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US Justice Department details Apple's e-book 'conspiracy' in opening arguments

post #1 of 72
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The U.S. Department of Justice's opening statements in its antitrust lawsuit against Apple have been published online, laying the groundwork for what the government hopes will prove illegal collusion between Apple and book publishers that led to higher prices.

iBooks


At the forefront of the government's case is Eddy Cue, Apple's senior vice president of Internet Software and Services, who is responsible for securing content-related deals for his company. As evidence of an alleged "conspiracy," the DOJ has shown phone calls and emails between Cue and representatives from major book publishers.

Opening statements for United States of America v. Apple, Inc. took place in court Monday morning, with DOJ co-counsel Larence Butterman arguing that Apple and book publishers violated the 1980 Sherman Antitrust Act. The DOJ highlighted its case with a series of 81 slides that were provided to CNet.

In one example, representatives from Simon & Schuster, Random House and Macmillan were all called on the same day within hours of each other. Cue also used identical verbiage in emails sent to those same representatives.

iBooks


Other evidence claims to show that Apple provided information to publishers about what other publishers were willing to agree to. In one example, it was noted that Macmillan was only willing to offer enhanced content to tablets with color displays, which Amazon's Kindle lineup did not offer as of the debut of the first iPad in 2010.

Apple, meanwhile, saw its opening statement delivered by lead attorney Orin Snyder, in which Judge Denise Cote was asked to "hit the delete button" on earlier comments she had made at a pre-trial hearing, suggesting that Apple would likely lose the trial. Cue's dealmaking was just part of Apple's efforts to break into an e-book market that has been historically dominated by Amazon, Snyder argued on Monday, according to Apple 2.0.

Cue himself will testify in the trial, but he is not scheduled to take the stand until June 13.



In pre-trial court filings the DOJ accused Apple of being a facilitator in alleged collusion with major publishers to fix e-book prices. Apple, however, has denied the allegations, saying it drafted separate consumer-friendly agreements with each publisher.

The five largest publishers all came under federal scrutiny after they agreed to a so-called "agency model" pricing agreement with Apple. Under that deal, the publishers were allowed to set fixed prices for content ??a change from the "wholesale model" preferred by online retailer Amazon, which allows booksellers to set their own prices and offer discounts.

Apple remains the lone holdout in the e-book antitrust case, making the trial a rare occurrence in which the defendant did not settle out of court with the government. But Apple's executives are adamant that the company did nothing wrong, which has prompted them to stand their ground and go to trial.

Speaking at the D11 conference last week, Apple Chief Executive Tim Cook dismissed the DOJ case as "bizarre," and said that Apple has taken a "principled position" on e-book pricing.
post #2 of 72
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Originally Posted by AppleInsider View Post

The U.S. Department of Justice's...

 

Now THAT is a contradiction.

post #3 of 72
How can they prove collusion via phone calls? Clearly Apple had to contact the publishers to make the deals. Can they prove there was a massive conference call between Apple and the publishers to collude?

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post #4 of 72
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Originally Posted by AppleInsider View Post


In one example, representatives from Simon & Schuster, Random House and Macmillan were all called on the same day within hours of each other. Cue also used identical verbiage in emails sent to those same representatives.

iBooks

 

Let me see, I cut and paste information to send to different people especially if I have the same thing to say to each.  Nothing odd there in the corporate world.

 

So what if he calls 3 publishers back to back !!!!  His goal for the day was talking to different companies to try and get a contract for their products.  If they were all on a conference call one could conclude collusion but one after the other??

post #5 of 72
This sounds like an easy win for Apple. If THIS "evidence" is part the big opening splash, that doesn't bode well for the DoJ's case.
post #6 of 72
Originally Posted by nagromme View Post
This sounds like an easy win for Apple. If THIS "evidence" is part the big opening splash, that doesn't bode well for the DoJ's case.

 

Of course, when the people who make the laws are one of the sides of the argument, they can just change the laws to be whatever they want.

