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For Apple, the words of Steven P Jobs were often used to win negotiations. But after his death, these have proved damaging.
A federal judge on Wednesday said that some of Jobs's words helped persuade her that Apple had violated antitrust law in conspiring with publishers to raise prices of e-books. Although it appears unlikely that the ruling will have an immediate effect on the book-buying public, it could affect how Apple cuts deals with media companies providing the music, books and movies that help make its iPhones and iPads compelling.Charles E Elder, an anti-trust lawyer at Irell & Manella, said that the ruling could lead Apple and other technology companies negotiating with media companies to "proceed with extreme caution" to avoid any appearance of collusion.
On Wednesday, Apple continued to assert it had done nothing wrong, and said it would appeal the decision. A trial to determine damages will follow. "Apple did not conspire to fix e-book pricing and we will continue to fight against these false accusations," Tom Neumayr, an Apple spokesman, said. "When we introduced the iBookstore in 2010, we gave customers more choice, injecting much needed innovation and competition into the market, breaking Amazon's monopolistic grip on the publishing industry."
In her ruling, Denise L Cote of the US District Court in Manhattan said Apple had taken advantage of the publishers' "fear of and frustration" over Amazon.com's control of e-book pricing, and the tight window of opportunity in the weeks leading up to the iPad's introduction in 2010, to get the publishers to agree to its terms. "Apple seized the moment and brilliantly played its hand," she wrote.
Five major publishers had also been named in the suit but they all settled before the trial. Apple continued to fight the charges, despite what increasingly looked like uphill odds. Publicly, the company said it refused to settle as a matter of principle because it had done nothing wrong.
The US Justice Department said the judge's decision was a victory for people who buy e-books.
"Companies cannot ignore the antitrust laws when they believe it is in their economic self-interest to do so," the Justice Department said in a statement. "This decision by the court is a critical step in undoing the harm caused by Apple's illegal actions."
The main reason e-book prices will probably not move sharply in the near term is that the publishers who settled are operating under the settlement's terms, which prohibit publishers from restricting a retailer's ability to discount books.
"The changes to the industry have already happened," said Mike Shatzkin, the founder and chief executive of the Idea Logical Company, a publishing consultant.
Since those settlements have gone into effect, prices on many newly released and best-selling e-books have gone down. One New York Times best-seller, And the Mountains Echoed, by Khaled Hosseini, is sold on Amazon.com for $10.99. But other e-books seem to have held closer to presettlement prices: The Ocean at the End of the Lane by Neil Gaiman, is listed for $12.80 on Amazon.com.
The antitrust suit underscored the turmoil in the book industry as readers shift from ink and paper to electronic devices like tablets and smartphones, where they can buy books with the push of a button. The publishers want to embrace new media, but they are also trying to protect their profits and retain control of their businesses.
A recent survey of the publishing industry revealed that in the US, e-books account for 20 per cent of publishers' revenue, more than $3 billion, up from 15 per cent the year before. Amazon.com dominates the e-book market.
The outcome will probably inflict some damage to Apple's reputation. The judge's decision casts Apple as a cold and manipulative bully whose actions have harmed consumers, contrary to the way the company markets itself, as a maker of products that improve people's lives.
Apple's brand has already been under attack. Even though the company remains wildly successful, with iPhones and iPads flying off the shelves all over the world, its stock price is sagging and its tax practices and manufacturing processes have been under public scrutiny. Its stock fell 0.4 per cent on Wednesday.
Judge Cote said e-mails and spoken statements by Jobs, the company's charismatic leader, who died in 2011, made clear he knew publishers were unhappy with Amazon's pricing of $9.99 for e-books, and that Apple's entry would drive up prices across the industry.
In one instance, Jobs made comments to a reporter after he introduced the iPad and the iBookstore in January 2010. When asked why consumers would buy an e-book from Apple's store instead of Amazon.com, Jobs replied, "The prices will be the same."
The Justice Department said Apple's deal with the publishers left Amazon.com with no choice but to raise prices. When Apple entered the e-book market, it changed the way publishers sold books by introducing a model called agency pricing, where the publisher - not the retailer - sets the price, and Apple took a cut of each sale. As a result, the publishers were able to set e-book prices higher than $9.99, the price many new books sold for on Amazon.com. Apple proposed caps of $12.99 and $14.99.
An e-mail written by Jobs that referred to the agency model was frequently brought up at the trial. In the e-mail, sent to Eddy Cue, Apple's senior vice president for Internet software and services, Jobs wrote of the contracts negotiated with publishers: "I can live with this, as long as they move Amazon to the agent model too for new releases for the first year. If they don't, I'm not sure we can be competitive."
The Justice Department said this showed Apple's intent to help the publishers push Amazon.com to the agency model so they could raise e-book prices. Apple's lead counsel, Orin Snyder of Gibson, Dunn & Crutcher, contended that the note written by Jobs was a draft. But the version presented by the Justice Department indicated that it was written at a later time and was signed "Steve," suggesting that it was the final draft.
"Apple has struggled mightily to reinterpret Jobs's statements in a way that will eliminate their bite," Judge Cote wrote. "Its efforts have proven fruitless."
Apple's battle with the Justice Department is far from over, because antitrust trials are typically two- or three-round fights. The next step of the trial will involve a hearing on damages and relief.
Then if Apple goes forward with an appeal of the judge's 160-page decision, the arguments will take place in the United States Court of Appeals for the Second Circuit.
© 2013 The New York Times News Service
