text:
Apple calls e-book price fixing case "bizarre," says DOJ is being unfair
Publishing CEO called Jobs' alleged admission of conspiracy "incredibly stupid."
Casey Johnston - Jun 4, 2013 1:28 pm UTC
A graph created by the US Department of Justice to show how e-book prices rose following the introduction of Apple's iBookstore.
NEW YORK—In a Manhattan courtroom, Apple and the Department of Justice gave their opening statements in the e-book price-fixing case United States of America v. Apple Inc. The government presented a position based on interpretations of direct quotes from relevant documents where Apple allegedly discussed ways to raise e-book prices not only on its own platform, but across the industry. Apple defended itself by saying that it acted in no one's business interests but its own, that its employees were misquoted and their statements taken out of context, and the government is "trying to reverse engineer a conspiracy from market effect."
The government has pursued a price-fixing case against Apple since April 2012, accusing Apple of leading five of the six largest book publishers to raise e-book prices in concert across the market. The government thinks Apple used two tools to accomplish this: an agency model (publishers set e-book prices and Apple gets a cut) and a "most favored nation" (MFN) clause in the publishers' contracts, where Apple is allowed to set its prices as low as any other entity selling the same product.
The "ringleader of conspiracy"
In his opening statement Lawrence Buterman, a trial attorney Department of Justice and co-lead of its legal team in the case, stood calmly behind the podium and spoke with absolute certainty regarding Apple's actions. Buterman cited Apple as a "facilitator," "go-between," and "conduit," with Apple's senior vice president of Internet software and services Eddy Cue as the "chief ringleader of conspiracy" and of the alleged "collective" that ultimately appeared to shift e-book prices away from the $9.99 price point that Amazon had so commonly used—up to prices of $12.99 and $14.99.
Buterman pointed to several e-mails from Apple and publishing company executives as evidence. The DOJ said the e-mails indicate that Apple not only sought to establish itself in the e-book market, but conspired with the publishers who were unhappy with Amazon's $9.99 price point and the perception of e-book value that came with it to raise prices across the market.
Apple's joint use of the agency model and MFN clause, combined with the cooperation of five of the biggest publishers in the US, gave those publishers the motivation they needed to force Amazon into the agency model and away from the $9.99 price point, according to the DOJ. "It was about solving their collective goals," Ryan said.
The publishers had been looking for a way to raise e-book prices for some time, Buterman said, but were unsuccessful in working together. They "needed more ammunition… that ammunition came in the form of Apple." Buterman cited an early meeting between HarperCollins and Apple where HarperCollins said it was looking to move to an agency model as a way to "fix Amazon pricing." Later, an e-mail from Eddy Cue to Steve Jobs noted that Apple's use of the agency model would "solve the Amazon issue."
Buterman displayed in a PowerPoint a graph of the average prices of e-books from each of the six largest publishers, including Random House, which did not sign with Apple's iBookstore. When the iBookstore launched in 2010, the prices of these books on Amazon, Google, Barnes and Noble, and Sony stores all took a sudden jump upward.
Some of the DOJ's case hinges on an interview that Jobs had with the Wall Street Journal's Walt Mossberg following the iPad's launch. Jobs assured Mossberg that the iBookstore's prices would be "the same" as on other e-book stores, despite the higher-than-normal $14.99 price shown during the presentation.
"Publishers were not happy" with Jobs for saying that, Buterman said. Not that Jobs stated the prices would be lower, but that Jobs "admitted" the plan to raise e-book prices, in the DOJ's interpretation. Carolyn Reidy, CEO of Simon & Schuster, wrote in an e-mail about that Jobs interview snippet, "I can't believe that Jobs made the statement below. Incredibly stupid." Earlier in the day, the DOJ released its PowerPoint presentation for public consumption.
Enlarge / Another of the DOJ's slides, where one publishing company CEO asks another to "double delete" an e-mail regarding e-book price business dealings.
A "bizarre" application of antitrust law
Apple's lead attorney, Orin Snyder, opened by stating that "Apple has been waiting for this day for a long time." Snyder paced in a triangle—squared up to the podium, off to the side fully facing the judge, and back and away from the podium nearer to his legal team—as he dismissed the government's evidence as "out of context, misquoted" and cited from "introductory meetings and brainstorming sessions" wherein a supposedly naive Eddy Cue was merely spitballing solutions for Apple to reign in publishers for the nascent iBookstore.