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post #7 of 72
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Originally Posted by nagromme View Post

This sounds like an easy win for Apple. If THIS "evidence" is part the big opening splash, that doesn't bode well for the DoJ's case.

I don't know. Did you take a look at the full slideshow?

 

U.S. v. Apple Et Al Opening Slides

 

There are some unfortunate dialogues in many of those communications including a reference "to be sure to double delete this from your email mailbox."

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post #8 of 72

Here we go with another waste of tax payer money. Government lawyers just trying to get their name out there by getting associated with an Apple trial.

post #9 of 72
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Originally Posted by SolipsismX View Post

How can they prove collusion via phone calls? Clearly Apple had to contact the publishers to make the deals. Can they prove there was a massive conference call between Apple and the publishers to collude?

If you look at all the slides it does look like Cue was doing coordination on what the others would agree to, including reporting conversations he had with one to the others. See PX-0159 and PX-0359 and PX-0718.
http://www.scribd.com/doc/145486131/U-S-v-Apple-Et-Al-Opening-Slides

I assumed you'd already looked at them before making your comments so perhaps you're understanding them differently than I am. guess that's why they have trials huh?
Edited by Gatorguy - 6/3/13 at 11:57am
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post #10 of 72
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Originally Posted by Gatorguy View Post

If you look at all the slides it does look like Cue was doing coordination on what the others would agree to, reporting conversations he had with one to the others. See PX-0159 and PX-0359 and PX-0718.
http://www.scribd.com/doc/145486131/U-S-v-Apple-Et-Al-Opening-Slides

I assumed you'd already looked at them before making your comments so perhaps you're understanding them differently than I am. guess that's why they have trials huh?

I hadn't looked at the slides since I was on my iPhone. I just read the base article.


edit: I see what you mean by PX-159 and PX-359 (slide 27 of 81). Do we have access to the full two pages of the document and a translation of that chicken scratch? I can't even tell who that paper was addressed to in that slide. Who would write this up to give for business if wasn't to used internally for brainstorming? That slide is titled "Apple Provides Information to PublishersAbout Other Publishers" seems to imply collusion by scribd but without more context it's not a smoking gun.

For PX-0178 (slide 71 of 81) that seems fine to me. All it shows is he didn't want to be first. It's perfectly legal to ask if others have also signed up without divulging the other deals. In fact, it actually leans in favour of no collusion.



Edited by SolipsismX - 6/3/13 at 12:22pm

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post #11 of 72
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Originally Posted by mstone View Post

I don't know. Did you take a look at the full slideshow?

 

U.S. v. Apple Et Al Opening Slides

 

There are some unfortunate dialogues in many of those communications including a reference "to be sure to double delete this from your email mailbox."

 

If that quote is their strongest "evidence", and it appears to be, from a quick perusal, the DoJ doesn't have even half a case. The judge, however, seems to have already reached conclusions before the trial, so, no doubt it's going to be a long drawn out process with appeals, etc.

 

Apple's "crime" here, was to bust the Amazon eBook monopoly, something that DoJ should have done themselves.

post #12 of 72

So, now corps can't charge what they want for their own goods?  It's not like there was a monopoly on e-books.  So they did "wholesale" price on one place and did "retail" price on another.  If you did not like the price, don't buy it.  Simple.  Not like all the big banks, or big insurance people got together and "price fixed" things... oh wait, yes they did and do.  Where is their trial???  

 

So these little hedgefund managers did not make a killing off Apple stock because Apple did not run their company into the ground giving "big payoff".  So they cried to their friends in the DOJ and poof... trial... how convenient... 

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post #13 of 72

If Apple wins does that mean that the publishers can choose not to honor their settlements if they want?

post #14 of 72
Quote:
Originally Posted by Gatorguy View Post

If you look at all the slides it does look like Cue was doing coordination on what the others would agree to, including reporting conversations he had with one to the others. See PX-0159 and PX-0359 and PX-0718.
http://www.scribd.com/doc/145486131/U-S-v-Apple-Et-Al-Opening-Slides

So?

