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Amazon Execs Testifying Against Apple in Price Fixing Case

As the Department of Justice's ebook anti-trust trial against Apple inches closer, the fruity company recently tried to gain more access to two top Amazon ebook executives who agreed to testify on behalf of the government. But Apple was denied by U.S. District Judge Denise Cote who said that their information was "privileged."

According to court documents, Amazon began to seek legal advice back in 2010 when it suspected "the existence of an illegal (possibly criminal) price-fixing conspiracy by the five publishers and one or more retailers." Shortly thereafter two meetings were conducted between senior Amazon executives in early 2011, one of which took place in a "boathouse" at the Seattle residence of Amazon CEO Jeff Bezos.

The Amazon executives claim that these meetings were held to get legal advice on how to "avoid the very liability that the publisher Defendants and Apple are facing now." It's these two meetings that Apple wants access to, claiming that Amazon was plotting a business strategy. The iPad company is also saying that Amazon is hiding the two executives behind the attorney-client "privileged information" shield to hold back information.

"Although the Amazon depositions to date have exposed a glaring hole in the government's case, Apple has been denied meaningful discovery into Amazon's critically important business decision to adopt agency," Apple stated. "Without this evidence, Apple will be gravely prejudiced in its ability to challenge – and disprove – the core allegation that Apple forced Amazon into agency."

At the heart of the entire ebook dispute is the agency model. Before the launch of Apple's iPad tablet, retailers were allowed to sell ebooks at wholesale prices, meaning they could assign any pricetag to the virtual books. To sell Kindle tablets, Amazon offered extremely competitive pricing thus making its ebook reader more attractive. Book publishers felt that their ebooks were worth more, and feared Amazon's overall ebook market dominance.

While developing the iPad (which would also offer ebooks), Apple and five book publishers reportedly agreed to use the agency model which allows the publisher to set the price, not the retailer. With each agency-based purchase, retailers such as Apple and Amazon get a steady 30-percent cut. But Apple wouldn't agree to the agency model unless all other retailers did the same. Once the iPad hit the market, ebook prices began to inflate.

Meanwhile, Amazon had a choice: either use the enforced agency model, or not sell ebooks at all. Given that virtual books are the Kindle ereader's life blood, the online retailer had no choice but to comply. Due to complaints that ebooks prices were abnormally on the rise, the Department of Justice conducted an investigation and uncovered enough evidence to file a lawsuit against Apple and five book publishers in early 2012.

Unable to face the eventual cost, all five book publishers have since settled out of court. Apple is the only accused left standing, and it's not surprising. The two Amazon executives testifying against the company on behalf of the government's lawsuit were placed behind the attorney-client privilege shield last week after Apple insisted it had a right to extract more testimony and documents from them.

Access denied, according to Judge Cote.

In addition to denying Apple's challenge to Amazon's attorney-client privilege, Judge Cote also ordered executives from book publisher Penguin to participate in the proceedings.

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  • bllue
    Apple needs to be smacked down for once.
    Reply
  • slabbo
    Apple is so arrogant and seems to be so full of lawyers that they don't think they need to follow the law anymore. Hope they set them straight for all the shady stuff they've been doing.
    Reply
  • hero1
    Talk about tough times. You know Apple is delusional when they are going to court over matters that other players have agreed to settle. They will end up paying dearly and this will surely bring their stock price down even further and compromise their lead in industry with respect to making money. I do believe that it's they are taught a tough lesson.
    Reply
  • bustapr
    it was good to see a well written short, but full summary on what the hell went down. dont really know what a attorney-client privilege is, but it seems apple is screwed beyond belief in this case. Would be nice to see ebook prices go back down to wholesale prices. as far as I remember, the other publishers accused wont be able to adopt an agency model for some time.
    Reply
  • ddpruitt
    Apple "Look judge we know we fixed the price but we're Apple, just because we got caught shouldn't mean we have have to pay for it!"
    Reply
  • brucen13
    Apple is so used to exclusively restricted products, the Apple Store agency model, and customers that will pay anything for Apple products, it's not surprising that Apple thought they could do the same with ebooks in the real "free marketplace". This is a great example of how the world according to Apple isn't how the real world works.
    Reply
  • ericburnby
    Sad day for justice. If you're being accused of something you have the right to face your accuser. This is how it's always been. People can't just make statements about you without you being allowed to cross-examine them.

    And in the case of witnesses, you can't bring in "surprise witnesses" at the last minute without the other party knowing about it (contrary to all the TV shows).

    But because its Apple suddenly people think its OK. Pathetic.
    Reply
  • ericburnby
    bustaprit was good to see a well written short, but full summary on what the hell went down. dont really know what a attorney-client privilege is, but it seems apple is screwed beyond belief in this case. Would be nice to see ebook prices go back down to wholesale prices. as far as I remember, the other publishers accused wont be able to adopt an agency model for some time.So you're OK with Amazon selling e books at a loss in order to get a monopoly in the market by eliminating competitors who can't afford to sell at a loss?

    Do you actually think Amazon will sell e books at less than wholesale forever? If so I've got a bridge to sell you.
    Reply
  • pacomac
    Book publishers and writers should be able to set their own prices, not Amazon. Everyone is entitled to earn a living. I write tablet software fora living and charge what I think my software is worth to ensure I make a living out of it. The last thing I would want is someone telling me I can't do that.
    Reply
  • silver565
    From what I gather from all of this. Amazon clicked onto the price fixing and basically made sure they didn't get sucked into the vortex. Now Apple is having a whinge because they didn't think of that too
    Reply