Opening statement in US v. Apple

7/28/2019 Opening statement in US v. Apple

1/81

United States of America v. Apple, Inc.

Opening Statement

June 3, 2013


2/81

PX-0514

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.

So we told the publishers, Well go

to the agency model, where you set

the price, and we get our 30%, and

yes, the customer pays a little more,

but thats what you want anyway.


3/81

DX-086

Hachette

Unhappy with $9.99 price point, one of three major

publishers to announce its intention to hold back

ebooks at time of hardcover release (up to four

months). Other two publishers are Simon & Schuster

and HarperCollins.

RandomHouse

doesnt like the $9.99 price point, but doesnt want

or support windowing. hasnt said so publicly

Penguin

not happy about $9.99 price point, but hasnt

announced a position publicly; clear from the CEO,

though, that they dont view a $9.99 eBook as

sustainable model competing with much higher

priced physical books

* * *

* * *


4/81

DX-086

Clearly, the biggest issue isnew release pricing and they

want a proposal from us.


5/81

Apple Sends Publishers Identical Proposed Deal Terms

PX-0021, PX-0473, PX-0476, PX-0041, PX-0040, PX-0306

[A]ll resellers of new titles need to

be in agency model.

realistic pricing.

We think these agency terms

accomplishes all the goals we

both have.


6/81

PX-0521 and PX-0174

They believe that this is the best

chance for publishers to challenge the9.99 price point.

They decided they had to come up

with a way that would move the whole

market off 9.99 and they think an

agency model is the only way to do it.


7/81

PX-0613

Im hoping that Wednesdays event...

will sustain us as we move through

the next steps in this process ofchanging the industry.

Carolyn Reidy

You are a real leader of the book

industry.

Eddy Cue


8/81

PX-0094

The optics make it look like I

stood alone, but in the end I had

no doubt that the others would

eventually follow.


9/81

DX-434


10/81

e-Book Business Prior to Apples Entry


11/81

Wholesale Model for Print Books

Establishes list price for book

and sells it to retailer for

percentage of list price

(usually 50%)

Publisher

Establishes

retail price for

consumer

Retailer

Pays

retail price

Consumer


12/81

Original Wholesale Model for e-Books

Establishes digital list price

typically 20% lower than printlist price and sells book to

retailer for percentage of

digital list price (usually 50%)

Publisher

Establishes

retail price for

consumer

Retailer

Pays

retail price

Consumer

EXAMPLE EXAMPLEEXAMPLE

$25 list price, $20 digital price

Wholesale price sold

to the retailer

$10.00 $9.99$9.99

Retail price sold

to consumer


13/81

Publishers Revise Wholesale Model for e-Books


equal to print list price andsells book to retailer for

percentage of digital list

price (usually 50%)

Publisher

Establishes

retail price for

consumer

Retailer

Pays

retail price

Consumer


$25 list price,$25digital price


to the retailer

$12.50 $9.99$9.99

Retail price sold

to consumer


14/81

PX-0219

I am told Random House is concerned about

the future of e-books and the potentially

dominant role played by Google and Amazon.

Would it make sense for the 2 of us to have

meetings / diner [sic] with Markus Dohle, Brian

Murray, John Sargent and whoever, in order to

discuss options?

Arnaud Nourry

I am having dinner with that group on

January 29 and will raise the matter then.

David Young


15/81

PX-0274

Completely confidentially, Carolyn

has told me that they are delaying thenew Stephen King, with his full

support, but will not be announcing

this until after Labor Day so that she

can have an enjoyable vacation!


16/81

PX-0274

I think it would be prudent for you to

double delete this from your emailfiles when you return to your office.


17/81

PX-0133

It will not be possible for any

individual publisher to mount an

effective response, because of both theresources necessary and the risk of

retribution, so the industry needs to

develop a common strategy.

Competition and collaboration

we do appear to be on a collision

course with Amazon, and possibly

with Google as well.


18/81

PX-0344

You are absolutely correct: weve alwaysknown that unless other publishers follow

us, theres no chance of success in getting

Amazon to change its pricing practices.

