” scheme with Apple in which they would have greater control over prices. According to documents filed by the Justice Department, Apple executives — including Steve Jobs, who died in 2011 — met with publishers, exchanged e-mails and had phone conversations setting up a scheme that would lift prices to about $14 to $15 per title from Amazon’s average price of around $10.

The market potential for e-books is enormous, and Apple has tried to attack Amazon’s dominance in selling books through its ubiquitous Kindle device, the Justice Department has argued.

Amazon has about 65 percent of the market share of e-books, followed by Barnes and Noble and then Apple’s iBooks collection.

Even with the lawsuit, consumers have not felt much difference, analysts say. Prices have gone down slightly for some titles, according to Forrester Research’s Sarah Rotman Epps, but it is difficult to say whether that is because of the lawsuit or just market forces.

E-book sales are expected to grow to $12 billion in 2017, up from $6.6 billion this year, according to Forrester.

In court filing, Justice Dept. accuses Apple of e-book price fixing

DOJ won’t back down on Apple, e-book publishers antitrust lawsuit

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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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