There's nothing prima facie illegal about telling a company what another company had agreed to. You'd need much more than that to prove collusion.

Heck, if that was sufficient to prove collusion, then every single purchasing agent in the country would be charged. "But company Y agreed to give me xxxxx" is a very common (and completely legal) negotiating tactic.
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post #15 of 72
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Originally Posted by jragosta View Post

So?

There's nothing prima facie illegal about telling a company what another company had agreed to. You'd need much more than that to prove collusion.

Well of course you do. Hey look, we agree. 1biggrin.gif

With you being somewhat of a legal expert you no doubt recognize that the opening statements for both sides only serve as an outline of how they intend to present their arguments and not include everything they think they have to prove their case. The actual evidence is yet to be presented. Within a few weeks it will be clearer as to the facts and whether any of it rises to the level of illegality.

EDIT: The hotel industry uses a similar pricing strategy. While there's significant product differences, primarily that one offers a time-sensitive (perishable) product while the other does not, the outcome of this case could influence a possible look at hotel room pricing too.
Edited by Gatorguy - 6/3/13 at 12:57pm
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post #16 of 72
The Sherman Anti-Trust Act was put into law in 1890 not 1980:

http://en.m.wikipedia.org/wiki/Sherman_Antitrust_Act
post #17 of 72
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Originally Posted by Lord Amhran View Post

The Sherman Anti-Trust Act was put into law in 1890 not 1980:

http://en.m.wikipedia.org/wiki/Sherman_Antitrust_Act

Sherman could have placed he law into effect anywhere in the timeline…

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post #18 of 72
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Originally Posted by kozchris View Post

Here we go with another waste of tax payer money. Government lawyers just trying to get their name out there by getting associated with an Apple trial.

Wow thats terrible... if true, please provide some evidence to back this serious allegation, Im interested. Or is this just a wisecracker remark?

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post #19 of 72
One of the final slides show apple selling ebooks at $14.99 and amazon at $9.99.

Where is the problem?!?!
post #20 of 72
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Originally Posted by anonymouse View Post

If that quote is their strongest "evidence", and it appears to be, from a quick perusal, the DoJ doesn't have even half a case. The judge, however, seems to have already reached conclusions before the trial, so, no doubt it's going to be a long drawn out process with appeals, etc.

 

Apple's "crime" here, was to bust the Amazon eBook monopoly, something that DoJ should have done themselves.

Well you could put it that way or one could characterize it as Apple being late to the ebook market and wanted a foot in the door. And, they still wanted to make their 30% too. Had they just said to the publishers that you set the price at whatever you want and we'll take 30% and left it at that, then there would be no trial. But Apple knew they would not sell very many ebooks if the price was higher than Amazon. With a higher price than Amazon, Apple's bookstore would be perceived as a failure so they worked out a plan to try to make Amazon raise their prices, which I don't understand why Amazon wouldn't want to actually make some profit on those books anyway. Perhaps they didn't want to be brought into a potential collusion with Apple.

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post #21 of 72

What I find funny about this is the fact this happens every day right in front of everyone in companies public communications. It is illegal for companies to collude, however it seem like it is only illegal if it is done behind close doors or via email or phone calls. 

 

Everyday companies broadcast public statement about what they plan to do as a business, such as hey we loosing money so we going to stop loosing money by cutting production and holding or raising pricing, the next thing you know is the competitors are doing the exact same things. Companies have been doing this for a long time, they make statements and wait to see what their competitors do. If they follow or make similar public statement then they know they can follow their plan which is to raise pricing. Never once did they have to call one another. Our government is so stupid since they believe the only way to collude is to meeting in person and put it all in writing. Public statement is the best agreement you can have as a competitor since if the company makes those statement and them not do it then the share holder will be all over your ass.