And of course you were right thatwithout a critical mass behind us Amazon

wont negotiate, so we need to be more

confident of how our fellow publishers

will react if we make a move like this.

We will keep thinking of how to

attack the problem (as we perceive it) of

current eBook pricing.... But clearly we

need to gather more troops and

ammunition first!


19/81

Apples Entry


20/81

Apple Facilitates Publisher Communication

Brian Murray

Eddy Cue

On December 8, Mr. Cuereaches out to Mr. Murray

and Mr. Dohle to set up callsfor the following day

December 8, 2009

PX-0314


21/81


On December 10 at 9:47,Mr. Murray sends an

internal e-mail concerninghis call with Mr. Cue

December 10, 2009

PX-304

Brian MurrayBrian Murray

Eddy Cue



December 8, 2009

PX-0314


22/81



December 10, 2009

PX-304


Eddy Cue



December 8, 2009

PX-0314


We should put a proposal together for Apple.

... And also bring in RH if possible.


23/81


On December 10 at 9:52,Mr. Murray e-mails

Mr. Dohle

December 10, 2009

PX-0448

Brian Murray

Markus Dohle



December 10, 2009

PX-304


Eddy Cue



December 8, 2009

PX-0314


24/81

On December 10 at 9:52,Mr. Murray e-mails

Mr. Dohle

December 10, 2009

PX-0448

Brian Murray

Markus Dohle



December 10, 2009

PX-304


Eddy Cue



December 8, 2009

PX-0314


I was wondering if you had any time for a

quick call tomorrow.


25/81

PX-0162

David Young. Much happier

cuz of meeting. Not spoil fun.Check in after. Dinner in Jan.

Top Man talks different

language. Not $9.95.


26/81

PX-0299

Email is [email protected]. Ill send you

his phone number tomorrow.

David Young

David: do you have a phone number for

Eddie Cue? He didnt have a card when got

to me (we were last and he left here to go to the

plane)or even an email address? I want to

take up your suggestion to email him about the

term sheet

Carolyn Reidy


27/81

Apple Provides Information to PublishersAbout Other Publishers

PX-0359PX-0159


28/81

PX-0036

Interested in agency model to fix

Amazon pricing (we said no)


29/81

Apple & Publisher Conspiracy Commences

PX-0056

PX-0501 PX-0502

Carolyn Reidy

Markus Dohle

John Sargent

I want to update you [on] all my findings and thoughts.

I have some things I want to run by you. I only need 30 minutes.


30/81

Apple & Publisher Conspiracy Commences

December 21

10:33 a.m.

PX-0788

Carolyn Reidy

Eddy Cue

Speak for

10 minutes and

45 seconds

December 21

12:17 p.m.

PX-0788

Eddy Cue

Speak for

17 minutes and

37 seconds

Markus Dohle

December 21

12:48 p.m.

PX-0788

Eddy Cue

Speak for

11 minutes

John Sargent


31/81

PX-0043

They saw both the plus (solves

Amazon issue) and negative(little less than they would like).


32/81

It is important to Apple that there be

some level of reasonable pricing. They

feel the only way to get this is for the

industry to go to the agency model....

PX-0540

We would have to get everyone else to

go to the agency model.

Therefore they feel that new release

eBooks should be priced at $12.99.


33/81

PX-0540

When they thought it through, they

didnt think anything else would

keep the market from its current

pricing craziness.


34/81

PX-0336

He also thinks that book prices

are becoming too lowhe is

worried about the consumer

perception. Therefore he

suggests an agency model....


35/81

PX-0336

I also indicated that Amazon would

not accept a distributor model. He

answered that windowing could beused to establish a distributor model

on print pub date for ebooks (coming

back to simultaneous publication).


36/81

PX-0317

Agency is anti-price war territory.


