E-book price fixing: As the trial begins, here's what you need to know

Tthe US Department of Justice's suit against Apple alleging e-book price-fixing goes to trial on June 3 in Manhattan.

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    Assistant director of the Durango Public Library Sandy Irwin demonstrates various e-readers.
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After months of accusations, court filings, and assorted settlements, Monday marks the start of a high-stakes trial in which the US Justice Department accuses Apple of price-fixing e-books

The trial, which takes place in Manhattan, will provide insight into e-book pricing and how digital books changed publishing. It will also feature testimony from top executives from publishing as well as those from Apple, Amazon, and Barnes & Noble.

The DOJ’s case, in a nutshell: The agency said last year that Apple conspired with five top publishers to raise prices for e-books in competition with Amazon. It alleges that in 2009, Apple met with top publishers and persuaded them to adopt a publishing model known as the "agency model" in order to drive up e-book prices. The agency model, in contrast to the traditional wholesale model, allows publishers to set the prices for e-books, then split the proceeds with Apple and the retailer. The result, according to the DOJ, is that e-book prices rose from the $9.99 standard set by Amazon to at least $12.99. The agency alleges that price fixing has reduced competition in the e-books industry and raised e-book prices.

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Five publishers accused in the DOJ’s suit have settled, some citing a lack of resources to pursue a legal battle. Apple has vowed to fight.

Apple’s response: The tech company’s CEO Tim Cook has called the allegations “bizarre” and is maintaining that Apple has done nothing wrong. In fact, the company says it helped the publishing industry by challenging Amazon’s “monopoly.”

In a statement to the Los Angeles Times in the spring of 2012, Apple spokesman Tom Neumayr said, “The DOJ's accusation of collusion against Apple is simply not true. The launch of the iBookstore in 2010 fostered innovation and competition, breaking Amazon’s monopolistic grip on the publishing industry."

The trial, which is expected to last about three weeks, will feature testimony from top executives in publishing and technology, including the late Steve Jobs himself.

The DOJ is expected to quote the Apple founder via an email he wrote to James Murdoch of News Corp., which owns HarperCollins, in which Jobs writes, “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.”

It will also quote Jobs’s authorized biography in which Jobs allegedly told publishers “We'll go to the agency model, where you set the price, and we get our 30%, and yes, the customer pays a little more, but that's what you want anyway.”

Apple says the quotes are taken out of context. Still, in her pretrial review, Judge Denise Cote has said the government has a strong case. 

“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 the prices of e-books, and that the circumstantial evidence in this case, including the terms of the agreements, will confirm that.”

The stakes are high for the publishing business. You can bet the entire publishing industry is paying attention.

Husna Haq is a Monitor correspondent.

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