My Obsessions

After Apple and other retailers started selling e-books on the agency model, prices on many best-selling and new books rose to the $12.99 to $14.99 range, infuriating many consumers.

“Who protected them?” [Justice Dept. lawyer] Mr. Buterman said.

“I did,” Mr. Cue said.

“By charging them higher prices?” Mr. Buterman said.

The second day of the Apple e-book price-fixing trial continued with the government’s continued focus on Apple associate general counsel Kevin Saul, citing a stream of Apple correspondence it claims urged the Big Six publishers to force all their retail partners to the agency model. But it was the testimony of Penguin Group USA CEO David Shanks, looking less than happy under government questioning, who also reluctantly acknowledged a succession of e-mails and calls that appear to show Shanks, Penguin chairman John Makinson and other Penguin executives acting in concert with his fellow Big Six CEOs to use the move to the agency model to raise e-book prices above the $9.99 price point.

Under oath, Shanks acknowledged that he had referred to Apple as “a facilitator,” of the move to agency, pretty much the same claim the government makes in its charges against Apple. In a voice that seemed to grow more quiet, gravelly and hesitant as the day wore on, Shanks also reluctantly acknowledged that throughout negotiations over the agency model, Apple kept him updated on the number of publishers planning to make the switch—Penguin clearly demanded that the iBookstore have at least three major publishers before they would join—and he informed Apple of his plan to move all Penguin resellers (who, of course, are Apple’s competitors) to the agency model before those plans were revealed publicly.

The government said there were 100 phone calls among top executives of the publishing industry in the weeks leading up to Apple’s introduction of the iPad in 2010, when they had to decide whether to sign on to a deal with Apple that would raise the prices of e-books.

As the Department of Justice trial against Apple charging that the company was the “ringleader” in a conspiracy to fix e-book prices begins today in New York, all five publishers accused of conspiring with the company have settled their cases, although executives from those houses, along with officials from Random House, Apple and Amazon, are all expected to testify. In a pretrial hearing, judge Denise Cote, said she her “tentative view” is that the government will be successful in proving its charges. Indeed, in her written decision approving the first three publisher settlements, delivered in September, 2012, Cote deemed the matter a “straightforward price-fixing case,” and found “a sufficient factual foundation” to establish the conspiracy. And Apple’s case will hinge on much of that same evidence.

The final scheduled conference before the long-awaited e-book price-fixing trial took place in Manhattan yesterday, and while most of the agenda was set to focus on various motions pertaining to expert witnesses, witness lists, and other housekeeping matters, DoJ attorney Mark Ryan also asked Judge Cote her initial impression of the case. In what Reuters called “a blow” to Apple, Cote said was her “tentative view,” was that the government will likely be able to prove Apple’s guilt in coordinating a conspiracy to raise e-book prices. Although she stressed that no final decision would be made until after the trial, she added that she was already at work on her opinion.

Penguin officials, along with Attorneys General for 33 states and the consumer class, announced this morning that they have finally settled their outstanding e-book price-fixing charges—for a hefty $75 million. As with the Department of Justice settlement it agreed to in December, 2012, Penguin will admit no wrongdoing.

The Penguin settlement, which still must be approved by the court (and hearings are expected this summer), means that it will be Apple alone at the defense table as the long-awaited price-fixing trial gets underway on June 3. And the settlement announcement comes just one day before the parties in the suit were set to have a final pre-trial conference with Judge Denise Cote.

Joe Nocera on Tim Cook’s Senate testimony:

“Among the many things Tim Cook apparently learned at the knee of Steve Jobs, during his long tenure as Apple’s No. 2, was how to create a “reality distortion field.” Or so it would appear after watching Cook, now Apple’s chief executive, testify on Tuesday at a Senate hearing on the company’s tax avoidance schemes.

“Jobs was so persuasive that he could claim the sun was setting when it was actually rising, and everyone would nod in agreement. On Tuesday, despite the overwhelming evidence presented by the Senate Permanent Subcommittee on Investigations that Apple engaged in dubious tax avoidance gimmicks, Cook claimed that Apple never resorted to tax gimmickry. Even though the company appears to pay about 10 percent of its pretax income in taxes — when the federal corporate tax rate is 35 percent — Cook said, “We pay all the taxes we owe — every single dollar.” He added that Apple had never shifted any of its American profits to an offshore tax haven when, in fact, that is basically what it has done, routing tens of billions in pretax profits to a shell corporation in Ireland that exists solely to avoid taxes in the United States. He even said that the low taxes Apple pays overseas is on the profits of its overseas sales. Not to put too fine a point on it, but this was a flat-out lie.

“In other words, Cook spent Tuesday claiming that the sun was setting when it was actually rising, and, predictably, by the time the hearing had ended, most of the senators were agreeing with him.”

“Apple injected much-needed competition and innovation into the e-book business,” said Orin Snyder, a lawyer at Gibson, Dunn & Crutcher who represents Apple. “The DOJ’s case is based on fictions and incomplete quotations. The actual evidence proves that Apple did not conspire to fix prices in the e-book business. We look forward to trial.”

Only in the Bizarro universe does an increase in competition lead to higher prices.