Apple Negotiator Defends Tactics in E-Book Trial

The executive, Eddy Cue, Apple’s lead negotiator with the publishers, said he was determined to close deals that would allow them to sell their e-books on Apple’s iBookstore in time for the introduction of the iPad in early 2010.

“I wanted to be able to get that done in time for that because it was really important to him,” Mr. Cue said, referring to Mr. Jobs. He was testifying in Federal District Court in Manhattan in the civil antitrust trial brought against Apple by the Justice Department.

“I pride myself on being successful, but this had extra meaning to me,” Mr. Cue added.

Those sped-up negotiations attracted the attention of the government, which filed a lawsuit against Apple and five publishers in April 2012. Mr. Jobs, the co-founder of Apple, died of cancer in October 2011.

Mr. Cue, the highest-ranking Apple executive to take the stand so far in a trial that began almost two weeks ago, mounted a vigorous defense of Apple, which is accused of colluding with the publishers to fix e-book prices.

Through a nearly full day of testimony on Thursday, Mr. Cue denied that he had encouraged publishers to impose a new business model on other retailers, including Amazon.com. Shown a slide displaying what the government has repeatedly called a “spider web” of communications among the publishing executives, Mr. Cue said he did not know that the executives, from publishers including the Penguin Group USA and Simon Schuster, were talking to one another during their negotiations with him.

“I struggled and fought with them,” he said. “If they were talking to each other, I believe I would have had a much easier time getting those deals done.”

But he also revealed details of an unusually long and close working relationship between him and Mr. Jobs.

Mr. Cue, Apple’s senior vice president for Internet software and services, said he spoke or e-mailed with Mr. Jobs at nearly every step of the negotiations, once calling him on his way to the airport as he left a round of talks with publishers in New York.

In one e-mail, Mr. Jobs questioned Mr. Cue about the fledgling iBookstore. “Are we going to let anyone self-publish? Does Amazon?” he wrote.

“Yes and yes,” Mr. Cue replied.

After publishers signed agreements with Apple, shocking the publishing industry, Mr. Jobs e-mailed Mr. Cue: “Wow, we have really lit the fuse on a powder keg.”

The focus of the government’s questioning turned to December 2009 and January 2010, when Mr. Cue repeatedly flew to New York, met with publishers and tried to reach deals to make their e-books available in the iBookstore on the soon-to-be-unveiled iPad.

For publishers, the appeal of Apple getting into the e-book market was enormous. Amazon, which had introduced its Kindle e-reader in 2007, commanded a 90 percent share of e-book sales at the time. But the default price for newly released and best-selling books on Amazon.com was $9.99, a paltry sum in the publishers’ eyes and one that undermined the value of the authors’ work and cannibalized hardcover sales.

Apple encouraged publishers to switch to a so-called agency model, in which the publishers set the price of a book and the retailer takes a commission. Previously, e-books had been sold on a wholesale model, where the retailer pays the publisher about half the list price, then is free to set another price. The agency model prevented Amazon from sharply discounting the books.

Five publishers — the Penguin Group USA, the Hachette Book Group, Simon Schuster, HarperCollins and Macmillan — have already settled with the government. But Apple, intent on protecting Mr. Jobs’s legacy, is fighting the charges in a nonjury trial that was expected to last several weeks.

The defense was questioning Mr. Cue when the day ended and he will return to the stand when the trial continues on Monday.

Lawrence Buterman, a lawyer for the Justice Department, occasionally raised his voice while he questioned Mr. Cue for several hours before a packed courtroom presided over by Judge Denise L. Cote.

“Isn’t it true, sir, that throughout your negotiations with the publishers, that you constantly pitched the deal that you were proposing as a way for them to change the entire e-books market?” Mr. Buterman said.

“No, that is not true,” Mr. Cue said.

Mr. Buterman asked Mr. Cue about a previous statement by David Shanks, the chief executive of the Penguin Group USA, that Penguin would only sign a deal with Apple if three other major publishers had done so first.

“Did that strike you as a little bit like, ‘I’m only doing this deal if my competitors do it?’ “ Mr. Buterman said.

“It’s not unusual,” Mr. Cue said. “Nobody likes to be the first to sign. Everybody thinks that you get a better deal by signing last.”

According to Mr. Cue, Apple approached the negotiations with publishers the same way it did with record companies and other content providers in the iTunes store.

After Apple and other retailers started selling e-books on the agency model, prices on many best-selling and new books rose to the $12.99 to $14.99 range, infuriating many consumers.

“Who protected them?” Mr. Buterman said.

“I did,” Mr. Cue said.

“By charging them higher prices?” Mr. Buterman said.

Article source: http://www.nytimes.com/2013/06/14/technology/apple-negotiator-defends-tactics-in-e-book-trial.html?partner=rss&emc=rss