Apple argues diverse book publisher contracts prove non-collusion in DOJ suit
Defending itself from U.S. Department of Justice allegations of e-book price fixing, Apple on Tuesday 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 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 hand-in-hand to falsely inflate e-book prices 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.
?[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,? the DOJ said in its complaint. "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 its cohorts 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 publisher. As revealed in court, however, the arrangements were widely varied.
Snyder pointed out that, while a price-matching provision was included in each contract, Apple negotiated different MFNs for each of the five publishers.
On Tuesday, 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.
"What transpired was by having e-books now at $9.99, it was cannibalizing hardcover editions, which sold on average at $26," Shanks said, referring to Amazon's strategy.
While his testimony was at times damning to Apple's case, Shanks did say that Penguin "strongly resisted" the MFN model, fearing Apple would simply match Amazon's already low prices and add a commission on top.
While not 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, with high-ranking executives like Apple's vice president of Internet Software and Services Eddy Cue set to take the stand.
A follow-up report to yesterday's proceedings from AllThingsD says 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 hand-in-hand to falsely inflate e-book prices 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.
?[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,? the DOJ said in its complaint. "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 its cohorts 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 publisher. As revealed in court, however, the arrangements were widely varied.
Snyder pointed out that, while a price-matching provision was included in each contract, Apple negotiated different MFNs for each of the five publishers.
On Tuesday, 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.
"What transpired was by having e-books now at $9.99, it was cannibalizing hardcover editions, which sold on average at $26," Shanks said, referring to Amazon's strategy.
While his testimony was at times damning to Apple's case, Shanks did say that Penguin "strongly resisted" the MFN model, fearing Apple would simply match Amazon's already low prices and add a commission on top.
While not 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, with high-ranking executives like Apple's vice president of Internet Software and Services Eddy Cue set to take the stand.
Comments
Of course now that evidence from both sides comes out things aren't so clear-cut anymore.
Sorry but that is a bogus excuse, if they don't want their high priced hard cover books cannibalized then don't offer that book in e book format until they are done with their hard cover. Further maybe people do not prefer hardcover books.
It still does not remove what Apple did in their contract of making the publishers set up contracts that forbid other businesses from selling books at a lower price than Apple.
That is price fixing at its finest, no if ands or buts about it.
So the only two options you see are don't sell eBooks or don't complain when the monopolistic retailer dumped that at a significant loss to corner a market and running their product's value? :rolleyes:
MFN is not illegal. It's also not what the DoJ is arguing so you lose on both fronts.
Quote:
Originally Posted by Victory2013
Sorry but that is a bogus excuse, if they don't want their high priced hard cover books cannibalized then don't offer that book in e book format until they are done with their hard cover. Further maybe people do not prefer hardcover books.
It still does not remove what Apple did in their contract of making the publishers set up contracts that forbid other businesses from selling books at a lower price than Apple.
That is price fixing at its finest, no if ands or buts about it.
The publisher could set the price to anything they wanted, just had to sell them for no more than that on iBooks.
Since Apple did not set the price, this is absolutely NOT price fixing (at it's finest or otherwise...)
All pricing power is in the hands of the Publisher, except the power of a retailer who is on a Wholesale contract. Once the wholesaler lowers the retail price though, they self-destruct since MFN customers can use that lower retail price (and still make a profit).
Obviously, this gave an incentive to the publishers to limit access to hardcover new releases to retailers with an agency agreement... which is exactly where collusion could come in to play, on the part of the publishers with regards to Amazon.
So far, I have seen no real evidence that suggests Apple went outside of the law, or that they colluded with anybody to increase wholesale prices. What they effectively prevented was retailers from selling new releases at a loss or break-even, which seems a lot like a healthy market.
If the publishers find that the price is not attractive to consumers, they have the ability to adjust it to try to spark demand.
I don't recall that but I do recall Amazon saying if they signed with Apple that Amazon would no longer carry of their content, physical nor electronic, as punishment. Amazon surely has the right not to carry someone else's product, but I'm not sure they are legally allowed to leverage their position in the market that way. That point is now moot because Apple was attractive (i.e.: big) to keep the publishers moving toward a fairer market system.
Unless a company with a near monopoly say 90% of the market threatens to remove you from their store.
Wow, I don't recall reading that soli. Are you sure you're not confusing it with Amazon threatening not to sell Macmillan books if they insisted on restricting Amazon's ability to discount their e-books? Don't ever remember that publishers dealing with Apple was any issue, but I do remember "high prices" dictated by the publishers caused loud complaints from Amazon. Perhaps you have links to something I missed reading.
Quote:
Originally Posted by Victory2013
Sorry but that is a bogus excuse, if they don't want their high priced hard cover books cannibalized then don't offer that book in e book format until they are done with their hard cover. Further maybe people do not prefer hardcover books.
It still does not remove what Apple did in their contract of making the publishers set up contracts that forbid other businesses from selling books at a lower price than Apple.
That is price fixing at its finest, no if ands or buts about it.