Snyder called the case a "bizarre" application of antitrust laws, since Apple was an unestablished player trying to enter a market overwhelmingly dominated nine-to-one in sales by Amazon. As Snyder pounded the table over United States District Judge Denise Cote's preliminary statements that she was leaning the government's way, Cote reminded Snyder that it was her "tentative view." But Judge Cole also reminded him, as he stated Apple should be applauded for its actions and how it has changed the way the world consumes media, that the suit does not hinge on "whether [she likes] Apple or anyone likes Apple."
Snyder called the idea that Jobs would admit to the alleged price-fixing either in his WSJ interview or in his own biography "farfetched." He also stated that Apple told publishers "we do not care" when it came to how they squared their business with Amazon, and that the MFN clause gave them "the ability to be indifferent" to other players' deals with the publishers.
Snyder described the difficult negotiations that Apple and the publishers went through to come to agreement. The discussions were "knock-down, drag-out," and "protracted," and he argued that the government had oversimplified them to paint a picture of the company and publishers acting together, Snyder said.
Snyder stated that HarperCollins resisted Apple's MFN to the point where Jobs needed to go over its head to the man in charge of its parent company, Rupert Murdoch. "The largest publisher [Random House] said no," Snyder said. And Hachette responded to a draft contract saying the MFN clause was a deal breaker, to which Apple responded that was a dealbreaker for it, too.
These disagreements were not the actions of companies aspiring to conspire, argued Snyder. "Apple needed to launch a business, not a conspiracy." Snyder said "the interests of Apple and publishers were not aligned," and that the publishers, which the government asserts were working together, "appeared entirely uncoordinated from [Cue's] point of view."
But process aside, part of Apple's defense is that it had a positive effect on the e-books industry. While not directly addressing the graph the DOJ had shown earlier, Snyder said that "every single indicator of health… trended positively" after Apple got involved in the e-book market.
Apple's defense also cites Amazon's exploration of the agency model for e-books back in 2009, describing the e-book market as both "not established" and a virtually monopolized one, patting itself on the back for managing not only to enter it with force, but to effect what Apple says were positive changes across the industry.
The trial is set to continue for three weeks, an expedited pace as requested by Apple. Over the next few days, witnesses including Eddy Cue and David Shanks, CEO of Penguin group, will take the stand to testify in the case.
Casey Johnston Casey Johnston is the former Culture Editor at Ars Technica, and now does the occasional freelance story. She graduated from Columbia University with a degree in Applied Physics.
Twitter @caseyjohnston
Z1ggy Ars Legatus Legionis
This is gonna be an interesting case. Also i shouldnt have to pay more for an ebook than a new paperback.
12141 posts | registered Jun 5, 2009
Workaround Ars Praefectus
Apple's blustering outrage isn't doing them any favors. It's one thing to argue that what you did was legal and shouldn't be sanctioned, but the vibe they're putting out is that they're dumbfounded that anyone would possibly think that they were being shady.
They're painting what's basically a price fixing scheme as the little guy heroically standing up to the evil Amazon in a World Gone Mad where no one understands their altruistic courage.
It's a little ridiculous.
Antrozous Seniorius Lurkius
I admire Apple to no end and enjoy reading about the incredible work that they do in the technology sector, but it's taking the joy away from things when the players break the rules. Why play ballgames, if some of the balls are weighed differently for different players?
Raptor Ars Legatus Legionis
Apple allegedly discussed ways to raise e-book prices not only on its own platform, but across the industry. Apple defended itself by saying that it acted in no one's business interests but its own...
Of course not, and I don't think anyone believes any differently. However that does nothing to refute the charges of price fixing.
Apple didn't collude with publishers to raise prices out of some altruistic sense of getting the publishers more money.
They did it because they wanted to force their way into the ebook market without having to compete, and the publishers getting more money out of the deal was just a convenient way to bribe them into following Apple's plan.
fuzzyfuzzyfungus Ars Praefectus
Workaround wrote:
The 'our behavior couldn't possibly have been bad, the industry we allegedly conspired with to raise prices totally became healthier and more profitable after we entered the market!' argument is also a trifle baffling...
I understand that perceived harm/benefit carries weight, especially on unsettled points; but that seems like the exact opposite of what you'd want to be arguing. It might be nice that the publishing industry made more money; but it isn't very convenient for rebutting allegations that you used your market power to assist them in scraping more money out of customers.
jackstrop Ars Tribunus Militum
Antrozous wrote:
I admire Apple to no end and enjoy reading about the incredible work that they do in the technology sector
edit: Every down vote may as well just be "touche".
Last edited by jackstrop on Tue Jun 04, 2013 8:55 am
Z1ggy wrote:
Why should you be entitled to all that valuable DRM for no additional cost? That's some high-quality sofware you want for free. Makes me sick, people these days...
