June 4, 2013

Apple is going to fight: The DOJ case begins


The publishers are out, and only Apple is left facing down the Department of Justice in what may prove to be a defining case for the ebook market.

After five of the Big Six publishers named by the DOJ settled out of court, the DOJ’s anti-trust case against Apple for ebook price-fixing began today and is expected to last about a month.

The U.S. government is not asking for damages, but would block Apple from engaging in similar conduct. If Apple is found liable, the company could still face damages in a separate trial by the state attorneys general, who would seek civil penalties on behalf of consumers.Orin Snyder, an attorney for Apple, described the case as “bizarre.” “Even our government is fallible, and sometimes the government just gets it wrong,” Snyder said. Apple acted in its own business interests in negotiating deals with publishers in the run up to the debut of its iPad in January 2010.

“What the government wants to do is reverse engineer a conspiracy from a market effect,” he added.

“Apple told publishers that Apple—and only Apple—could get prices up in their industry,” Lawrence Buterman, a lawyer at the Justice Department, said during his opening argument. Buterman presented an overview of the government’s case against Apple (slideshow here), offering email and phone record evidence that he claimed showed the company rallying publishers around a new electronic book business model that drove up the price of ebooks before the launch of the iPad.

“Apple’s conduct cannot be excused,” Buterman said. “Consumers in this country paid hundreds of millions of dollars more for ebooks than they would have.”

In its opening presentation, the DOJ borrowed from your 10th grade history slideshow, using speech bubbles to quote from Walter Isaacson’s biography of Steve JobsSteve Jobs. As Jason Boog at GalleyCat asked, “do you think the Isaacson biography helps show evidence that Apple and publishers were fixing eBook prices?”

Philip Elmer-DeWitt at Fortune predicts that the most telling part of the trial won’t come until June 13, when Eddy Cue, Apple’s senior vice president of Internet Software and Services, who was the main Apple representative negotiating with the publishers, will testify. Both Apple and the DOJ think that Cue will prove their points — for the DOJ, that Cue’s emails with publishing executives are evidence of collusion, and for Apple, that they simply show Cue was investigating how to break into the Amazon-dominated ebook market.

“Apple’s opening statement — once its lead attorney, Orin Snyder, got through asking the judge to “hit the delete” button on the opinion she offered at a pre-trial hearing that the government had already proved its case — tried to pull the rug out from under everything the DOJ had just presented. Cue, Snyder claims, was just trying to break into a crowded ebook market (one dominated by Amazon) using precisely the same approach he used when he got the company into the music market with iTunes and the applications market with the App Store. Those innovation poured billions of dollars into the U.S. economy, he said. “Apple should be applauded, not condemned.””

We’ve noted before that things don’t look good for Apple. U.S. District Judge Denise Cote gave a “tentative view” on May 23 that she thought the Justice Department might win, according to Reuters.

During opening arguments on Monday, Snyder expressed Apple’s “concern” about the comment, adding later, “all we want is a fair trial.” Cote retorted that she made her comments only after the Justice Department and Apple asked for her view, which was based on hundreds of documents submitted in advance of trial.

“The deck is not stacked against Apple unless the evidence stacks against Apple,” Cote said.

Nevertheless, Apple CEO Tim Cook was feeling scrappy last week, when he said “We’re not going to sign something that says we did something that we didn’t do, so we’re going to fight,” during an interview at the D11 conference.

You can read more of our coverage of the DOJ’s antitrust suit here.