Steve Jobs’ draft email plays pivotal role in antitrust case

An email composed, but never sent, by former Apple CEO Steve Jobs may prove instrumental in the Justice Department’s case that Apple, along with the five largest book publishers, colluded to fix prices for electronic books.

In a draft email intended for Apple Senior Vice President Eddy Cue about negotiations with one publisher, Jobs wrote of the potential deal that “I can live with this as long as they move Amazon to the agent model too for new releases for the first year. If they don’t, I’m not sure we can be competitive.”

For the Justice Department, Jobs’ reference to Amazon showed that the company was trying to end retail price competition among electronic book vendors. However, Orin Snyder, an attorney representing Apple in the case, dismissed the significance of the email in court, noting that it was never even sent to Cue.

As the three-week trial has started to wind down, the DOJ has released a copious set of emails and other electronic documentation between Jobs, Cue — who was in charge of the negotiations with the book publishers — and a number of publisher executives. Judge Denise Cote for the U.S. Southern District Court of New York is presiding over the non-jury trial.

The DOJ is piecing together the documentation in an attempt to show that Apple and the five largest book publishers colluded to raise the prices of e-books in early 2010. At the time, Amazon was offering best-selling titles for US$9.99, less than what the online retailer paid for these titles. The publishers worried that Amazon, which enjoyed a 90 percent share of the electronic book market in 2009, was lowering the value of books in consumers’ eyes, as well as laying plans to cut publishers out of Amazon’s book sales altogether, and to deal with authors directly.

In January 2010, the five publishers — Hachette, HarperCollins, Macmillan, Penguin and Simon & Schuster — all signed contracts with Apple, allowing Apple to sell electronic books in an agency model. Under such an agreement, the publishers would set the prices of electronic books, chosen from a set of pricing tiers Apple formulated. Apple got a fixed 30 percent cut of each sale through its iBookstore, which would debut on the about-to-be-launched iPad.

Immediately after the contracts took effect in April 2010, and publishers moved all their retailers to the agency model, prices of electronic books offered by both Amazon and Barnes & Noble increased by almost 20 percent, the DOJ charged.

Apple, in a court filing in May, said that the publishers in 2009 had on their own pursued a so-called agency business model before meeting with Apple. (The publishers have since settled with the DOJ.) At the time, they sold electronic books to retailers on a standard wholesale model, which left retailers the freedom to charge whatever price they saw fit.

In order to prove collusion, the DOJ has to show that Apple convinced all of the publishers as a group to move to the agency model. While the DOJ has plenty of documentation of the communications between Apple and individual publishers, it has produced less evidence that Apple coordinated actions among all the publishers. The DOJ pointed to the draft Jobs email as evidence that the company was the mastermind of this coordination.

In response, the Apple defense presented on Monday five different drafts of Jobs’ email, noting four of them had no reference to moving Amazon to the agency model. Snyder argued that Jobs was in the process of refining his thoughts about the contract negotiations, and that this one draft that the DOJ highlighted was written before Jobs clarified his thoughts on the subject.

“I don’t think they have a very strong case,” said Ankur Kapoor, an antitrust lawyer for the law firm Constantine Cannon LLP. The new email comes closer to proving conspiracy, but still isn’t close enough, Kapoor said. “It would make perfect competitive sense for Apple to want Amazon to use an agency model, because that way [Amazon] wouldn’t undercut Apple’s sales of e-books,” Kapoor said.

“What the evidence shows is that the publishers wanted to go to an agency model anyway,” Kapoor said. “If they all independently wanted to do it anyway, why would they coordinate activities?”

Kapoor also noted that the DOJ will have difficulty proving that the public was harmed in the establishment of agency pricing, even if the costs of best sellers did increase across all retail outlets once the agency contracts took effect. In the interest of making the iPad a viable electronic book reader, Apple also established price caps that limited how much electronic books could cost and mandated that publishers release all their best-selling titles in electronic form when they were released, both of which arguably benefitted the public.

“That is classic competition. And when you are talking about an innovative new product like the iPad, you are talking about the most important kind of competition,” Kapoor said.

Concluding arguments will be heard on Thursday, and Judge Cote is expected to make her final ruling within several weeks.

IDG News Service executive news editor Marc Ferranti contributed to the story.

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