June 17, 2013

The dinner that launched a DOJ lawsuit

by

On January 20, 2010, three Apple executives and two from Macmillan had a fancy Manhattan dinner, a dinner at which the DOJ says the conspiracy to raise ebook prices was hatched.

According to Larry Buterman, the DOJ’s counsel, it was over dinner and drinks that Apple’s Eddy Cue and Macmillan CEO John Sargent planned their alleged conspiracy — that Macmillan would abandon their hybrid model for selling ebooks with Amazon, and switch to the agency model with Apple, in order to raise ebook prices.

Both Sargent and Cue say this is a misinterpretation of the events, and Sargent in particular denies that an agreement with Apple is what caused him to call Amazon‘s Russell Grandinetti the very next day, and insist on renegotiating their ebook contract with Amazon.

As Philip Elmer-DeWitt writes in Fortune,

“If this is the kind of direct evidence with which the DOJ hopes to prove that Apple knowingly participated in a conspiracy to raise e-book prices, the government might have a problem. Not only were Sargent and Cue among the trial’s most credible witnesses, but Grandinetti’s recollection of his Jan. 21 conversation with Sargent is open to interpretation. Grandinetti thought he heard Sargent say that Apple forbade Macmillan from doing business Amazon’s way. But what Sargent might have been saying is that the structure of Apple’s contract made wholesale with Amazon unprofitable — a distinction Judge Denise Cote, who will decide the non-jury case — seems to recognize as significant.”

What’s also becoming apparent is Amazon’s somewhat petulant role in getting the DOJ ball rolling.

“According to Grandinetti, he rejected Sargent’s “ultimatum,” cut the meeting short, escorted Sargent out of the building, removed the “buy” buttons from all of Macmillan’s books — digital and physical — and helped Amazon’s lawyers draft a memo to the Federal Trade Commission telling the government what had just happened.”

It almost seems as if Grandinetti failed to negotiate favorable terms for Amazon, and so called in the Feds.

For Apple and the publishers, highlighting Amazon’s not insignificant involvement is a useful strategy. Particularly as, after Amazon relented and renegotiated contracts with the five named publishers, they weren’t so different from the supposedly “colluding” contracts with Apple. Elmer-DeWitt writes, “Amazon’s contracts even contained the price-matching, or MFN, provision that was supposed to be the linchpin of Apple’s illegal stratagem.”

Over the coming weeks, Apple’s case hinges on convincing Judge Denise Cote that their interpretation of dinner and drinks is the correct one.

 

Ariel Bogle is a former publicist at Melville House.

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