Robot Dinosaur Ars Scholae Palatinae
fuzzyfuzzyfungus wrote:
It's also getting a little tiring. Apple keeps repeating this refrain that its entry into ebooks was good for the industry and good for consumers without really justifying those statements. I suppose this is just opening arguments and they have something more substantial on their way. But there's legitimate arguments that Apple could be making, and so far it's mostly just repeated how 'what Apple did was good' and 'what Amazon was doing was bad' in hopes that we'll all blindly believe if it they just repeat it often enough.
ardent Ars Tribunus Militum
The Chewbacca Defense is a lot ridiculous.
But it has worked before, although it basically hinges on bamboozling a jury with contrived incredulity. Which makes it an odd choice for a bench trial.
MrMickS Ars Praetorian
What exactly does the MFN clause say? Does it state that the publishers can't sell for any less than the price they agreed with Apple, or that if they offer a lower price to someone then they have to offer it to Apple as well?
It seems to be that if its the former then Apple are price fixing, if its the latter then Apple are just ensuring that they maintain competitiveness.
Also does anyone know whether Apple have an MFN clause for music as well?
NickN Ars Tribunus Militum
jackstrop wrote:
Well, either touché, or a protest against a troll...
Quiet Desperation Ars Praefectus
No need to say touché. We know you're wrong, although nice of you to admit it so quickly.
Ncrdrg Smack-Fu Master, in training
Apple's fighting a losing battle. It's pretty obvious they were price-fixing with the major publishers to make sure Amazon couldn't continue selling its ebooks at the 9.99$ pricepoint. That's the whole point of them using the MFN clause, aka 'No one can sell those at a lower pricepoint than us."
And because of that, Amazon suddenly couldn't charge the price it wanted for e-books anymore because Apple colluded with the publishers since it wasn't willing to sell at a loss like Amazon and the publishers wanted a higher price point too. So they all hopped on board and boom, Apple suddenly controls the price point of the entire market without its competitors being able to do undercut them because of that clause.
So they can go cry foul all they want that they're being bullied, the data is pretty blatant. The prices rose and I won't shed a single tear when they get nailed to the wall on this. The MFN clause is very much anti-competitive by its nature and I hope it disappears.
Last edited by Ncrdrg on Tue Jun 04, 2013 9:10 am
78 posts | registered Feb 12, 2011
MrMickS wrote:
What exactly does the MFN clause say? Does it state that the publishers can't sell for any less than the price they agreed with Apple
Essentially.
It says that no one can sell for less than Apple, otherwise the publishers will refuse to sell the books to anyone undercutting Apple's price.
rivertrip Ars Scholae Palatinae
Last edited by rivertrip on Tue Jun 04, 2013 9:14 am
I would be glad to pay less for them to not work hard to include the DRM.
IIci Ars Tribunus Militum
Most Favored Nation clause, both Apple and Amazon had them. Before Apple entered, Amazon had contracts guaranteeing that it would get the best wholesale price, and then it went ahead and sold some titles as a loss leader, in effect devaluing the price and expectations the publishers set. Apple's Most favored Nation clause is problematic because it essentially regulates competitors' prices, it states that no one can have a better retail price than Apple. The publishers setting the retail price is what is referred to as the agency model. It will be an interesting case, and I wonder if the DOJ is going after the agency model in general, it isn't unique to this case.
Ncrdrg wrote:
Technically Amazon didn't sell at a loss. It sold some individual titles at a loss at times, but the ebooks division of amazon never operated at a negative margin, from what I recall.
Apple just didn't want to have to actually compete with Amazon, that's the key.
NicoleC Ars Tribunus Militum
I'm a bit surprised that Apple is defending their moves by saying it's "good for the market" when in fact it's bad for consumers. If the consumers got access to more stores and competition was increased, that would be good, but it's not truly competition when the prices are fixed across all retailers.
They also seem to be taking sole credit for eBook sales increasing, and I don't think that's a logical assumption.
IIci wrote:
Amazon was a re-wholesaler, which was "ruining" publishing, but I don't recall seeing that Amazon had a MFN agreement before Apple brought that into the market.
More to the point, if the DOJ is going after the agency model in general, this bench trial is going to get super interesting, because the arguments are only going to get more ridiculous.
griggle Wise, Aged Ars Veteran
It is the latter, but then the publishers get less money from Apple Agency model at the lower price point then they would from the current Amazon side for new books. So they had to raise prices at Amazon et all to make it work with the clause.
Quiet Desperation wrote:
No need to say touché. We know you're wrong.
