• Apple Argues Varied Book Publisher Contracts Prove Non-Collusion in DOJ Suit

    As it defends itself from the U.S. Department of Justice allegations of e-book price fixing, Apple recently pointed to the diverse contract terms it made with five major publishing houses as evidence against purported conspiracy. A follow-up report to yesterday’s proceedings from AllThingsD says that Apple lawyer Orin Snyder brought up the negotiated terms multiple times during the bench trial now in front of U.S. District Court Judge Denise Cote.

    The composition of Apple’s agreements with five of the biggest book publishers in the world is central to the Justice Department’s antitrust argument, which holds that the companies worked together to falsely inflate prices of e-books in the iBookstore. At the core of Apple’s pricing strategy was a so-called “most favored nations” clause that allows publishers to set e-book pricing, but precludes them from selling the same content to other retailers at a lower price. According to the DOJ:

    [Apple's MFN] was not structured like a standard MFN in favor of a retailer, ensuring Apple that it would receive the best available wholesale price. Instead of an MFN designed to protect Apple’s ability to compete, this MFN was designed to protect Apple from having to compete on price at all, while still maintaining Apple’s 30 percent margin.
    The government contends that by having the MFN deals in place, Apple and the publishers willingly conspired to hike e-book prices. As noted by AllThingsD, such a scheme would likely call for similar, if not identical, terms for each publishers. The arrangements were widely varied though as revealed in court. Snyder pointed out that, while a price-matching provision was included in each contract, Apple negotiated different MFNs for each of the five publishers.

    Penguin Books CEO David Shanks, whose company is one of the five involved in the case, said there was some concern over market leader Amazon’s wholesale pricing model. The online retail giant’s strategy is counter to Apple’s “agency model” in that it puts pricing power in the hands of book resellers by allowing them to sell content at or below cost. Shanks said the following referring to Amazon’s strategy:

    What transpired was by having e-books now at $9.99, it was cannibalizing hardcover editions, which sold on average at $26.
    Although his testimony was at times damning to Apple’s case, Shanks did mention that Penguin “strongly resisted” the MFN model, fearing Apple would simply end up matching Amazon’s already low prices and add a commission on top. Although it isn’t a silver bullet, the revelation is likely to bring some scrutiny of the DOJ’s assertions.

    The trial is set to continue for the next three weeks, so we’ll have to see how things unfold.

    Source: AllThingsD
    This article was originally published in forum thread: Apple Argues Varied Book Publisher Contracts Prove Non-Collusion in DOJ Suit started by Akshay Masand View original post
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