By Nate Raymond
NEW YORK, June 2 Apple Inc goes to
trial Monday over allegations by federal and state authorities
that it conspired with publishers to raise the price of e-books.
The trial pits the maker of the popular iPad and iPhone
against the U.S. Justice Department in a case that tests how
Internet retailers interact with content providers.
"This case will effectively set the rules for Internet
commerce," said David Balto, a former policy director for the
U.S. Federal Trade Commission.
The Justice Department filed its case against Apple and five
of the six largest U.S. book publishers in April 2012. The
lawsuit accused them of conspiring to increase e-book prices and
break Amazon.com Inc's hold on pricing.
Apple is going to trial alone after the five publishers
agreed to eliminate prohibitions on wholesale discounts and to
pay a collective $164 million to benefit consumers.
The five publishers were Pearson Plc's Penguin
Group, News Corp's HarperCollins Publishers Inc, CBS
Corp's Simon & Schuster Inc, Hachette Book Group Inc and
The U.S. government is not seeking damages but instead an
order blocking Apple from engaging in similar conduct. However,
if Apple is found liable, it could still face damages in a
separate trial by the state attorneys general and consumers
pursuing class actions.
Based on a comment by the presiding judge at the final
hearing before the trial, Apple may face an uphill battle.
"I believe 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," U.S.
District Judge Denise Cote, who is hearing the case without a
jury, said on May 23.
While those comments suggested Apple might be smart to seek
a settlement, Chief Executive Tim Cook said in an interview
Tuesday with All Things Digital that Apple was "not going to
sign something that says we did something we didn't do."
Apple may be calculating that future damages claims by
states and class actions make it worth going to trial, said John
Lopatka, a law professor at Pennsylvania State University.
"Apple might think, 'We may lose at the trial level, but we
may well convince an appellate court the trial judge
mischarachertized the evidence," Lopatka said.
'MARKET IN TURMOIL'
Neither side disputes that in 2009 publishers were concerned
about low prices for e-books resulting from the dominance of
Amazon.com, which launched its Kindle e-reader in 2007.
As it prepared to launch its iPad and was looking into
opening an electronic bookstore, Apple has said it was entering
a "market in turmoil," with growing tension between the
publishers and Amazon.
Amazon, which declined comment, was selling 90 percent of
all e-books in 2009. It was buying books wholesale and at times
selling them at a loss, pricing them at $9.99, with the goal of
promoting its Kindle.
The Justice Department contends that Apple's entry into the
market provided publishers with a means to get together to
At the suggestion of Hachette and HarperCollins, the
government says Apple began considering an agency model in which
publishers set the price and Apple took a fixed percentage.
Former Apple CEO Steve Jobs, who died in 2011, told his
biographer that, "we told the publishers, 'We'll go to the
agency model, where you set the price, and we get our 30
percent, and yes, the customer pays a little more, but that's
what you want anyway.'"
The Justice Department said Apple provided assurances to
publishers their rivals would join.
Apple says that it was unaware of efforts by the publishers
to conspire before it entered the marketplace, and said when it
did, it act independently.
It also contends that in the wake of its introduction of the
iBookstore, prices have fallen rather than risen from $7.97 on
average to $7.34.
For the Justice Department, many of its goals have been
accomplished, thanks to the settlements with publishers, which
lifted restrictions on discounting and promotions by e-book
retailers. Those deals have already lowered prices for
consumers, the department says.
But the government may be aiming at a bigger issue, said
Geoffrey Manne, a law professor at Lewis & Clark Law School.
Among other things, the government lawsuit seeks to declare
that certain provisions in the agreements between Apple and the
publishers are unenforceable.
These provisions, known as most-favored-nation clauses,
provided that if other e-bookstores sold the books at cheaper
prices, then Apple could reduce its prices. The government has
said this provided an incentive for the publishers to raise
prices at other retailers.
Similar types of most-favored nation clauses have been
central in other content industries such as music and television
where content providers have a role in setting the price. They
have also become a discussion point in certain antitrust
communities, Manne said, and a government win could "send a
pretty strong message" about their use.
"If the government wins this case, it would be because the
court for some reason determines that most-favored-nation
clauses are more harmful to competition than helpful," he said.
The case is United States v. Apple Inc et al, U.S. District
Court, Southern District of New York, No. 12-02826.