US takes Apple to trial over e-book price-fixing

US Justice Dept alleges firm conspired with publishers to raise price of e-books

Apple Inc goes to trial Monday over allegations by federal and state authorities that it conspired with publishers to raise the price of e-books.

The trial pits the maker of the popular iPad and iPhone against the US Justice Department in a case that tests how internet retailers interact with content providers.

"This case will effectively set the rules for internet commerce," said David Balto, a former policy director for the US Federal Trade Commission.

The justice department filed its case against Apple and five of the six largest US book publishers in April 2012. The lawsuit accused them of conspiring to increase e-book prices and break Amazon.com Inc's hold on pricing.

Apple is going to trial alone after the five publishers agreed to eliminate prohibitions on wholesale discounts and to pay a collective $164 million to benefit consumers.

The five publishers were Pearson Plc's Penguin Group, News Corp's HarperCollins Publishers Inc, CBS Corp's Simon & Schuster Inc, Hachette Book Group Inc and MacMillan.

The US government is not seeking damages but instead an order blocking Apple from engaging in similar conduct. However, if Apple is found liable, it could still face damages in a separate trial by the state attorneys general and consumers pursuing class actions.

'Direct evidence'
Based on a comment by the presiding judge at the final hearing before the trial, Apple may face an uphill battle.

"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," US District Judge Denise Cote, who is hearing the case without a jury, said on May 23.

While those comments suggested Apple might be smart to seek a settlement, Chief Executive Tim Cook said in an interview Tuesday with All Things Digital that Apple was "not going to sign something that says we did something we didn't do".

Apple may be calculating that future damages claims by states and class actions make it worth going to trial, said John Lopatka, a law professor at Pennsylvania State University.

"Apple might think, 'We may lose at the trial level, but we may well convince an appellate court the trial judge mischaracterised the evidence'," Lopatka said.

'Market in turmoil'
Neither side disputes that in 2009 publishers were concerned about low prices for e-books resulting from the dominance of Amazon.com, which launched its Kindle e-reader in 2007.

As it prepared to launch its iPad and was looking into opening an electronic bookstore, Apple has said it was entering a "market in turmoil," with growing tension between the publishers and Amazon.

Amazon, which declined comment, was selling 90 per cent of all e-books in 2009. It was buying books wholesale and at times selling them at a loss, pricing them at $9.99, with the goal of promoting its Kindle.

The justice department contends that Apple's entry into the market provided publishers with a means to get together to increase prices. At the suggestion of Hachette and HarperCollins, the US government says Apple began considering an agency model in which publishers set the price and Apple took a fixed percentage.

Former Apple CEO Steve Jobs, who died in 2011, told his biographer that, "we told the publishers, 'We'll go to the agency model, where you set the price, and we get our 30 per cent, and yes, the customer pays a little more, but that's what you want anyway'."

The justice department said Apple provided assurances to publishers their rivals would join. Apple says that it was unaware of efforts by the publishers to conspire before it entered the marketplace, and said when it did, it act independently.