 

As a person who negotiate deals all the time, I see nothing wrong in the apples conversation, it is part of the negotiation tactics, you tell all your suppliers that the other guys is winning to do something are you willing to do the same, sometimes it is true and some time is a bluff just to see if you can get one guy to roll over. I said this before, companies are free to sell product at what ever price they want, since when is it illegal to raise your pricing, consumer will vote with their pocket books if the price is too high they will go elsewhere. The Recording industry learn this lesson the hard way, they gave the public garbage at a high price so the public stole only the pieces they like since they could not but it at any price.

 

I personally think this is a dog and pony show by the DOJ. 

post #22 of 72
Quote:
Originally Posted by mstone View Post

I don't understand why Amazon wouldn't want to actually make some profit on those books anyway. Perhaps they didn't want to be brought into a potential collusion with Apple.

They did it with the intent of strengthening their other products by selling at a significantly loss. If they didn't do that. Even if they were selling the books at break even prices then Apple wouldn't have been able to reasonably request the MFN clause. It was Amazon's predatory practices that have hurt the eBook market for publishers, consumers, and other potential entries into the market that set all of this in motion.

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post #23 of 72
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Originally Posted by SolipsismX View Post

They did it with the intent of strengthening their other products by selling at a significantly loss. If they didn't do that. Even if they were selling the books at break even prices then Apple wouldn't have been able to reasonably request the MFN clause. It was Amazon's predatory practices that have hurt the eBook market for publishers, consumers, and other potential entries into the market that set all of this in motion.

You keep referring to Amazon's predatory practices. What has you convinced that Amazon is practicing that illegal price strategy?
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post #24 of 72
Civil cases are judged on the 'balance of probabilities'. In many cases there is no hard evidence but lots of circumstantial evidence. It's not "did Apple collude with the publishers" but "how highly probable was it that Apple colluded?" 3 phone calls in row may very well mean nothing but what could have happened is the picture the DoJ trying to paint.
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post #25 of 72
Quote:
Originally Posted by SolipsismX View Post

It was Amazon's predatory practices that have hurt the eBook market for publishers, consumers, and other potential entries into the market that set all of this in motion.

I'm not sure how the break even pricing harmed consumers. Isn't that the issue at hand? The DoJ is claiming that Apple, by forcing the prices up by some 30% across the board, was bad for consumers.

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post #26 of 72
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Originally Posted by Gatorguy View Post

You keep referring to Amazon's predatory practices. What has you convinced that Amazon is practicing that illegal price strategy?

And why wasn't there a issue of Amazon's practices before Apple entered the fray?
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post #27 of 72
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Originally Posted by Gatorguy View Post

With you being somewhat of a legal expert you no doubt recognize that the opening statements for both sides only serve as an outline of how they intend to present their arguments and not include everything they think they have to prove their case. The actual evidence is yet to be presented. Within a few weeks it will be clearer as to the facts and whether any of it rises to the level of illegality.

Uh.... you (along with a couple of your 'legal eagle' pals, kdarling and loptomist) were confidently predicting that this was a slam dunk case for the DoJ. Want to wait a few weeks, now, eh?

post #28 of 72
Quote:
Originally Posted by jragosta View Post


So?

There's nothing prima facie illegal about telling a company what another company had agreed to. You'd need much more than that to prove collusion.

Heck, if that was sufficient to prove collusion, then every single purchasing agent in the country would be charged. "But company Y agreed to give me xxxxx" is a very common (and completely legal) negotiating tactic.

Actually it may not be legal to share anyone company's pricing with its competitors.  Usually the selling company usually have agreements in place which bar a buying company from sharing the purchase price with anyone outside the company.Thus tell company A that Company B was willing to sell you their product at $X.xx could get you into civil as well as price fixing trouble. But you are right I see very poor negotiators tell competitors what the other guys price is to somehow to get the same or better. For all they knew Company A would have sold it for less and you just told them you were willing to accept Company's B pricing.

