Apple Inc. (NASDAQ:AAPL) strongly denied allegations from the United States Department of Justice (DOJ) that it colluded with publishers to manipulate prices of e-books, during a civil antitrust trial in New York on Thursday.
The antitrust lawsuit against Apple Inc. (NASDAQ:AAPL) centers around the time when it was establishing the iBookstore and signing contracts with publishers between December 2009 and 2010. The Justice Department alleges that the iPhone and iPad maker conspired in creating a pricing model known as “agency,” which increased the prices of ebooks and harmed consumers.
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During the trial, Lawrence Buterman, attorney representing the DOJ said, “The reality is that Apple’s entry arrested all price competition.”
On the other hand, Orin Snyder, legal counsel for Apple Inc. (NASDAQ:AAPL), argued that the tech giant did not violate any antitrust regulations. He emphasized the tech giants helped consumers by lowering prices, and by bringing innovation and competition to the e-books market, which is dominated by Amazon.com, Inc. (NASDAQ:AMZN).
Snyder said, “Apple did not conspire with a single publisher to fix prices in the e-books industry Apple acted lawfully and did not violate the antitrust laws.”
Smoking Gun Email Was Never Sent
In his testimony, Eddy Cue, senior vice president of software services of Apple Inc. (NASDAQ:AAPL) denied receiving an e-mail from Steve Jobs indicating that publishers need to amend their e-book sales agreements with Amazon.com, Inc. (NASDAQ:AMZN) to be able to sign a contract with Apple. He pointed out he would correct Jobs if that e-mail was sent to him because such plan was already discarded by the company.
Cue said, “As he was writing this, he [probably] got confused. I believe he said forget it, ‘this doesn’t make sense,’ which is why Jobs ultimately never sent the message. I’m 100 percent positive that’s what happened. Steve would never have sent an e-mail if he wasn’t sure.”
Job’s e-mail, which is considered a “smoking gun” by the DOJ reads, “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…”
In addition, Cue emphasized the objective of Apple Inc. (NASDAQ:AAPL) was to get competitive pricing. According to him, they cannot force every publisher to join the agency.
Apple established price matching provisions in its contracts known as the most favored nation (MFN) clause to be able to meet lowest prices in the market no matter if a publisher is part of the agency or wholesale model.
Apple CEO Tim Cook May Have to Testify
Cue is the highest ranking Apple executive to testify in the case. In March, Presiding Judge Denise Cote of the U.S. Southern District Court of New York approved the request of the DOJ to compel Tim Cook, CEO of Apple Inc. (NASDAQ:AAPL) to testify in court as they believe that he might provide relevant information regarding his conversations with Jobs regarding the company’s ebook business.
Apple Inc. (NASDAQ:AAPL) is the only remaining defendant in the antitrust lawsuit. Other defendants including all the publishers such as Pearson Plc’s Penguin Group, News Corp’s HarperCollins Publishers Inc and CBS Corp-owned Simon & Schuster Inc, and Macmillan agreed to settle the case.
The DOJ is seeking an injunctive relief, which prevents Apple Inc. (NASDAQ:AAPL) from anti-competitive competitive practices such as manipulating prices in the ebooks markets.