John Paczkowski

Recent Posts by John Paczkowski

Apple Says Differences in Publisher Deals Belie E-Book Conspiracy Charges

Central to the U.S. Department of Justice’s e-book price fixing case against Apple are the Most Favored Nation (MFN) agreements the company struck with publishers that ensured it would always be able to sell e-books at least as cheaply as rival retailers.

These contracts required publishers to match in Apple’s iBookstore any lower prices they offered elsewhere. And the DOJ has been hammering Apple over them, arguing that they spiked the average price of e-books in the U.S. once they went into effect and put Apple in an enviable position.

“[Apple’s MFN] was not structured like a standard MFN in favor of a retailer, ensuring Apple that it would receive the best available wholesale price,” the DOJ argued in its complaint against the company, contending that “instead of an MFN designed to protect Apple’s ability to compete, this MFN was designed to protect Apple from having to compete on price at all, while still maintaining Apple’s 30 percent margin.”

And with these MFNs, Apple did indeed architect a sweet deal for itself, one very Jobsian in its conceit. It got exactly what it wanted — a lowest price guarantee from publishers and the ability to claim that those publishers were still free to sell their books at whatever price they liked.

Now the government contends that Apple’s MFN agreements were a crucial part of the company’s conspiracy to raise e-book prices and reap the benefits. But in vetting that argument, it failed to answer a key question about those arrangements prior to trial. Specifically, were they the same for each publisher or were they different? If, as the DOJ argues, Apple was facilitating collusion among a cabal of publishers, you’d think that MFN agreement terms would be identical across the cabal with all participants guaranteed the same terms.

But they weren’t. Turns out, Apple negotiated different MFNs with each publisher. And in court Tuesday, Apple’s lead counsel, Orin Snyder, repeatedly pointed that out. While the the core price-matching provision was present in each of the five publisher agreements, guaranteeing Apple the ability to compete at the lowest price, the MFNs themselves were materially different.

Simon & Schuster, for example, wanted flexibility to do one-off, limited-time promotions. There were book clubs to take into account as well. Other publishers demanded their own specific considerations, so that by the time the deals were signed, each MFN contained numerous exceptions that were not present in the others. And according to the Tuesday testimony of Apple Associate General Counsel Kevin Saul, negotiating these exceptions wasn’t exactly a simple matter. “[It was] particularly difficult,” he said on the witness stand. “Twelve hours a day negotiations, emails, exchanging drafts. It was a challenging, tiring and difficult couple of weeks.”

That’s a detail worth noting, because part of the government’s case against Apple is that the company offered publishers materially similar MFN terms and that this furthered an alleged e-book price-fixing conspiracy. But according to Saul’s testimony, the MFN terms for each publisher were different. And when the exec was shown slides of each in court Tuesday, he stated on the record that “they are not the same.”

That’s a direct refutation of one of the assertions on which the government is building its case, and it bolsters Apple’s defense — if only a bit. “It does make the government’s case harder,” Stanford law school professor Mark Lemley told AllThingsD. “But it doesn’t mean there was no conspiracy.”

Pam Samuelson, director of the Berkeley Center for Law and Technology, took a similar view. “It is quite possible for antitrust co-conspirators to mask agreements in restraint of trade by adopting differently worded documents,” she said. “Using identical language would make the anticompetitive nature of an agreement too obvious.”

Of course. But, according to Saul’s testimony, Apple conducted separate negotiations with each publisher and, ultimately each publisher decided it own course of action. So, straightforward, above-board dealings or collusion and clever obfuscation? Another one for the judge to decide.


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