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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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