June 13, 2013, 3:07 PM — Apple Senior Vice President Eddy Cue offered only short answers in testimony Thursday in federal court when questioned by U.S. Justice Department prosecutors trying to solidify their case that Apple, along with five of the largest book publishers, worked together to illegally set the prices of electronic books for the market.
Apple co-founder Steve Jobs, who was instrumental in the negotiations, cast an even larger shadow across the proceedings. Cue, who is senior vice president of Internet software and services, led the effort in late 2009 through 2010 to get publishers to release their titles on Apple's iBookstore reader for the soon-to-be-launched iPad, and consulted frequently with Jobs.
"Steve and I worked very closely on this," Cue said.
Asked who had decision-making authority regarding e-books pricing, Cue replied that Jobs, who died in October 2011, was the ultimate arbitrator for all decisions made at Apple during that time.
The Department of Justice charges that Apple colluded with the book publishers, including Harper Collins, the Penguin Group and Simon & Schuster, to set up a new pricing model, in violation of the Sherman Antitrust Act. The agency has offered a large collection of emails and phone records that strongly suggest that publishing company CEOs, Jobs and Cue worked together to hammer out an agreement. DOJ prosecutors spent the morning Thursday asking Cue to elaborate on his emails with publishing CEOs and Jobs.
According to the Justice Department, book publishers were worried in 2009 that Amazon, then the largest retailer of electronic books, was lowering the perceived wholesale value of the books, due to its strategy of discounting books for US$9.99.
Apple, eager to get into the e-book business with the iPad, used the "Amazon threat" as a calling card for the publishers, according to the DOJ. The company presented the idea of moving the book industry from a wholesale model, where retailers buy books at the wholesale rate and then charge whatever price they want, to an agency model. Under that model, the publisher sets the price and the seller, in this case Apple, gets a fixed percentage. Apple pioneered the agency model in the electronic realm with its app store.
With the agency model, Apple could offer the publishers the ability to set the prices at whatever level they liked, such as $12.99, $14.99 or $16.99. Crucial to this deal, originally, was the stipulation that all the publishers would switch over to the agency model, and that they would switch all the retailers, including Amazon, to this model of book purchasing.