In e-book case, Apple says publishers had already taken measures to counter Amazon

Apple said it did not enter into or facilitate a conspiracy to eliminate price competition or raise prices in the e-book industry

Concerned about Amazon.com's low pricing of e-books, publishers had taken measures as early as 2009 such as "windowing," a practice of delaying e-book releases to benefit sales of hardcover editions, Apple said in a filing in an e-book price-fixing lawsuit.

The U.S. Department of Justice in an antitrust lawsuit in April last year alleged that Apple and five publishers had conspired to raise e-book prices.

The publishers had also pursued in 2009 an agency model to sell e-books where the publisher would set the price or a price range for each e-book and the retailer, acting as an agent, would receive a commission on each e-book sale, and also discussed raising wholesale prices of e-books, Apple said in the filing before the U.S. District Court for the Southern District of New York.

Into this environment, Apple stepped in to negotiate with publishers to set up its own iBooks e-book store. It favored an agency model that gave it 30 percent commission, as the agency model had helped the company in its App Store, where the developer fixed the consumer price.

Apple engaged in "individual, one-on-one, and at times contentious negotiations" over the draft contracts with each publisher throughout January 2010, it said in the filing.

Hachette, for example, resisted Apple's across-the-board prohibition on windowing. Hachette believed that it was important to retain all of its available tools to respond to the changing market conditions, including the ability to window, according to Apple's filing.

Apple had just over two weeks until former CEO Steve Jobs publically unveiled the iPad on Jan. 27, 2010 to complete its initial content deals. By Jan. 22, four major publishers--Hachette, Macmillan, Penguin, and Simon & Schuster--had separately agreed to Apple's terms.

Random House, which joined Apple's e-book store one year later, in February 2011, had objected to the agency agreement in January 2010, while HarperCollins also objected to many of Apple's terms including 30 percent agency commission, believing it too high, according to the filing.

Apple did not enter into or facilitate a conspiracy to eliminate price competition or raise prices in the e-book industry, the company said in the filing made public on the court website on Tuesday.

After the lawsuit was filed, Apple learned for the first time about allegations relating to various publisher meetings, phone calls, and dinners, it added.

Apple and the five publishers were accused of working together to raise prices of e-books, in retaliation for competitor Amazon.com pricing most e-books at US$9.99 beginning in late 2007.

Defendants exercised their market power when they collectively increased the average price of trade e-books, DOJ said in a filing on Tuesday. Average prices of trade e-books sold by the defending publishers increased by 18.6 percent at Amazon and by 19.9 percent at Barnes & Noble through the transition to agency.

Apple counters that trade e-book prices came down after the agreements with the publishers. "The average retail price of e-books in the alleged relevant market, trade e-books, has decreased since the implementation of Apple's first agency agreements on April 1, 2010," it said in its filing.

The publishers who are defendants in the case have since settled with the DOJ.

John Ribeiro covers outsourcing and general technology breaking news from India for The IDG News Service. Follow John on Twitter at @Johnribeiro. John's e-mail address is john_ribeiro@idg.com

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John Ribeiro

IDG News Service
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