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Apple argues it was 'indifferent' to Amazon's e-book pricing


Apple's trial with the US government over allegations that Apple was the "ringleader" in a conspiracy to increase the price of e-books on the iBookstore is a doozy. The Justice Department on Monday laid out its case with a series of 81 slides which it claims show that Apple ran afoul of anti-trust law by using questionable tactics to rope five big time publishers into the agency model of e-book pricing.

One of the publishing houses involved in the case is the Penguin Group. While they settled their own dispute with the DOJ already, company CEO David Shanks took the stand on Tuesday and said that Apple was more concerned with securing the deal it wanted than with the existing contracts publishers already had with Amazon.

"It was fairly clear that they could take or leave being in the book business," Shanks said on the stand. "If they couldn't get it on their terms, they weren't going to take the jump into being in books."

Furthermore, Apple lawyer Kevin Saul testified that Apple was "indifferent" to the types of deals publishers had with Amazon. This is an important point to the extent that Apple is arguing that it wasn't sneakily trying to stick it to Amazon by getting publishers to adjust their existent contracts with Amazon. On the contrary, Saul explained, Apple simply wanted to ensure that Amazon couldn't undercut Apple's own pricing. Consequently, Apple's contracts included a "Most Favored Nation" clause which would have allowed Cupertino to match any prices set by competitors.

The DOJ, of course, disagrees and contends that Apple's plan all along was to get rid of Amazon's US$9.99 pricepoint for e-books.

What is arguably sneaky, however, is an email exchange between Saul and an executive from Wiley. In the email, Saul is asked how Wiley would make money with the agency model if Apple would consistently be matching Amazon's low prices. Saul answered that they could potentially withhold books from the nation's largest retailer.

When the aforementioned email was brought to light in court, Saul answered that he was merely tossing around options for the Wiley executive to ponder, not laying out strict contract terms that Apple required.

On another note, and just as interesting, is that Apple used the impending launch of the iPad as leverage to get publishers on board.

CNET reports that with only a few weeks to finalize deals before Steve Jobs unveiled the iPad, negotiations went into overdrive.

They held initial meetings with the companies in December but started negotiating in earnest in January. Saul said he spent "well over 100" hours negotiating with the publishers, spending about 12 hours a day working on the issue until the deals were signed. He was expected to have agreements a week before the iPad launch so Apple CEO Steve Jobs could get the wording into the final draft of his iPad keynote slides.


"A very effective negotiating strategy was basically telling them the train was leaving the station," Saul said.

This case is only bound to get more interesting as more evidence is introduced, not to mention the fact that Tim Cook and Eddy Cue will be taking the stand in the coming weeks as well.

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