Trading Room home page

Apple antitrust trial over ebooks winds up

Market watch top headlines

Australian reports

World reports

Stocks to watch

AMP, BHP, CBA, QAN, RMD, RIO,

NEW YORK, June 20 AFP

June 21 2013, 2:25PM

Apple has dismissed allegations it conspired to raise the price of ebooks and said the US government's antitrust case against it would deter new entrants to concentrated markets.

The two sides delivered closing arguments on Thursday at the three-week trial, which has shed an uncomfortable light on the technology icon and the clubby world of high-stakes publishing. A decision is expected in the next couple of months.

"The issue in this case is collusion," said Mark Ryan, a Justice Department lawyer who outlined the government's case that Apple conspired with publishers to hike prices, costing consumers hundreds of millions of dollars.

The trial focused on a six-week period in late 2009 and early 2010 during which Apple negotiated contracts with publishers ahead of its iPad launch and proposed a new and more profitable business model.

At the time, publishers were furious at the state of the market dominated by Amazon, which sold most bestsellers for just $US9.99.

Amazon held "wholesale" contracts with publishers in which it set prices. Apple's contracts shifted to an "agency" model where publishers set the price in exchange for a 30 per cent commission to Apple.

Prior to Apple's entry, the publishers - all of whom have settled in the case - would complain about Amazon's $US9.99 price at private dinners in fancy New York restaurants, but each feared taking on the internet giant alone.

Apple and the publishers agreed on contracts that let publishers set the price of most bestsellers at $US12.99 or $US14.99, but Apple won a provision that allowed it to match the prices of Amazon or any other retailer.

As Apple was finalising its deals, publishers successfully pressured Amazon to accept the agency model and higher prices. Several publishers threatened to withhold ebooks from Amazon if it did not go along.

Ryan pointed to testimony from Apple senior vice president Eddy Cue in which he said he knew the publishers wanted to raise prices.

Cue admitted his contracts gave publishers the ability to raise prices and said he provided reassurances about potential Amazon retribution, telling each publisher it would not be alone in signing with Apple.

"This was the publishers acting as a group and Apple bringing that group along," Ryan said. "Only a united industry front could move Amazon off its $9.99 price."

Apple defence lawyer Orin Snyder dismissed the government's case as an example of prosecutorial "overreach", saying Apple's conversations with publishers in late 2009 were merely brainstorming sessions.

Snyder pointed out that Cue had almost no phone contact with the publishers from late December until around January 20, 2010, when the talks intensified ahead of the iPad launch.

"There is no such thing as conspiracy by telepathy," Snyder said.

He pointed to the "paucity" of evidence tying Apple to the publishers' negotiations with Amazon and said allegations Apple intended to force them to renegotiate with Amazon were based on "inferences".

Other government evidence was "ambiguous at best," Snyder said.

"There's zero evidence that Apple did anything in these negotiations to enforce collective action."

Antitrust experts said a key question for the judge is whether Apple convinced the publishers they needed to work collectively to pressure Amazon and whether Apple played a role in facilitating that effort.

Scott Hemphill, a Columbia University law professor who attended part of the trial, said the government's documentary evidence was strong.