One needs to make an assertion to be wrong. I asked someone to clarify an assertion. Every downvote might as well just be an angry admission that the original assertion was errant in some way and they're irritated that was made clear.
The original assertion that you quoted totally out of context? Here it is in its entirety, with the part you excluded in bold:
The comment is just saying they like Apple's tech but don't care for some of their iffier business practices. Which is reasonable enough, even if I would have been less kind in my phrasing.
And as for what Apple has done in the tech sector: they might not have invented any single component of the iPhone, but they did succeed in combining all the components in a single, elegant package with an interface people like.
pjdemmitt Seniorius Lurkius et Subscriptor
"Synder called the case a "bizarre" application of antitrust laws,"
So, when did name calling and deriding the accusations become an effective legal strategy? Is Apple paying this lawyer for this defense?
(I know this is not really a legal defense)
Last edited by pjdemmitt on Tue Jun 04, 2013 9:28 am
Raptor wrote:
Sorry but essentially isn't good enough. I know I'm being pedantic but the devil is in the detail.
If it prevents the publishers from offering a price less than the one they offer Apple then this is materially different from the publishers having to give Apple the same price if they subsequently offer another retailer a different price. In the former the publisher is prevented from offering a lower price if the latter then the publisher can change the price but they have to give Apple the new price too.
I don't see any proof either way just speculation which isn't helpful.
soulsabr Ars Praefectus
WHAT?!? So you can pirate our books by paying for them?!? NEVAR!!!!!!!!
danstl Ars Tribunus Militum
Do we actually know what Amazons wholesale cost was (before agency model) on e-books? I don't think we do.
The slides indicate that :
Establishes digital list price typically 20% lower than print list price and sells book to retailer for percentage of digital list price (usually 50%)
TO me this would mean that e-books should have always been lower priced than their hard/paperback versions. And my guess is that Amazon was not selling a majority of their e-books at the 9.99 price at a loss. Typical paperback book may cost $10-15 in the store. So at the $15 point the publisher sets the list price at $12.00, and then sells it to Amazon for $6.00, amazon in return sells the book for $9.99.
Apples argument against Amazon hold no weight until we have more information, but just looking at the DOJ slide deck - it appears that Amazon has been telling the truth, and that they do not sell books at a loss, but sell them below list, and as books go this is simply not uncommon, you almost never pay "list" price for a book.
Robot Dinosaur wrote:
What are you talking about? Those two parts of the post are completely non sequitur. Nothing in the ensuing statement related to the original portion's referenced "incredible work that they do in technology."
I asked what that incredible work that is because I've never been incredulous over the possibility of any technology I've seen Apple churn out.
Jakelshark Ars Scholae Palatinae
Yes they have made arguments they made the industry better. People can argue these facts if they want, but they have a few points.
Shudder Ars Legatus Legionis
I was hoping Apple would get lit up when, just a week after they launched their stores, some books I had wanted that were 7.99 jumped up immediately to 27.99. This is all while you could buy those books in paperback form for about 10 bucks. At the time I knew accusations like this would come about because as a consumer I saw how badly the prices shot up at that moment, I figured surely someone in the government would take notice.
Edit: Apple can say they benefited the industry all they want but averages are misleading when you have tons of things in the low end, like ancient old texts that weren't there before, to offset the now $18 books that used to be $10.
As a numbers guy I'd demand to know the breakdown, both in % and numbers, of books at various tiers after the agency model. I'm pretty sure you'd see a LOT more numbers in the higher end than there used to be. Averages are a liars way to hide the truth. Claiming you're responsible for natural progressions with the technology is also a farce. Increased book outputs and interactive texts would have happened anyway.
Last edited by Shudder on Tue Jun 04, 2013 9:37 am
23951 posts | registered Oct 23, 2000
paradox00 Ars Praetorian
In both cases, it's not price fixing. When you're letting someone else higher up in the supply chain set the prices (common practice btw), you naturally want assurances that the prices they set for you will be competitive. The price fixing in this case is the alleged collusion to force Amazon into accepting the same deal from the publishers. In this case I find Apple's defence odd, they should really just argue that they weren't part of whatever the publishers did to Amazon. They all settled, there's no reason to defend their positions.
Last edited by paradox00 on Tue Jun 04, 2013 9:39 am
446 posts | registered Jun 9, 2010
paradox00 wrote:
In both cases, it's not price fixing when you're not a market leader (or even in the market). When you're letting someone else higher up in the supply chain set the prices (common practice btw), you naturally want assurances that the prices they set for you will be competitive. The price fixing in this case is the alleged collusion to force Amazon into accepting the same deal from the publishers. In this case I find Apple's defence odd, they should really just argue that they weren't part of whatever the publishers did to Amazon. They all settled, there's no reason to defend their positions.
