Apple in hot water over possible ebook price-fixing

The United States vs. Apple Inc et al is well and truly underway.

The three-week trial pits the Department of Justice (DOJ) against the much-loved technology company over allegations that the price of ebooks was artificially raised back in 2010 when Apple entered the market with the iBookstore.

The prosecution accuses Apple of conspiring with five publishing houses including HarperCollins Publishers Inc and Pearson Plc’s Penguin Group, to move to an agency model designed to up Amazon’s US$9.99 pricing for new releases and best-sellers in ebook format.

An agency model sees publishers set the price and retailers take a fixed cut (30% in Apple’s case). These contracts, the prosecution argues, would have been used as leverage to renegotiate the terms with Amazon, in effect forcing the ecommerce giant to switch to that model too, raising its prices by up to 50%. The five publishing houses have settled with the government for a collective sum of US$164 million according to Reuters, as well as terminated their 2010 contracts with Apple.

Orin Snyder, Apple’s lawyer, refuted the accusations:

After Apple’s entry into the market, e-book sales increased, prices overall dipped and e-readers and tablets improved dramatically… Every single indicator of market health improved after Apple entered the market,” Mr. Snyder said.

However, the government argued that those market trends were already in place by 2010, when Apple started selling ebooks.

Lawrence Buterman, the DOJ’s attorney, summed up the accusation of conspiracy, “the key word here is collective” – asserting that no one publisher would have agreed to the agency model without the others doing so as well.

Snyder countered that there is “iron-clad proof…in emails and in testimony that Apple told its supposed co-conspirators” that it didn’t care what kinds of agreements publishers signed with Amazon. He also alleged that Amazon had begun talks with publishers about changing the pricing model of ebooks before Apple entered the space.

The government, interestingly, is not seeking damages but rather an order that would block Apple from engaging in such practices in the future.

District Judge Denise Cote, the presiding, gave a tentative view that the DOJ might win, but clarified: “the deck is not stacked against Apple unless the evidence stacks the deck against Apple.”