February 23, 2024

Outcome of E-Book Case Could Hurt Competition, Apple Lawyer Says

Orin Snyder, a lawyer at Gibson, Dunn Crutcher who represents Apple, made that point in a Manhattan courtroom on Thursday, the last day of the three-week antitrust trial. He told Judge Denise L. Cote of United States District Court that if Apple was found liable for conspiring with publishers to raise e-book prices, “that precedent will send shudders through the business community.”

In the future, he said, retailers negotiating with content providers might then feel pressured to “not utter a word” about their discussions with other companies and offer substantially different terms to each party.

He said that in negotiations, businesses typically inform one competitor what another competitor is willing to do. “It is perfectly lawful to do all of that,” he said.

In its antitrust case brought a year ago, the federal government accused Apple of being the “ringmaster” in a conspiracy with five big book publishers to raise e-book prices across the industry. Before Apple entered the market in early 2010, Amazon controlled 90 percent of e-book sales, and the publishers were not happy with Amazon’s uniform price of $9.99 for e-books. The publishers have all settled their cases, but Apple has said it is fighting as a matter of principle because it has done nothing wrong.

Much of the debate at the trial has centered on a condition, known as the “most-favored-nation” clause, that Apple made in its contracts with publishers. It guarantees that if a publisher offers an e-book at a lower price to one retailer, the book will cost the same in Apple’s e-book store. The Justice Department argues that Apple and the publishers used the most-favored-nation clause to defeat price competition and pressure Amazon to change the way it sold books and raise its prices as well.

On Thursday, as the lawyers wrapped up their arguments, Judge Cote peppered both Apple and the government with questions.

Several of her questions to the government revolved around one thought: why would Apple want to change the industry’s business model? Mark W. Ryan, a lawyer for the Justice Department, argued that Apple believed its iPad hardware was so ahead of anyone else’s, it wanted to eliminate price competition in the e-book market so that the iPad could compete with the Amazon’s Kindle solely on hardware, not book prices.

Mr. Ryan noted that the government’s concern was not solely the most-favored-nation clause, but the way that Apple and the publishers deliberately used the clause to force Amazon’s hand. “It’s the collusion to move the market to the place where competition would not otherwise take it,” he said.

If Amazon had continued the way it sold books under what is called the wholesale model — where publishers charged retailers about half the cover price for a book and Amazon sold the books for $9.99 — then the retailers would have lost a substantial amount of money selling the books for $9.99 to Apple because Apple takes a 30 percent cut.

That, Mr. Ryan said, is why the publishers understood they had to collectively force Amazon into the agency model, where the publishers, not the retailers, set the price of the books. They could use the most-favored-nation clause to put pressure on Amazon while also threatening to delay the release of their e-books until after the more expensive hardcover versions had been on the market for a while, he said.

Judge Cote challenged the government’s interpretation that Apple was deliberately scheming to help the publishers raise prices. Allowing them to raise their prices in Apple’s e-book store could be viewed as a “sales pitch” to get the publishers to agree to sign on with Apple in the month and a half leading up to the iPad introduction, she said.

In Apple’s closing statements, Mr. Snyder spent most of his time trying to illustrate that Apple fought “tooth and nail” with the publishers before cementing the contracts. He showed e-mails between Eddy Cue, Apple’s senior vice president of Internet software and services, and the chief executives of the big publishers that demonstrated they were negotiating rather than cooperating.

Judge Cote asked Mr. Snyder whether Apple took the position that it had not understood that the publishers were forming a collective effort to raise prices industrywide, when the fact they were working together seemed obvious from articles published by The New York Times and The Wall Street Journal. Those articles said a group of publishers had announced plans to “window,” or delay, the release of e-books.

Mr. Snyder said that the articles just showed how business was done, and that they did not prove that the publishers were already conspiring. “When one company does one thing, the other companies take notice and do the same thing,” he said.

The big question surrounding the trial is whether there will be a change to the way businesses negotiate if Apple loses, as Mr. Snyder suggested. Charles E. Elder, an antitrust lawyer at Irell Manella, which is not involved in the case, said that most-favored-nation clauses present unusual challenges under antitrust laws. While they ensure a customer gets the best deal, they can discourage price-cutting because the consequence of lowering prices for one retailer will be lowering prices for other retailers protected by the clause.

