Apple e-book trial set to begin

The Apple Inc. vs. the U.S. Justice Department trial could determine the price of e-books and set how ecommerce is conducted for years to come.

Apple faces civil charges in the case, according to the Wall Street Journal story:

Apple Inc. heads to a U.S. federal court Monday to face civil accusations that it conspired with five publishers to drive up the price of electronic books in the weeks leading up to the 2010 introduction of the iPad.

The Justice Department will try to prove during the three-week trial in Manhattan that the publishers seized on Apple’s entrance into the e-book market as an opportunity to shift from low prices set by Amazon.com Inc. to higher ones set by the publishers themselves.

“Stripped of the glitz surrounding e-books and Apple, this is an unremarkable and obvious price-fixing case,” Justice Department lawyers said in a May 14 court filing.

If a federal judge finds Apple liable, the company could face claims for damages in separate proceedings from a group of states that joined the Justice Department in the 2012 antitrust suit. A judgment against the company could also open the door for private lawsuits. Apple last year settled an antitrust with the European Commission over e-book pricing, but the pact didn’t expose the company to private lawsuits.

Here are some of the details of the dispute from Reuters (via the Huffington Post):

Apple is going to trial alone after the five publishers agreed to eliminate prohibitions on wholesale discounts and to pay a collective $164 million to benefit consumers.

The five publishers were Pearson Plc’s Penguin Group, News Corp’s HarperCollins Publishers Inc, CBS Corp’s Simon & Schuster Inc, Hachette Book Group Inc and MacMillan.

The U.S. government is not seeking damages but instead an order blocking Apple from engaging in similar conduct. However, if Apple is found liable, it could still face damages in a separate trial by the state attorneys general and consumers pursuing class actions.

Based on a comment by the presiding judge at the final hearing before the trial, Apple may face an uphill battle.

“I believe that the government will be able to show at trial direct evidence that Apple knowingly participated in and facilitated a conspiracy to raise prices of e-books,” U.S. District Judge Denise Cote, who is hearing the case without a jury, said on May 23.

While those comments suggested Apple might be smart to seek a settlement, Chief Executive Tim Cook said in an interview Tuesday with All Things Digital that Apple was “not going to sign something that says we did something we didn’t do.”

The trial may also expose Amazon Inc.’s pricing details, which are similar to what Apple is on trail for, according to Apple, Bloomberg Businessweek reports:

In pre-trial filings, Apple (AAPL) is trying to expose redacted evidence that the company claims will “embarrass” Amazon (AMZN) and show that the retailer engaged in the same activities for which Apple is now on trial.

The claims are set out, in part, in a letter last week from Apple’s law firm, which urges U.S. District Judge Denise Cote to reveal information about Amazon’s pricing as well as “internal discussions about the inferiority” of its Kindle e-reader compared with the iPad. Apple also says the redacted information will help expose the “fiction” that Amazon was “forced” to adopt a new pricing system as a result of a 2010 arrangement between Apple and five big publishers.

This arrangement—known as “agency pricing”—resulted in publishers requiring retailers to sell e-books on a commission basis, in which publishers could set the price. This led the Department of Justice, state governments, and class-action lawyers to sue Apple and the publishers. The latter settled the cases and agreed to pay out millions, but Apple is holding its ground.

Apple argues that the Department of Justice is wrong to portray Amazon as a victim, along with consumers, of a conspiracy to raise prices. Instead, the company claims that Amazon was contemplating agency pricing, too, and was pleasantly surprised when the publishers took it up on their own. Apple is also using colorful e-mails obtained from Amazon executives to make its point:

“I guess what we never figured in was the idea that five publishers would band together and insist on receiving worse terms,” the e-mail said. “And then Amzn would be ‘cornered’ into accepting them.”

“Hysterical, isn’t it?” the Amazon executive replied. “Jedi Mind Tricks here in Seattle.”

It will be interesting to see the outcome of this one, which isn’t looking good for Apple. I’m sure this will mean that prices will somehow rise for e-books, so might be a good idea to take another look at the library.