 

however, In the wholesale market, everyone buying wholesale pays the same price, however, it is illegal for the selling company to tell the wholesaler what price they can sell the products to their customers. This is part of the reason Apple does not sell most of its products in the wholesale markets. This is why companies have a love hate relationship with Walmart, they are acting like a wholesaler, they buy at a price and sell it at whatever price they think will get consumers in the door even if the price as a lost leader. For company this is the worse thing you can have happen since now consumer thing your product is only worth so much since walmart gave it away. BTW this happen all the time, selling below cost or lost leader and it too is illegal, companies such as Walmart and Amazon do it all the time and it seem to be fine. This is called predatory pricing 

post #29 of 72
Quote:
Originally Posted by anantksundaram View Post

Uh.... you (along with a couple of your 'legal eagle' pals, kdarling and loptomist) were confidently predicting that this was a slam dunk case for the DoJ. ?

Hardly, but it's not the first time I've been accused of saying something I did not. I'm used to it by now so carry on if you'd like, tho it would be more effective if you offered some imaginary quote of mine to "prove" your claim.
Edited by Gatorguy - 6/3/13 at 1:22pm
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post #30 of 72
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Originally Posted by Gatorguy View Post

You keep referring to Amazon's predatory practices. What has you convinced that Amazon is practicing that illegal price strategy?

Because they priced their eBooks so low that they lose money on them. This goes well beyond the razor-handle/razor-blade model but seems to be designed specifically to prevents others from entering the market, not merely as a means to sell their physical books and Kindle products. This isn't unlike what MS did with IE.

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post #31 of 72
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Originally Posted by SolipsismX View Post

Because they priced their eBooks so low that they lose money on them. This goes well beyond the razor-handle/razor-blade model but seems to be designed specifically to prevents others from entering the market, not merely as a means to sell their physical books and Kindle products. This isn't unlike what MS did with IE.

Here's a Justice Dept white-paper that might help clarify what predatory pricing is, how it's determined and why there hasn't been a successful adjudication of a predatory pricing case since 1993. If Amazon is so clearly guilty of it maybe they could be the first and serve as a poster-child.
http://www.justice.gov/atr/public/hearings/single_firm/docs/218778.htm
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post #32 of 72
Quote:
Originally Posted by SolipsismX View Post

Because they priced their eBooks so low that they lose money on them. This goes well beyond the razor-handle/razor-blade model but seems to be designed specifically to prevents others from entering the market, not merely as a means to sell their physical books and Kindle products. This isn't unlike what MS did with IE.

It doesn't prevent anyone from entering the market but it does make it difficult for them to compete.
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post #33 of 72
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Originally Posted by mstone View Post

I'm not sure how the break even pricing harmed consumers. Isn't that the issue at hand? The DoJ is claiming that Apple, by forcing the prices up by some 30% across the board, was bad for consumers.

1) Amazon's prices weren't break-even. Not even close.

2) No where has it been shown that Apple forced prices up or by 30%. Their contracts were to get 30% from sales, but the publishers still had complete control over what they price their products at. If you want to claim that forced prices up by 30% by wanting 30% from each sale then you have to also claim that App Store apps are 30% more expensive because Apple wants 30% from each sale. Yet there are hundreds of thousands of free apps not the market and nothing preventing publishers from choosing to give away books on iBookstore.

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post #34 of 72
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Originally Posted by dasanman69 View Post

It doesn't prevent anyone from entering the market but it does make it difficult for them to compete.

By that measure then MS giving away IE didn't have any affect on the browser market since anyone could make a competing browser.. so long as it was free of charge. Funny I haven't heard you say how MS was the victim and consumers benefited from IE's ill-gained dominance.

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post #35 of 72
Quote:
Originally Posted by SolipsismX View Post

This isn't unlike what MS did with IE.

That was a bit different since Netscape was a really tiny company and MS took advantage of that by giving away IE for free.

 

In this case both Apple and Amazon are large well funded companies. Apple could have entered the ebook market easily and matched Amazons pricing. After becoming well established it would be more like the oil companies with petrol stations on opposite corners. The prices move up and down, mostly up, and the other company matches the price. That is not collusion it is just competition. If one station raises the price a nickel the other company can do likewise or keep their price lower to try to attract the other company's customers, however, many customers would pay the slightly higher price due to loyalty.