Mr. Elder said that he “would be very surprised” if the judge found Apple’s most-favored-nation clause illegal, and that he was not aware of any case where such a thing has happened. He said this antitrust case was based on the theory that the most-favored-nation clause resulted from a price-fixing conspiracy among the publishers that was furthered by Apple. If the judge holds Apple liable, he said, this case will be unlikely to have a “revolutionary impact” on businesses.

“Horizontal conspiracies to fix prices have always been illegal,” Mr. Elder said.

Judge Cote is expected to write her decision in the coming weeks.

Article source: http://www.nytimes.com/2013/06/21/business/outcome-of-e-book-case-could-hurt-competition-apple-lawyer-says.html?partner=rss&emc=rss

Media Decoder Blog: Judge Backs U.S. Settlement on E-Book Pricing

Judge Denise Cote in 2005.Fred R. Conrad/The New York TimesJudge Denise Cote, whose opinion expressed support for the government’s position.

8:35 p.m. | Updated In a decision that could start an e-book price war in the publishing industry, a federal judge on Thursday approved a settlement between the Justice Department and three major publishers in a civil antitrust case that accused the companies of collusion in the pricing of digital books.

The long-expected approval soundly rejected criticisms of the deal that had accumulated throughout the summer from hundreds of parties, including Barnes Noble, the Authors Guild and the American Booksellers Association.

And the ruling promised to empower Amazon, the e-retailing giant, to drop the price of many e-books back to $9.99 or even lower in the coming months, a move that could pressure competing retailers to do the same.

Publishers and authors direly predicted that in the long run, the settlement could allow the e-book marketplace to return to its state several years ago, when Amazon had close to 90 percent of the market and other retailers struggled to get a foothold.

“I think that everybody competing with Amazon in the e-book market had better fasten their seat belts,” Mike Shatzkin, the founder and chief executive of the Idea Logical Company, a consultant to publishers, said in an interview. “I would expect Amazon to be leading the charge to cut prices on the most high-profile e-books as soon as the decision allows them to do so. As soon as that starts to happen, all the books that are competing with them will have to reconsider their prices.”

The Justice Department cited a lack of price competition when it filed the suit in April against five major publishers and Apple, accusing them of conspiring to raise the cost of e-books and causing consumers to pay tens of millions more than they otherwise would have.

Gina Talamona, a spokeswoman for the Justice Department, praised the ruling on Thursday, saying that “consumers will start to benefit from the restored competition in this important industry.”

Denise L. Cote, the federal district judge in Manhattan overseeing the case, expressed support for the government’s position in her opinion, particularly in regard to a “cooling off” period during which the publishers cannot restrict the ability of retailers to set their own prices for e-books. This period, she wrote, would allow the industry “to return to a competitive state free from the impact of defendants’ collusive behavior.”

The government’s case stemmed from a policy that the publishers adopted in 2010 that effectively coordinated the price of many newly released e-books to $12.99 to $14.99, a change encouraged by Steven P. Jobs, then Apple’s chief executive. After striking a deal with Apple, the publishers then renegotiated contracts with Amazon and other retailers, allowing the publishers, and not the retailers, to set prices on e-books.

Three publishers — the Hachette Book Group, Simon Schuster and HarperCollins — denied wrongdoing but agreed in April to settle with the government, while the Penguin Group USA, Macmillan and Apple declined to settle. They face a trial next summer.

In her 45-page opinion issued Thursday, Judge Cote said the Justice Department had claimed a “straightforward, horizontal price-fixing conspiracy.” She rejected arguments against the settlement, saying they were “insufficient” to deny its approval, and dismissed requests to hold an evidentiary hearing as an unnecessary delay.

The settlement calls for the three publishers to end their contracts with Apple within one week. The publishers must also terminate contracts with e-book retailers that contain restrictions on the retailer’s ability to set the price of an e-book or contain a so-called “most-favored nation” clause, which says that no other retailer is allowed to sell e-books for a lower price.

For the next two years, the settling publishers may not agree to contracts with e-book retailers that restrict the retailer’s “discretion over e-book pricing,” the court said. For five years, the publishers are not allowed to make contracts with retailers that include a most-favored nation clause. “The time limits on these provisions suggest that they will not unduly dictate the ultimate contours of competition within the e-books industry as it develops over time,” Judge Cote wrote.

