Apple e-book trial: How the case has unfolded so far

There have been a lot of developments in the U.S. Justice Department's case against Apple in the trial's first two weeks. Check out our reporter's notebook for the latest.

Apple's e-book pricing trial has brought its fair share of funny moments and tense exchanges.

The Justice Department, which initially sued Apple and a handful of the nation's largest publishers slightly more than a year ago , contends Apple forced publishers to move to a model that artificially inflated the prices of digital books and hurt consumers. Apple has argued that it wasn't trying to change in the industry and that it was only trying to secure the best deal for itself.

With two weeks down and one week to go, most of the key witnesses have testified. There is no jury, so at the end of this coming week, Judge Denise Cote will have all the evidence to make her decision.

CNET has been there every step of the way, but in case you haven't followed every update, here's a recap of some of the trial highlights:

Documents, documents, and even more documents
The DOJ's case against Apple, as well as Apple's defense, largely hinges on e-mails and phone call records between executives at Apple, book publishers, and Amazon. Both sides have hundreds of documents that they're using to support their cases.

One government chart, casually referred to in court as the "spider web," shows the number of calls between book publisher CEOs in December and January, the time they were negotiating with Apple about its iBookstore. The DOJ has used the chart as evidence that the publishers were talking and working together to collectively change e-book pricing. The DOJ also made a similar chart to show calls between publishers and Eddy Cue, Apple's senior vice president of software and services.

Apple, meanwhile, has argued various e-mails were taken out of context, and it has presented its own items to show Apple wasn't colluding with the publishers.

If there's one thing CNET has learned from this trial, it's never put anything sensitive in writing.

Opening arguments
The trial kicked off June 3 in the district court of lower Manhattan. In opening arguments, the Justice Department said it would prove that Apple was the ringleader in a scheme to push digital book publishers toward raising their prices and that the conspiracy forced Amazon to change its e-book sales model. Apple, meanwhile, argued that its executives simply were using standard negotiation tactics to secure the best possible deal for Apple and its users.

Both gave a glimpse into what they'd be talking about in the upcoming weeks.

The DOJ created a "spider web" showing calls between CEOs of book publishers. U.S. Department of Justice
Has the judge already made up her mind?
Before the trial even started, Judge Cote offered to share her initial thoughts with Apple and the DOJ. Unfortunately for Apple, Cote said that based on the evidence submitted, she believed Apple to be at fault.

Apple attorney Orin Snyder brought those comments up shortly after he started his opening statement, asking Cote to "hit the delete button on any tentative view that might exist in the court's mind today."

Cote almost immediately cut off Snyder, saying that she only gave the opinion because both sides agreed to it, and that she wouldn't consider any documents as evidence until they're officially submitted. She noted that Apple had months to think about whether it wanted a tentative view, and her view was just that -- tentative.

"This isn't a vote about whether I like Apple or anyone else does," Cote told both sides. "The deck isn't stacked against Apple. ... You have my firm commitment ... that I will do my very best to follow the law."

Cote in recent days in the trial seemed to be coming around to Apple's arguments that it didn't force publishers to change their deals with Amazon.

Publishing bigwigs
CEOs of some of the country's biggest publishers have taken the stand in the trial. Penguin Group USA CEO David Shanks, Simon & Schuster CEO Carolyn Reidy, Harper Collins CEO Brian Murray, Macmillan CEO John Sargent, and Hachette CEO David Young have all testified about negotiations with Apple, as well as their relationships with Amazon. (Note: Simon & Schuster is owned by CNET parent company CBS.)

All believed Amazon's $9.99 pricing to be too low, and all wanted a way to change it. The CEOs have testified that they didn't believe they did anything wrong, but each company reached a deal with the DOJ to settle the government's suit against them.