 

Apple just tried to jump into the game and change the rules in one fell swoop.

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post #36 of 72
Quote:
Originally Posted by kozchris View Post

If Apple wins does that mean that the publishers can choose not to honor their settlements if they want?

Nope. None of them admitted any guilt, but chose to make an agreement with the DoJ to avoid a possible finding for it. Those cases are done.
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post #37 of 72
Quote:
Originally Posted by SolipsismX View Post

1) Amazon's prices weren't break-even. Not even close.

2) No where has it been shown that Apple forced prices up or by 30%. Their contracts were to get 30% from sales, but the publishers still had complete control over what they price their products at. If you want to claim that forced prices up by 30% by wanting 30% from each sale then you have to also claim that App Store apps are 30% more expensive because Apple wants 30% from each sale. Yet there are hundreds of thousands of free apps not the market and nothing preventing publishers from choosing to give away books on iBookstore.

I think everyone knew that vastly different pricing on the same book would not work out for a more expensive Apple bookstore. If there was going to be any profit, the prices needed to go up. Apple would not agree to a higher price than Amazon because it would mean instant fail for them. The only choices were publishers take a hit or Amazon raise their prices. Of course there was the one other alternative, Apple play the same game Amazon was playing. Give away some books as a loss leader. Of course we know that was never going to happen.

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post #38 of 72
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Originally Posted by Gatorguy View Post

Quote:
Originally Posted by anantksundaram View Post

Uh.... you (along with a couple of your 'legal eagle' pals, kdarling and loptomist) were confidently predicting that this was a slam dunk case for the DoJ. ?

Hardly, but it's not the first time I've been accused of saying something I did not. I'm used to it by now so carry on if you'd like, tho it would be more effective if you offered some imaginary quote of mine to "prove" your claim.

Ah... my apologies.... I went back and checked: that was the ITC case you all were opining on.....

post #39 of 72
Quote:
Originally Posted by anantksundaram View Post

Ah... my apologies.... I went back and checked: that was the ITC case you all were opining on.....

Thanks for the correction. No prob. You can save the original post tho, since it's entirely possible I could be wrong about Apple and the ITC.

If that happens I've no issue owning what I said in advance of the ruling.

EDIT: By the way I wanted to give you props too. You're one of the few regulars here who will own up to a mistake. Cut and run is the norm. Tho we often disagree I still have respect for you as an AI member and need to remember to tone it down a bit when I find I've been misunderstood by you. Thanks and my apologies for the tenor of my initial reply. It wasn't warranted.
Edited by Gatorguy - 6/3/13 at 1:37pm
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post #40 of 72
Quote:
Originally Posted by mstone View Post

Well you could put it that way or one could characterize it as Apple being late to the ebook market and wanted a foot in the door. And, they still wanted to make their 30% too. Had they just said to the publishers that you set the price at whatever you want and we'll take 30% and left it at that, then there would be no trial. But Apple knew they would not sell very many ebooks if the price was higher than Amazon. With a higher price than Amazon, Apple's bookstore would be perceived as a failure so they worked out a plan to try to make Amazon raise their prices, which I don't understand why Amazon wouldn't want to actually make some profit on those books anyway. Perhaps they didn't want to be brought into a potential collusion with Apple.

 

Yep, that's where Apple might find itself in trouble. If rather than figure out how to make themselves more competitive (ie, lower prices) they schemed to make everyone else less competitive (ie, force them to raise their prices), then that negatively effects consumers...thus the lawsuit by the DOJ. And while Amazon stands to make more profit when they are forced to raise prices, they are also limited in their ability to compete because they are no longer able to undercut Apple on price. So *if* it can be shown that Apple orchestrated an industry-wide effort to both increase prices to consumers and limit the ability of other retailers to compete, then I'd say they are guilty. There has been no "smoking gun" shown yet, but there are definitely a few things that don't look too good, either.
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