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Apple's lawyer said the agency model is beneficial to both consumers and markets

The e-books price-fixing trial with Apple has begun, and a U.S. government lawyer accused Apple of conducting shady business practices with the five book publishers. 

"Apple told publishers that Apple - and only Apple - could get prices up in their industry," said Lawrence Buterman, a lawyer at the U.S. Department of Justice (DOJ). 

Buterman also added that Apple's agency model with publishers (where publishers set the price and Apple takes a 30 percent cut) hurt consumers by raising prices. 

"Overall, average prices of e-books went up, costing consumers millions of dollars," said Buterman.

The three-week trial, which started yesterday, concerns the DOJ's lawsuit against Apple in regards to its method of fixing prices for e-books. 

Orin Snyder, Apple's attorney, disagrees with the DOJ's statements. 

"What the government wants to do is reverse engineer a conspiracy from a market effect," said Snyder. "Agency [model] is good and beneficial to consumers and markets."

Snyder added that DOJ's evidence, such as emails from former Apple CEO Steve Jobs, will likely be misinterpreted. He also said that average e-book prices fell after Apple entered the market, dropping from $7.97 to $7.34.


Apple is the target of the e-books investigation along with book publishers Hachette Livre (Lagardère Publishing France), Harper Collins (News Corp., U.S.A.), Simon & Schuster (CBS Corp., U.S.A.), Penguin (Pearson Group, United Kingdom) and Verlagsgruppe Georg von Holzbrinck (owner of inter alia Macmillan, Germany). However, all the book publishers have already settled with DOJ, so Apple is the only company going to trial. 

This all started in April 2012, when the U.S. Department of Justice (DOJ) sued Apple and the five book publishers over anticompetitive practices concerning e-book sales. The book publishers were accused of partaking in an agency sales model with Apple, and the publishers could not let rivals sell the same book at a lower price. Traditionally, publishers sell physical books to retailers for about half of the cover price, which is considered a wholesale model. Retailers then had the ability to sell those books to customers for a lower price if they wanted to.

But when e-books came along, this model was challenged. Amazon started selling best sellers for as low as $9.99 to encourage its Kindle e-reader sales. Publishers were not happy with this because they thought the prices were too low.

However, Apple attempted to resolve this when it struck a deal with publishers to implement the agency model in 2010. This helped Apple at the time of its iPad and iBooks launch. But its deal with publishers made it seem like an attempt to thwart Amazon's dominance.

In April of this year, DOJ used an old email from former Apple CEO Steve Jobs as evidence in the e-books case. The email (dated in 2010) from Jobs to James Murdoch of News Corporation said, "Throw in with Apple and see if we can all make a go of this to create a real mainstream e-books market at $12.99 and $14.99.”

U.S. District Judge Denise Cote, who is overseeing the trial, said last month in a preliminary hearing that the e-books price fixing case seemed to fall in favor of the DOJ
 
"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, and that the circumstantial evidence in this case, including the terms of the agreements, will confirm that," said Cote.

Source: Reuters



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Good DOJ graphic
By Solandri on 6/4/2013 6:48:56 PM , Rating: 1
The DOJ filing has an informative graphic that lays out visually exactly what happened to ebook prices consumers saw as a result of this price fixing:
http://www.the-digital-reader.com/wp-content/uploa...

Random House (light grey line) and the non-major publishers (dark grey line) stuck with wholesale pricing. All the other lines you see switched to Apple's agency pricing during the first week of April, except Penguin (beige line) who switched in late May. So when Snyder says:
quote:
Snyder [...] also said that average e-book prices fell after Apple entered the market, dropping from $7.97 to $7.34.

he's being extremely duplicitous. The average price fell because the agency pricing raised prices for ebooks from all the publishers who signed on with Apple. Sales of their books declined, meaning ebook prices from Random House and non-major publishers still using wholesale pricing represented a larger share of the overall average.

Apple then pressured Random House to go along with its agency pricing scheme, or face banishment from Apple's store. Random House finally caved and signed with Apple in Jan 2011. Because they initially resisted the industry conspiracy, the DOJ did not include them in the lawsuit.
http://www.nytimes.com/2013/05/15/technology/us-no...

Full PDF if you want to read it (the above graphic was the only picture I saw, though there are a few interesting charts).
http://www.justice.gov/atr/cases/apple2.pdf




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