But they cant deny this. Because there is actual evidence with conversations between Apple and the publishers working on a way to FORCE amazon to have to accept the new terms. The MFN clause made it so Amazon had to accept Apple's terms or not sell the books.
ggeezz Ars Centurion
danstl wrote:
I think Amazon has allowed people to self-publish to the Kindle store from the very beginning. And thus they had to list the details for royalties. For example, now I think you get 30% if the price is <$2.99 and 70% for $2.99 or greater. Of course, Amazon probably has different deals with the major publishers.
However, one facet is well-known. Sometimes Amazon offers books/apps with a discount. There's a free app every day in their app store. They still pay the app creator (though it may be a discounted rate established in their terms). So they "sell" that app at a loss to create interest or as advertising. Amazon does the same thing with books and audiobooks (through Audible).
But I don't think Amazon did this en mass with $9.99 ebooks. There wouldn't be any point in it. There's just too many new books competing for attention. Why would it benefit Amazon to loose $1 every time it sells a new Patterson ebook. I mean Patterson is big, but no one author is really that big when you consider the whole market.
265 posts | registered Aug 7, 2002
ardent wrote:
Agency models, on their own, are mostly agreed to be legal. (This point sometimes leads to flame wars here; Apple fanboys will say the DOJ suit is flawed because the agency model is totally legal, leaving out how the agency model isn't on trial here.) And MFN clauses, on their own, are generally legal. Whether the combination of the two is still legal is less clear and might be discussed in the trial, since it virtually eliminates price competition between retailers.
Deamon Ars Centurion
I don't think they had a MFN agreement as such, it's just that the fact that Amazon had a near-monopoly in the e-book market (caused in no small part by the DRM the publishers themselves insisted on, the morons) gave them an awful lot of leverage to negotiate some pretty big wholesale discounts with the publishers. More than one publisher was dropped temporarily from Amazon.
ggeezz wrote:
Amazon did have a different deal with publishers - it was wholesale model. They handled e-books the same way they handled real books. Bought them at wholesale pricing and set their own retail pricing.
Rabbiddog Ars Tribunus Militum
Really? Apple didn't care that %30 (or whatever their cut was) of $9.99 is not as much as %30 percent of $14.99. I find it hard to believe that Apple wasn't concerned with higher profits.


text:
UT Alumnus Rex Tillerson Sworn In as U.S. Secretary of State
By Danielle Lopez in Special, TXEX on February 2, 2017 at 1:57 pm | 1 Comment
UT-Austin's Cockrell School of Engineering alumnus Rex Tillerson, BS '75, Life Member, Distinguished Alumnus, has been tapped to serve as U.S. secretary of state under President Donald J. Trump's administration.
"I want to express my profound thanks to President Trump for giving me this extraordinary opportunity to serve my country," Tillerson said during his swearing-in ceremony on Tuesday.
After Tillerson graduated from UT, he was almost immediately recruited to work at the former Exxon Company, U.S.A., which later became Exxon Mobil. He started as a production engineer, then was named president of Exxon-Yemen in 1995 and took charge of Exxon's ventures in Russia in 1998. Eventually, Tillerson climbed the ranks to become chairman and CEO of the company in 2006. "Those early assignments where I worked internationally and the things I learned there have served me ever since," Tillerson said in a 2007 interview with the Alcalde.
In Tillerson's first act as secretary of state, he gave a speech to his staff at the State Department on Wednesday. He said as secretary of state he will deploy the talent and resources of the State Department in the most efficient way possible.
"That may mean making some changes to how things are traditionally done," he said. "Change for the sake of change can be counterproductive and that will never be my approach. But we cannot sustain ineffective traditions over optional outcomes. I will gather information on what processes should be reformed and do my part to make sure we are functioning in the most productive and efficient way possible."
Tillerson, who is a former Tejas Club member, serves on the Cockrell School's Engineering Advisory Board and the UT System Chancellor's Council. He also was elected to the National Academy of Engineering.
"Rex Tillerson's tremendous experience with international issues and working around the globe gives him an outstanding background to serve as U.S. secretary of state," UT President Gregory L. Fenves said in a news release. "A Distinguished Alumnus who has been committed to the mission of The University of Texas, Mr. Tillerson has demonstrated leadership throughout his career as an executive. I know he will be dedicated to serving the United States as a leader in the world, and I look forward to seeing his accomplishments as secretary of state."
Photo via The White House/YouTube.
Tags: rex tillerson, secretary of state, white house

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