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Industry News: The anti-(yawn)-trust trial

June 8, 2013

Based on testimony, no one was wrong in the price-fixing suit (or everyone was)

As the anti-trust trial against Apple starts this week, the following things happened:

  • Apple denied it did anything wrong and said the late Steve Jobs invitation to publishers was an attempt to understand the market, not to manipulate it. Apple, in fact, argued that it should be praised for its actions, rather than condemned, but…
  • The Department of Justice disagreed, saying that Apple acted as a facilitate with the CEOs of five of the big six, trying to get them to break Amazon’s $9.99 deal for e-book prices.
  • Carolyn Reidy, CEO of Simon & Schuster, one of what the DOJ portrayed a “weak-kneed CEOs,” agreed with the DOJ, saying that Apple clearly wanted to move Amazon off the $9.99 price point. But Reidy said that Apple was not at the now-infamous meetings the publisher CEOs had at private rooms at NYC restaurants. The DOJ did, however, introduce an email indicating that Reidy looked forward to Apple “herding us cats.”
  • Meanwhile, three Amazon executives (two current and one former) testified how it became apparent to them that collusion was afoot, at least among the publishers, with Apple to be the primary beneficiary.
  • Google testified as a government witness, but when Apple attorney Orin Snyder asked Google Director of Content Tom Turvey to name someone, anyone, at the publishers who informed him of the alleged contractual terms that prevented publishers from working with Google on its e-bookstore, he couldn’t do it.

The trial will continue with more thrilling updates to come.

Background:

The Department of Justice (and a number of state Attorneys General) brought charges against Apple and five of the big six publishers for fixing book prices and forcing Amazon to accept an agency model, where the publishers set the price of their product and the reseller acts as an agent, taking a cut of the sale price. Until then Amazon was selling most e-books at $9.99, taking a lose and reducing the value of the product. It was also establishing a dominant market for its Kindle e-reader.

Given accusations of some of Amazon’s other alleged business practices (gobbling up market share, then forcing draconian terms on suppliers–including smaller publishers), those who support Apple and other other publishers have concerns about Amazon’s dominance of the market. In other words, enforcing anti-trust laws may actually restrict commerce (if you believe Amazon’s detractors).

What this means to you:

  • The publishers were afraid of Amazon and were willing to risk anti-trust sanctions to break its stranglehold on ebook prices. That they settled, though they didn’t admit any wrongdoing, is an indication that they have doubts about their ability to win their cases.
  • If you’re a CEO, you should never, ever write an email to the head of a business in which you refer to your company as its competitors as cats that need to be herded. It kind of eliminates a lot of your defense and makes  you look like a weak-kneed CEO.
  • Although Amazon appears to have a credible case that collusion occurred, as previously noted, credible accusations could be made that its practices are also anti-competitive.
  • Google seems to fear Apple more than Amazon.
  • Amazon may win big with this case, getting an anti-trust judgement, as well as showing that higher e-book prices won’t hurt the dominance of its Kindle product line.
  • The days of $9.99 e-books are probably gone.

 

 

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