‘Ringleader’ says Apple did not raise e-books prices

June 14th, 2013

Peter Nolan

By Nate Raymond

NEW YORK (Reuters) – An Apple Inc executive at the center of an antitrust lawsuit by the U.S. government said on Thursday the company “didn’t care” what price publishers set for e-books.

Eddy Cue said he was not surprised when publishers increased prices for new and best-selling titles after Apple entered the e-books market in 2010, but he disputed that Apple caused prices industry-wide to increase.

“I didn’t raise prices,” he testified in federal court.

Apple is the sole remaining defendant in a lawsuit in which it is accused of working with five major U.S. publishers to fix e-book prices and undo Amazon.com Inc’s market control. The publishers all reached settlements with the U.S. government.

Cue, a 24-year veteran of Apple, was the primary negotiator with major U.S. publishers in December 2009 and January 2010 before Apple launched its iBookstore and, according to a Justice Department lawyer, the “chief ringleader” of the alleged conspiracy.

During Thursday’s proceedings, Cue, 48, said he had felt “tremendous” pressure to get a deal done with the publishers quickly after former CEO Steve Jobs gave him approval in late 2009 to pursue an iBookstore for the then-under wraps iPad.

Jobs, who died in 2011, was “near the end of his life” as the January 2010 unveiling of the iPad neared, Cue said. Not getting a deal done would have meant debuting the iPad without the bookstore, he said later.

“I wanted to get it done in time for that as I wanted to get it done for him,” Cue said.

At the time of the negotiations, Amazon controlled up to 90 percent of the market by 2009, court filings show. Amazon, which had entered the market with its Kindle in 2007, was pricing new and bestselling e-books at $9.99, often below cost.

Cue testified initially Apple intended to adopt a wholesale model like Amazon, buying titles from the publishers and then setting the prices itself.

But after talking with publishers, Apple instead went with a so-called agency model, in which publishers set the price and Apple received a 30 percent commission on sales.

Publishers subsequently pushed Amazon to also adopt the agency model, a shift the government contends Apple encouraged through a contract clause that would allow it to reduce prices on its bookstore if other retailers sold e-books cheaper.

The move caused prices for new and best-selling books to increase, the government contends. Amazon’s shift to agency also contributed to its e-books market share falling to 45 percent in 2012, Morgan Stanley said in a February report.

But Cue said Apple was not tying to shift its rival off of its wholesale approach, and that the price parity clause was intended only to ensure his company could effectively compete with other retailers. Apple was indifferent if other retailers sold books on a wholesale or agency model, he said.

“I didn’t care what deals all the publishers got with Amazon, Barnes & Noble or anyone else,” he said.

The publishers had expressed unhappiness with Amazon and said they wanted higher prices from Apple, Cue said. But Apple sent price caps to ensure the company didn’t lose any control.

Pearson Plc’s Penguin Group, News Corp’s HarperCollins Publishers Inc, CBS Corp’s Simon & Schuster Inc, Hachette Book Group Inc and Macmillan have all settled.

Cue acknowledged telling publishers he was speaking to their rivals during negotiations, but said he did so only generally and not naming the companies.

He said he also did not know of calls the government said publishers were making between themselves, nor did he think anyone else at Apple knew.

“If they were working together, I assume I would have had much easier time negotiating,” Cue said.

The case is United States v. Apple Inc et al, U.S. District Court, Southern District of New York, No. 12-02826.

(Reporting by Nate Raymond; Editing by Doina Chiacu)

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