Penguin and Macmillan are not subject to the settlement and can continue to set the prices for their e-books while the legal case against them proceeds. The sixth major publishing company, Random House, was not named in the Justice Department’s lawsuit.

Amazon declined to comment on Thursday. But when the settlement was announced in April, Amazon called it “a big win for Kindle owners,” and said it looked forward to eventually lowering its prices on e-books.

Simon Schuster, the Hachette Book Group, HarperCollins and Barnes Noble declined to comment.

Paul Aiken, the executive director of the Authors Guild, which vigorously opposed the settlement, said in an interview that the biggest losers would be traditional independent bookstores. If the cost of a newly released e-book drops further, the bookstores will have more trouble selling hardcover books at their current prices, he said.

Article source: http://mediadecoder.blogs.nytimes.com/2012/09/06/judge-approves-e-book-pricing-settlement-between-government-and-publishers/?partner=rss&emc=rss

U.S. Judge Grants Delay in Challenge to AT&T Deal

WASHINGTON — ATT has one month to tell a Federal District Court judge and the Justice Department whether it will pursue its proposed $39 billion acquisition of T-Mobile USA in its current form, in a modified structure, or if it will drop the deal altogether.

Judge Ellen Segal Huvelle, of Federal District Court in Washington, granted a joint motion filed Monday by ATT and the Justice Department to delay the government’s antitrust lawsuit over the merger. Judge Huvelle set a Jan. 12 deadline for ATT to decide whether it intends to continue to pursue the deal.

The Justice Department’s antitrust division had sued to block the deal, which it said would result in too much consolidation in the market for cellphone and wireless broadband service and could hurt consumers.

Separately, Julius Genachowski, the chairman of the Federal Communications Commission, indicated that he would recommend that the commission vote to block the merger. Subsequently, ATT withdrew its application from the regulator, saying it intended to focus first on the antitrust case.

Judge Huvelle, who is overseeing the antitrust case, agreed to halt the pretrial proceedings and cancel a status conference scheduled for Thursday, setting a new date of Jan. 18 for the next hearing. The trial had been scheduled for mid-February, but that will now depend on the outcome of the hearing in January.

By Jan. 12, ATT and T-Mobile must submit a report “describing the status of their proposed transaction, including discussion of whether they intend to proceed” with the current transaction or another deal. The companies also must outline “their anticipated plans and timetable for seeking any necessary approval from the Federal Communications Commission.”

Judge Huvelle said last week that it appeared that “the landscape has changed” because of ATT’s withdrawal of its application with the F.C.C. Government lawyers argued at a hearing last week that if no application for approval of the merger was before the F.C.C., the antitrust lawsuit was moot.

The Justice Department does not have to formally approve the merger, although it can object to try to block it. The F.C.C., however, must give its approval for the deal to proceed because it involves the transfer of licenses for public airwaves. Justice Department lawyers said in court that they would consider withdrawing the lawsuit because without an F.C.C. application there was no merger for the government to oppose.

Addressing that point, Judge Huvelle told ATT and T-Mobile, “We don’t have any confidence that we are spending all this time and effort and the taxpayers’ money and that we’re not being spun.”

ATT said the company was committed to working with T-Mobile’s parent company, Deutsche Telekom, “to find a solution that is in the best interests of our respective customers, shareholders and employees.”

It added, “We are actively considering whether and how to revise our current transaction to achieve the necessary regulatory approvals so that we can deliver the capacity enhancements and improved customer service that can only be derived from combining our two companies’ wireless assets.”

Under the merger agreement, which was announced in March, if the deal is not completed by next September, ATT must pay T-Mobile $3 billion in cash plus turn over spectrum, the airwaves on which cellphone signals travel, worth at least $1 billion.

An F.C.C. staff report released last month predicted that the merger would lead to significant job losses. ATT has maintained the opposite, saying that it would return 5,000 call center jobs to the United States from abroad. It also vowed not to lay off any call center employees who were employed on the date of the merger.

But ATT has said that certain overlapping jobs would be reduced because of the merger. The company has said that it would consider selling some T-Mobile assets to satisfy regulators worried about industry consolidation.

Article source: http://feeds.nytimes.com/click.phdo?i=98d950de294e5eb3fbf9c6caa1c573ef