Key witness to testify in Apple e-book trial


Eddy Cue, Apple senior vice president of Internet Software and Services, is shown introducing iTunes Radio during Apple’s Worldwide Developers Conference (WWDC) in this June 10 photo. (STEPHEN LAM/REUTERS)

NEW YORK — Apple’s head of iTunes, Eddy Cue, will testify Thursday as the central witness in the Justice Department’s lawsuit against the tech giant for allegedly conspiring to raise e-book prices.

At the end of the second week of the federal trial in Manhattan, Cue will defend himself against evidence — e-mails, phone logs and meeting schedules — that the Justice Department has piled on over seven days in the U.S. District Court of Southern New York. Justice has called Cue the “ringleader” of Apple’s e-book price-fixing scheme.

According to prosecutors, Cue was the chief liaison between Apple — under late founder Steve Jobs — and five publishers, all trying to create a new model for e-book sales that would raise prices above Amazon’s average $9.99 offerings.

Prosecutors said Cue coordinated a joint plan for the publishers to move away from Amazon’s wholesale e-books model. Instead, Apple persuaded the publishers to pursue an agency model that would allow the publishers to set prices, according to Justice. Apple would get 30 percent of the agency-model prices.

All five publishers in the suit have settled with the Justice Department.

Apple officials and its lawyers have defended its business deal, which they say is legal. Apple has said it is “indifferent” about Amazon’s decision to stay with its wholesale pricing model and about the publishers’ agency model. It has said it was an underdog trying to break into a market dominated by Amazon.

Cue will appear in the Manhattan federal court just days after introducing the much anticipated upgrade of Apple’s mobile operating systems.

Here are some key e-mails that prosecutors will ask Cue to explain:

1) On Jan. 14, 2010, two weeks before the launch of the iPad, Steve Jobs wrote an e-mail to Cue responding to publishers’ request to raise price caps on iBooks.

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

Justice attorneys have used that e-mail, which may have been a draft and not sent, as evidence that Apple’s top executives intended to use its negotiations with publishers to force Amazon to adopt the same pricing model and subsequently raise prices, too. Apple will argue that the final e-mail sent by Jobs to Cue didn’t contain language about a desire for Amazon to move to the different model.

2) On Jan. 4 and 5, 2010, Cue sent similar e-mails to the heads of the top five publishers outlining the agency model idea. In those e-mails Cue wrote: “There are several things we have to accomplish in order to sell ebooks at realistic prices . . . all resellers of new titles need to be in an agency model.”

3) In e-mails in mid-December 2009, Cue set up phone conversations with executives of Simon & Schuster, MacMillan and Random House. “I want to update you (on) all my findings and thoughts. I have some things I want to run by you. I only need 30 minutes”

On Dec. 21, within a 2:15 minute window, he talked to all executives. Justice attorneys have pointed to those calls as a coordinated campaign to collude with the publishers.

4) On Jan. 22 and 23, Cue exchanged e-mails with Penguin executive David Shanks and MacMillan executive John Sargent. In separate messages, the publishing executives asked Cue for updates on Apple’s progress with other publishers to move to agency pricing.

“Hey, do you have more in, or still at 3?” Sargent asked.

“My orders from London. You must have the fourth major or we can’t be in the announcement,” Shanks wrote.

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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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