Eddy Cue, Apple's senior vice president of Internet software and services, arrives at court in Manhattan with an Apple attorney on Thursday. Sarah Tew/CNET
Eddy Cue's "minion"
Perhaps the funniest moment of the trial came during testimony by Simon & Schuster's Reidy. The DOJ presented e-mails between Reidy and her boss, CBS CEO Les Moonves, that talked about Reidy's conversations with Apple. She had initially met with Eddy Cue, but his deputy, Keith Moerer, later handled many conversations. Reidy told Moonves, via e-mail, that "A representative of Apple (not the head guy, but one of his minions) came to New York at the end of week before last to meet with all of the major publishers."

Moerer, Apple's corporate representative in the trial, was in the courtroom when the comments were discussed.

"Sorry, Mr. Moerer," Judge Cote said as people seated in the courtroom looked at Moerer and laughed.

"Yes, my apologies," Reidy said. "That's just what I was thinking, your Honor."

"We're all minions from some perspective, even me," Cote responded.

Publishers call Amazon a bully
It may be Apple on trial, but Amazon's name comes up nearly as often. The company dominated the e-book market at the time Apple was forming iBooks, and publishers were worried about Amazon's low pricing. After reaching deals with Apple, all of the publishers changed their terms to in what in the industry is known as an agency model, where they set the pricing. Under the previous wholesale model, Amazon had set the prices, which were at $9.99 for the latest books.

Apple CEO Steve Jobs, now deceased, announced the first iPad in January 2010. James Martin/CNET
Those conversations with Amazon weren't easy, the publishers testified, and Amazon even threatened them. The publishers portrayed themselves as victims of Amazon, and Apple attempted to draw parallels between itself and Amazon, showing that the different nuances of their respective deals are par for the course in the industry, and not a conspiracy to inflate prices.

"They yelled and screamed and threatened," Penguin's Shanks said during his testimony the first week of the trial. "It was a very unpleasant meeting."

And Simon & Schuster's Reidy said Amazon threatened to stop selling her company's physical books along with its digital books.

Amazon, meanwhile, portrayed itself as the victim, forced into agreements it never wanted.

Insight into content deal negotiations
Apple, Amazon, and other big tech giants are understandably tight-lipped about their deal-making process. The trial has provided unprecedented insight into their wheeling and dealing. Apple has tried to show its actions are normal steps that all companies take when negotiating deals, and it has said reaching deals with publishers wasn't easy.

Some notable insights we've learned about Apple's tactics:

  • Apple's dealmakers -- Cue, Moerer, and attorney Kevin Saul -- had only a couple of months to reach deals with publishers for iBooks. Cue testified he got the go-ahead from Jobs for iBooks in November 2009, and he had to have the deals done by the late-January iPad announcement.
  • Apple commonly tells companies that "the train is leaving the station" to get them to sign deals. It often says how many companies have already signed on, and it will tell companies who else it's talking to.
  • Apple typically pursues similar deals with all companies, saying it wants to give big and small companies "a level playing field."

Apple hammers Google
The most tense and "Law and Order"-like moment of the trial came on the last day of the first week. Apple started to pick away at the DOJ's claim that the tech giant conspired to inflate e-book prices by repeatedly and rapidly firing questions at a key Google witness.

The tactic paid off for lead Apple attorney Snyder, who began to wear down on Thomas Turvey, director of strategic relationships for Google. Turvey appeared increasingly frazzled and frustrated as the afternoon went on.

The Apple e-books price fixing trial is being argued in district court in Manhattan. Sarah Tew/CNET
During his testimony, Turvey admitted that he couldn't remember which publishing executives he spoke to, the circumstances around those conversations, or any helpful details. He offered few specifics and kept referring to his written testimony.

"You can't recall the single name of anyone at a single publisher?" Snyder asked.

"No," Turvey said, which became a common response.

Smoking gun or just a draft e-mail?
The DOJ in Week 2 of the trial presented an e-mail from Jobs that it said showed Apple required publishers to change their contracts with Amazon. In the message, Jobs responded to price tiers suggested by Cue:

"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..."

