“Wow, we have really lit the fuse on a powder keg,” Mr. Jobs wrote in the e-mail dated Jan. 30, 2010, to Eddy Cue, Apple’s senior vice president of Internet software and services.
The e-mail was brought up as evidence during the second half of Mr. Cue’s testimony in a Manhattan courtroom on Monday, where much of the discussion focused on whether Apple intended to help the publishers raise Amazon’s prices.
Mr. Cue testified on Monday that Mr. Jobs’s e-mail was not a memo congratulating him about how Apple’s entry into the e-book market affected Amazon, causing it to switch to a business model called agency pricing, where the publishers, not the retailer, set the price of the books. Mr. Cue said Mr. Jobs was remarking on the company’s ability to “cause ripples” in the e-book industry, which was then largely dominated by Amazon.
While Mr. Cue conceded that some e-book prices had gone up as a result of agency pricing, he noted that many titles might not have become available in any digital store at all if Apple had not introduced agency pricing to the market. He said he had learned from his meetings with publishers that they were unhappy with Amazon’s uniform $9.99 pricing for e-books and that they were planning to use a tactic known as windowing — delaying the release of an e-book until after the more expensive hardcover had been in stores for a while.
Mr. Cue testified that both he and Mr. Jobs believed that “withholding books is a disaster for any bookstore.”
The Justice Department was not persuaded. Lawrence Buterman, a Justice Department lawyer, asked Mr. Cue whether he was aware that only 37 e-books had ever been windowed.
“The number doesn’t matter,” Mr. Cue said. “What matters is which books. Thirty-seven could be a huge number if it’s the right books.”
Both parties showed their evidence on a projector screen. Apple’s legal team used a MacBook to shuffle between evidence documents, stacking them side by side in split screens and zooming in on specific paragraphs.
In contrast, the Justice Department’s lawyers could show only one piece of evidence at a time. One video that Mr. Buterman played as evidence failed to produce the audio commentary needed to make his point.
In its antitrust case brought a year ago, the federal government is trying to cast Apple as the ringmaster that conspired with five big book publishers to raise e-book prices. The publishers have all settled their cases.
On Monday, the Justice Department’s lawyers homed in on a condition in Apple’s contracts with the publishers: the “most favored nation” clause, which required publishers to allow Apple to sell e-books at the same price as the books would be sold in any other store. Apple has said this clause existed to guarantee that Apple customers got the lowest e-book prices. But Mr. Buterman argued that it defeated Amazon’s ability to compete on price, and that it left Amazon with no choice but to switch to the agency model while allowing the publishers to raise prices.
Mr. Cue said he disagreed. He noted that Amazon had 90 percent of the e-book market before Apple entered the game.
“Amazon could have negotiated a better deal,” he said. “They had a lot more power.”
Lawyers for Apple and the government spent much of the hearing debating whether the e-mails exchanged between Apple executives and publishers illustrated Apple’s intent to help the publishers force Amazon’s hand. In one e-mail sent to Mr. Jobs, Mr. Cue was reviewing his meeting with the publishers, saying they were interested in solving the “Amazon issue.”
Mr. Cue said he was referring to the publishers’ ability to price books above Amazon’s uniform price of $9.99 in Apple’s iBookstore. Apple had proposed price caps of $12.99 to $14.99 for new releases. But he said this did not refer to enabling the publishers to force Amazon to raise prices, too.
Article source: http://www.nytimes.com/2013/06/18/technology/apple-executive-defends-pricing-and-contracts-in-antitrust-case.html?partner=rss&emc=rss