The Washington Post

Key Apple executive defends company at e-book price-fixing trial

An Apple logo hangs outside Patrons the Apple store on 14th street in New York. (Frank Franklin II/AP)

Apple senior executive Eddy Cue said in federal court Thursday that some popular e-book titles may have gotten more expensive after his company got into the business but that Apple was not to blame for those price hikes.

Cue, the head of Apple’s iTunes business, has been portrayed by the government as the “chief ringleader of the conspiracy” between Apple and major publishers to force all retailers to increase e-book prices.

To provide evidence of that collusion, federal prosecutors noted the dozens of e-mail exchanges and records of more than 100 phone calls and handwritten notes sent between Cue, other Apple executives and the publishers.

In response, Cue admitted that he simultaneously negotiated deals with five major publishers — Penguin, Simon & Schuster, HarperCollins, Hatchette and Macmillan. He even shared with publishers the progress of negotiations with rivals in general terms.

But he stressed that he was solely focused on winning contracts for Apple to enter the digital books market, not to unfairly hamper rivals such as Amazon.

“I didn’t raise prices,” Cue said.

In a rare emotional moment, Cue said he had been working “24/7” because he wanted to complete arrangements with publishers so the e-books store could launch with the introduction of the iPad. It was something he wanted to do for late Apple founder Steve Jobs, who was growing increasingly sick at the time.

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

As chief negotiator for Apple in all its content deals with record labels, book publishers and movie studios, Cue is a central witness in the Justice Department’s antitrust lawsuit.

The government contends that Apple in late 2009 and early 2010 pushed publishers to go with a so-called agency model. That structure allowed publishers, rather than retailers, to set the price of e-books, while Apple would receive a 30 percent commission from the sales.

The publishers then pushed Amazon, which held 90 percent of the e-books market, to adopt a similar model, with Apple’s backing, the government has said. Meanwhile, prices rose by as much as $2 to $4 for popular titles, U.S. attorneys said.

During Thursday’s testimony, prosecutors introduced a Feb 10, 2010, e-mail from Jobs to Cue to prove that Jobs knew of the scheme to fix prices and force Amazon to hike its e-book prices.

In response to a proposal from Cue to embrace the agency model, Jobs wrote: “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.”

Cue said he never received the e-mail, which defense attorneys said was a draft.

In more than five hours of testimony in U.S. District Court for the Southern District of New York, Cue vigorously defended his negotiations as typical in the business world, similar to the deals he has struck for music and videos sold through the iTunes store.

Apple customers got “great prices, great selection, at a better bookstore,” Cue said.

Cue offered mostly measured and brief responses to prosecutors’ questions. His appearance in the packed courtroom was sharply different from the glitzy presentation he held for developers in San Francisco earlier this week. Breaking from the Apple custom of denims and dark shirts, he wore an ordinary gray suit and red tie.

Cue is scheduled to return to the courtroom for further testimony Monday.

Cecilia Kang is a senior technology correspondent for The Washington Post.
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