However, Apple's attorneys said the e-mail was simply a draft that had never been sent. Instead, they cited another version of the same e-mail, where Jobs said the following:

"I can live with this as long as they also agree to the other things you told me you can get: The retail price they will set for any book will be the LOWER of the applicable 'iTunes' price below OR the lowest wholesale price they offer the book at to anyone else, with our wholesale price being 70% of such price."

It's unclear whether both messages were drafts, or if one actually was sent. CNET has heard there are actually many drafts of that same message, but we'll have to see if they're presented in court. Apple attorney Snyder is likely to bring up the message during Cue's questioning Monday.

Eddy Cue
Cue is one of the most vital witnesses in the trial. He served as Jobs' right-hand man for nearly two decades, securing deals that helped Apple dominate markets such as music. The Justice Department has portrayed Cue as the "chief ringleader of the conspiracy" to control e-book pricing, and it has said his testimony would show Apple colluded with the publishers to boost digital book prices and hurt rivals such as Amazon. Conversely, Apple's attorneys are counting on Cue to reinforce their defense that Apple's actions simply were standard negotiation tactics.

During his testimony Thursday, Cue admitted that Apple's deals with publishers caused e-book prices to rise, and he wasn't surprised when Amazon had to change its business terms with publishers.

The Justice Department also tried to show that Apple didn't care if consumers had to pay $12.99 or $14.99 for e-books instead of $9.99, but Cue disputed such comments.

"Our consumers were protected by my price points," he said. "I thought we were going to treat our consumers very, very fairly."

Apple's questioning of Cue started Thursday afternoon but will resume next week.

Splitting up the music and book markets
Another tidbit from Cue's testimony is that Apple considered making a deal with Amazon to split up the digital book and music markets. Apple would get music, while Amazon would get books. That would have been a very big no-no in the eyes of the government, but Apple never actually pursued that deal.

The absentee witness -- Steve Jobs
Jobs may have died nearly two years ago, but his public and private comments have played a big role in the case. Along with the draft e-mail the DOJ presented, government attorneys also have cited comments Jobs made to The Wall Street Journal that book prices would be the same at Apple, Amazon, and other retailers, and remarks Jobs made to his biographer, Walter Isaacson:

Amazon screwed it up. It paid the wholesale price for some books, but started selling them below cost at $9.99. The publishers hated that--they thought it would trash their ability to sell hardcover books at $28. So before Apple even got on the scene, some booksellers were starting to withhold books from Amazon. So we told the publishers, "We'll go to the agency model, where you set the price, and we get our 30%, and yes, the customer pays a little more, but that's what you want anyway." But we also asked for a guarantee that if anybody else is selling the books cheaper than we are, then we can sell them at the lower price too. So they went to Amazon and said, "You're going to sign an agency contract or we're not going to give you the books."

Apple, meanwhile, has argued that it's difficult to interpret someone who can no longer explain himself. And Apple's attorneys -- as well as Cue -- have said the government has misinterpreted what Jobs actually meant.

What's up next week?

  • Cue's back on the hot seat -- Although the seat won't be quite that hot, as it's Apple's lead attorney now questioning the executive. The judge has tended to ask questions of each witness, and she's likely to have a few for Cue.
  • More experts and defense witnesses -- A debate has been going on during the trial about whether digital book prices did in fact rise after the iBookstore launched. Apple's attorneys have argued that pricing has fallen, but the Justice Department has said prices spiked "dramatically" after Apple's entry into the market. Both sides are presenting their own experts to back their claims.
  • The DOJ is expected to rest its case after Cue's testimony is complete. After that, Apple is expected to call a couple of experts, as well as Theresa Horner, vice president of digital content at Barnes & Noble; and Robert McDonald, head of Apple's U.S. iBookstore.
  • Closing arguments -- These are scheduled for Thursday and represent each side's last chance to make its case.
 

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