Apple Ebook Trial Gets Under Way With Defense of Agency Model

Apple, accused of increasing ebook prices and making consumers overpay by "hundreds of millions," is defending its practices.

Apple, 14 months after being sued by the Department of Justice, has begun the process of trying to prove that its ebook deal with five major U.S. publishing companies wasn't price fixing.

The trial began in New York June 3 and is expected to last less than a month.

In opening arguments, Apple attorney Orin Snyder presented Apple as wrongly accused, its name wrongly smeared and of being forced into court "because it did nothing wrong," according to reporting from the Los Angeles Times.

The five publishers—Penguin, HarperCollins, Simon & Schuster, Hachette Book Group and MacMillan—all settled with the government, paying a collective $164 million, according to Reuters. But Apple has maintained that it did nothing wrong.

"We're not going to sign something that says we did something that we didn't do," CEO Tim Cook said during a May 28 interview at the D: All Things D tech event, in regard to the ebook trial. "So we're going to fight."

Prosecutors, meanwhile, have begun arguing that when Apple launched the iPad and iBookstore in 2010, it worked out a deal with the publishers, which were all frustrated by the low $9.99 price that Amazon was charging for books, sometimes at a loss. Apple is said to have facilitated pricing agreements across the industry—the publishers set the price and Apple took a 30 percent cut.

The late Steve Jobs, Apple's co-founder and CEO at the time, is quoted by his biographer, Walter Isaacson, as having said, "We told the publishers, we'll go the agency model, where you set the price and we get our 30 percent. And yes, the customer pays a little more, but that's what you want anyway."

When Apple launched its iBookstore, book prices increased by 50 percent, Justice Department lawyer Lawrence Buterman said in his opening statement, according to the L.A. Times report.

"This dramatic price increase was no accident. Apple knowingly and actively participated in a scheme to raise ebook prices," said Buterman.

Buterman added that Apple's pricing scheme has cost consumers "hundreds of millions of dollars."

Apple's Snyder, according to Reuters, argued in his remarks that the agency model isn't sinister, and Barnes & Noble and Amazon had each considered it before Apple had. Snyder called it "good and beneficial to consumers and markets."

Penguin, back in its May 2012 response to the DOJ suit, also argued in defense of the agency model, saying that it "existed for far longer than the federal antitrust laws and has specifically been found by the U.S. Supreme Court to be a legitimate way to do business."

Penguin went on to argue what Apple's Snyder is likely to repeat: "It also cannot be discounted that Apple's entry and the adoption of the agency model demolished what was widely recognized in the book industry as a 'barrier to entry'—Amazon's business practice of selling certain new-release ebooks below-cost for certain periods of time—and prevented Amazon from cementing itself as a monopolist that would continue to dominate the sale of ebooks and e-readers."

Apple's Snyder also stated that following Apple's entry into the book market, prices have actually fallen, not risen. On average, he said, prices fell from $7.97 to $7.34.

U.S. District Judge Denise Cote, who is overseeing the case without a jury, said in a statement to the Justice Department that she believed the government would be able to show that Apple "knowingly participated in and facilitated a conspiracy to raise prices of ebooks."

She said that this view was based on the hundreds of documents submitted to her in advance of the trial.

Synder, said the L.A. Times report, asked her to "hit the delete button" on any biases the documents had left her with, which Cote assured him she would.

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