May 17, 2013

DOJ calls Apple “ringmaster” in pretrial filings


U.S. v. Apple is set to begin on June 3rd in New York City.

Two weeks before United States of America vs. Apple Inc., the infamous e-book price-fixing case originally brought against Apple and five of the Big Six publishers, goes to trial, the United States Department of Justice has released its pretrial filings. All publishers have settled with the DOJ out of court, and so only Apple will proceed to trial on June 3. (Penguin settled with the DOJ, but not with the states and the consumer class, and so that case is proceeding in a separate trial.) The filings, in which the DOJ accuses Apple of being the “ringmaster” of a wide-ranging conspiracy, indicate this case will be a doozy.

The DOJ filings include private emails between Big Six executives and Steve Jobs himself (and are peppered with school-marmy scoldings from the DOJ, like “Apple knew exactly what it was doing.”). The DOJ uses the emails as evidence to repeatedly argue that Apple sought to coordinate with Hachette, Harper Collins, Macmillan, Simon & Schuster, and Penguin to set ebook prices above $9.99, arguing that “Apple knew that the major publishers also disliked Amazon’s low prices and saw Apple’s potential entry as a pathway to higher retail prices industry-wide.”

What the DOJ doesn’t take issue with, however, are Amazon’s exploitative ebook pricing practices—despite the fact that descriptions of said practices are all over the emails the DOJ quotes.

For example, James Murdoch, of all people, outlines Amazon’s shadiness in an email to Jobs: “The economics are simple enough, Kindle pays us a wholesale price of $13 and sells it for $9.99.” This simple aside describes what’s known as “loss leader” pricing, a tactic clearly described by the Robinson Patman Act—a key antitrust law—as a kind of illegal predatory pricing, as we’ve discussed on MobyLives numerous times before. It’s a practice whereby Amazon undercuts itself and sells at a loss in order to corner the ebook market, thus preventing any threat of real competition (including from tech giants like Apple) … i.e, thus becoming a monopoly.  But the DOJ ignores this.

An email from Jobs to Murdoch from the DOJ’s pretrial filing also lays out the issue with Amazon’s practices from the publisher’s standpoint: “So, yes, getting around $9 per new release is less than the $12.50 Amazon is currently paying. But the current situation is not sustainable and not a strong foundation upon which to build an ebook business.” These emails illustrate the irony that hangs over portions of the DOJ’s filings: Apple got slapped with an anti-trust lawsuit for attempting to set sustainable prices in a market that Amazon has near-monopolized with unsustainable pricing.

Penguin and Apple also released their own filings. Over at Publishers Weekly, Andrew Albanese has an excellent overview of their defense:

In its filings both Apple and Penguin, however, continue to strongly dispute the charges, asserting that despite the mountain of documents and sworn testimony, there is no “direct evidence” of any conspiracy. “The evidentiary record the parties submitted proves that Apple did not conspire with any publisher to raise prices in the e-book industry,” Apple attorneys state. “Plaintiffs cherry-pick quotes taken out of context and repackage them to tell a false narrative.”

Penguin, meanwhile, similarly accuses the plaintiffs of “misconstruing” events. “The plaintiffs cannot extrapolate direct evidence of a conspiracy from the fact that Penguin received vertical assurances from Apple,” Penguin attorneys argue. “Penguin did not care what business model anybody else used with Apple.” The “assurances” Penguin sought and received regarding other publishers’ participation in the iBookstore, Penguin argues, were related solely to the commercial success of the venture. “Penguin’s desire for a cross-selection of publisher titles to be available in the iBookstore was hardly anti-competitive,” the brief argues, “and certainly does not provide direct evidence that Penguin conspired with other publishers to drive up e-book prices.”

You can read more of our coverage of the DOJ’s case against Apple and the Big Six here.


Alex Shephard is the director of digital media for Melville House, and a former bookseller.