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Apple set to defend self in e-book collusion case

US says price-fixing hurt readers

NEW YORK — Government lawyers are set to face off against Apple this week in a New York courtroom, trying to prove that the company conspired with publishers to raise prices in the e-book market.

But the evidence in the civil case will not just determine whether Apple­ has violated antitrust laws. It will also tell a broader story of how the introduction of e-books created upheaval in the publishing industry — with guest appearances by major players such as Amazon and Barnes & Noble and a nod to Steve Jobs, Apple’s chief executive who died in 2011.

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In the case, brought a year ago, the Justice Department accused Apple and five book publishers of conspiring to raise e-book prices. The idea, the government said, was to allow publishers to set prices rather than letting retailers do so. Their motivation, according to the Justice Department, was to defend themselves against Amazon, which was setting the price of most new e-books at $9.99 and becoming increasingly dominant in the market.

Simon & Schuster, Harper­Collins, and Hachette Book Group settled the day that charges were filed; Penguin and Macmillan settled months later.

Complaints by Amazon, which now controls about 60 percent of the e-book market, are widely believed to have incited the investigation. Amazon declined to comment.

After the lawsuit was filed, the expectation was that e-book prices would drop sharply; the publishers that settled agreed to allow retailers to discount their e-books for two years. But the price drop has still not happened.

A government victory against Apple, which would not involve monetary damages, might also not affect e-book prices.

‘We’ve done nothing wrong there, and so we’re taking a very principled position of this.’

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“Are consumers going to be better off as a result of any government win here?” said Charles E. Elder, an antitrust lawyer at Irell & Manella, which is not involved in the case. “That’s going to have to be seen, depending on what happens to book publishing generally. It’s in trouble, and e-books are either the savior or they’re going to hasten the demise of book publishers.”

Apple declined to comment.

“The e-book case to me is bizarre,” Timothy D. Cook, Apple’s chief executive, said at a business conference last week in Southern California. “We’ve done nothing wrong there, and so we’re taking a very principled position of this.’’

The trial, before Judge Denise L. Cote of US District Court, is expected to feature testimony from chief executives from the five publishers, who will offer a window into their world of fierce price negotiations. But the star witness may well be Jobs, even though he died in October 2011.

In the case, the government cast Apple as the “ringmaster” of the conspiracy. It said that when the company entered the e-book industry in 2010 with the introduction of the ­iPad,­ it wanted to pressure Amazon to raise its prices above its uniform $9.99 for new e-books.

At the time, publishers’ agreements to sell e-books were made under the so-called wholesale model of print books: Publishers charged retailers about half the cover price for a book, and the retailers then set their own prices. The government said Jobs persuaded publishers to agree to agency pricing, which allowed publishers to set their own prices for e-books, giving Apple a 30 percent commission for books sold in its online store.

The publishers’ contracts with Apple included a “most favored nation” clause, requiring that no other retailer sell e-books­ for a lower price; if they did, the publisher would have to match the price of the e-book in Apple’s store. That, the Justice Department said, resulted in higher prices that harmed consumers.

Around the same time, the five publishers renegotiated their contracts with Amazon to the agency model. In its case, the government said the result was that the price of newly released e-books went up to $12.99 and $14.99, evidence that a price-fixing conspiracy had taken place.

The government also pointed in its pretrial filings to a quote from Jobs’s authorized biography, in which he admitted that he had told the publishers, “We’ll go to the agency model, where you set the price, and we get our 30 percent, and yes, the customer pays a little more, but that’s what you want anyway.’ ”

In its own pretrial filings, Apple said the quotations from Jobs were edited and taken out of context in the government’s papers. The company said that even before it entered the e-book market, publishers were getting fed up with Amazon’s uniform e-book pricing and were planning to delay the release of e-books. That caused Barnes & Noble to push for agency agreements with publishers, Apple said. A Barnes & Noble executive will be one of Apple’s witnesses.

In its defense, Apple has also­ picked out e-mail conversations for ammunition. It cites one Amazon executive who found it “hysterical” that Amazon used “Jedi Mind Tricks” to get publishers to do what it wanted.

Furthermore, Apple says that the average selling price of an e-book dropped after it entered the market.

The trial will cap a difficult year for the industry, with five of the six major publishers grappling with the aftermath of the lawsuit. But the industry’s woes began long before.

E-books have caused a monumental disruption in the last five years, as a once-fledgling technology has taken hold for millions of readers. In 2009, e-books made up 1 to 3 percent of publishers’ total sales but now account for 20 percent.

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