Apple didn't have ANY control over the publishers. There's no way in hell Apple COERCED the publishers into setting up contracts with other retailers. Apple didn't have any leverage - they didn't even have a book store yet. Coercion only works when you're capable of forcing pressure on someone to meet your demands. Please explain how Apple was in this position to do that to the publishers?
What we're witnessing here is the publishers colluding to use Apple to force changes at Amazon. Just as the music industry used Amazon to force Apple into a tiered pricing model for music. Didn't anyone notice how fast all the publishers caved and agreed to settle out of court - they knew they screwed up and left Apple to take the fall.
The government is trying to make the case that Apple was involved in the price fixing due to their MFN clause and agency pricing model. Apple basically said to the publishers, look you can set whatever price you want, but you're not screwing us and our users over by charging us higher rates. At this point the publishers are free to set whatever price they want - keep them the same or raise the prices. If they had kept them the same none of this would be a problem, however they decided to use Apple (or more so, Apple's spend-happy user base) to force Amazon into this more lucrative agency model.
Of course Amazon is going to be scared, Apple's iTunes platform and user base was huge - and growing rapidly. The publishers probably could've completely dumped Amazon and just went with Apple's iBookStore and made the same amount of money and eventually sold the same number of eBooks.
Quote:
Originally Posted by Victory2013
It still does not remove what Apple did in their contract of making the publishers set up contracts that forbid other businesses from selling books at a lower price than Apple.
That is price fixing at its finest, no if ands or buts about it.
Since Apple didn't set the price of the book then it looks like they were trying to make sure that folk buying books from the iBooks store wouldn't be penalised with higher prices.
And on the question of price-fixing, how come it's legal when the government does it? If the US and EU are slapping levies on products imported from China, then why isn't that seen as price-fixing?
Quote:
Originally Posted by SolipsismX
I don't recall that but I do recall Amazon saying if they signed with Apple that Amazon would no longer carry of their content, physical nor electronic, as punishment. Amazon surely has the right not to carry someone else's product, but I'm not sure they are legally allowed to leverage their position in the market that way. That point is now moot because Apple was attractive (i.e.: big) to keep the publishers moving toward a fairer market system.
I think you misheard. If Amazon made such a threat then that would be tantamount to using their monopoly position to restrict access to the marketplace. That is about as illegal as you can get.
Quote:
Originally Posted by Rayz
I think you misheard. If Amazon made such a threat then that would be tantamount to using their monopoly position to restrict access to the marketplace. That is about as illegal as you can get.
Amazon did more than make "such a threat", they actually carried it out.
Just ask Macmillan.
Quote:
Originally Posted by hill60
Amazon did more than make "such a threat", they actually carried it out.
Just ask Macmillan.
Where in that article does it say that Amazon threatened to pull their books if Macmillan signed with Apple?
Let me help you; it doesn't.
Yes, Amazon pulling the books is pretty unsavoury, but that doesn't mean they were stopping Macmillan from joining iBooks.
Quote:
Originally Posted by Rayz
Where in that article does it say that Amazon threatened to pull their books if Macmillan signed with Apple?
Let me help you; it doesn't.
Yes, Amazon pulling the books is pretty unsavoury, but that doesn't mean they were stopping Macmillan from joining iBooks.
Oh, look, another 'z' troll.
Quote:
Originally Posted by Rayz
Where in that article does it say that Amazon threatened to pull their books if Macmillan signed with Apple?
Let me help you; it doesn't.
Yes, Amazon pulling the books is pretty unsavoury, but that doesn't mean they were stopping Macmillan from joining iBooks.
So you expect us to believe that Amazon just pulled Macmillan's books without making a threat prior to removing them, just some random act, done without warning, the fact that it happened to be around the same time that Macmillan's contract was coming up for renewal was a mere coincidence.
Pull the other one mate, it's got bells on.
Whether this has anything to do with iBooks or not is irrelevant, it just shows how much power Amazon was trying to wield with the publishers.
If you read the articles, and there's several to choose from if you do a web search, Amazon did not want to be prevented from selling any title at a discount. They stomped their feet, raised their voice, made threats, carried out at least one threat because they apparently firmly believed that MacMillan was setting the selling price for new e-Book releases too high while unfairly removing any option for Amazon to promote any of them via sales. It wasn't that Apple was going to sell books too.
Right. So it's OK for Amazon to threaten publishers who don't do what they want and make demands of the publishers or threaten to not sell their books in the future, but it's not OK for Apple to let the publishers set their own prices?
Amazon's testimony - and the testimony of the publishers - makes it clear just how much Amazon abused their market power in this case. There's no way in the world that the DOJ should be going after Apple - they simply worked to break Amazon's hold on the market.
To use one of your favorite phrases, nice strawman JR. I never said anything of the kind.
By the way, "abuse" is sometimes in the eye of the beholder. Amazon would probably call it putting their marketplace advantages to good use in negotiations. As a businessman I'm sure you understand that. Apple often does the same thing, negotiating from a market power position.
Negotiating from a market power position is not the same as illegal abuse of monopoly power. Ask Macmillan.