37/81

Publishers Attempt to Force Amazon off $9.99


equal to print list price andsells book to retailer for

percentage of digital list

price (usually 50%)

Publisher

Establishes

retail price for

consumer

Retailer

Pays

retail price

Consumer


$28 list price,$28digital price


to the retailer

$14.00 $9.99$9.99

A A d l All


38/81

An Agency Model AllowsPublishers to Control Retail Price

Establishes

retail price

Publisher Retailer

Pays

retail price

Consumer

$9.99

EXAMPLE

$9.99

EXAMPLE

$9.99

EXAMPLE

Sells to consumer

at retail price

P bli h E L


39/81

Publishers Earn LessUnder an Agency Model

Establishes

retail price

Publisher

Sells to consumer

at retail price

Retailer

Pays

retail price

Consumer

$9.99

EXAMPLE

$9.99

EXAMPLE

Publisher receives 70% before

author royalties

$7.00$7.00

$9.99

EXAMPLE

P bli h C R i R t il P i


40/81

Publishers Can Raise Retail PricesUnder an Agency Model

Establishes

retail price

Publisher Retailer

Pays

retail price

Consumer

$14.99

EXAMPLE

$14.99

EXAMPLEEXAMPLE

$14.99

Sells to consumer

at retail price

P bli h C R i R t il P i


41/81

Publishers Can Raise Retail PricesUnder an Agency Model

Establishes

retail price

Publisher Retailer

Pays

retail price

Consumer

$14.99

EXAMPLE

$14.99

EXAMPLE


author royalties

$7.00$10.50

EXAMPLE

$14.99

Sells to consumer

at retail price


42/81

January 4, 2010

Carolyn ReidyEddy Cue

E-mail from: To:

Apples and Publishers Goals Align

As we discussed, here is

what I think is the bestapproach for ebooks.


43/81

January 4, 2010

Eddy Cue

E-mail from: To:

Markus Dohle





44/81

January 4, 2010

Eddy Cue

E-mail from: To:

John Sargent





45/81

January 4, 2010

Eddy Cue

E-mail from: To:

David Young


After talking to all the

other publishers and seeing

the overall bookenvironment, here is what I

think is the best approach

for ebooks.


46/81

January 5, 2010

Eddy Cue

E-mail from: To:

David Shanks






for ebooks.


47/81

January 5, 2010

Eddy Cue

E-mail from: To:

Brian Murray






for ebooks.


48/81

Apple Acts to Facilitate Conspiracy

PX-0021, PX-0473, PX-0476, PX-0041, PX-0040, PX-0306

[A]ll resellers of new titles need to

be in agency model.

January 11 2010: Identical Draft Agreements


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January 11, 2010: Identical Draft AgreementsSent to Publishers

PX-0248, PX-0249, PX-0285, PX-0286, PX-0322

Please find attached Apples proposedeBook Distribution deal for your review.


50/81

PX-0341

In order to not be in a situation

whereby we must price our adult new

release eBooks sold through Apple at

$9.99, undercutting one of the reasons

for making the deal, we need to change

our eBook selling terms with our other

eRetailers before that date.

Apples MFN Compels Publishers to


51/81

Apple s MFN Compels Publishers toMove All Retailers to Agency

Establishes retail price

Publisher


author royalties

Consumer

Amazon Consumer

Apple

$12.99

Sells to consumer

at retail price

$9.99


$9.10

$12.99$12.99

$9.99

Apples MFN Compels Publishers to


52/81

Apple s MFN Compels Publishers toMove All Retailers to Agency


Publisher


author royalties

Consumer

Amazon Consumer

Apple

$9.99

Has pricing MFN; lowers

price to match Amazon

$9.99$9.99

$12.99 $12.99 $9.99

$7.00$9.10



53/81

PX-0065

I feel like its a giant win to keep

pushing the MFN and forcing people

off the amazon model and onto ours.

The interesting insight in the meeting

was Eddys explanation that it doesnt

have to be that broadany decentMFN forces the model.


54/81

PX-0540

We would have to get everyone

else to go to the agency model.

When I said, but of course we canttalk to our competitors, he said he

didnt mean other publishers, but

ouraccountsto which I replied, if

we make these our terms, then they

are our terms.


55/81

PX-0026

The response from both Penguin and

Hachette was very similar

willing to do an agency model

go agency model for new releases

with everyone else

PX 0058


56/81

PX-0058

We have reviewed all the books on

Amazon and they have switched to

agency with the publishers.

PX 0055


57/81

PX-0055

I can live with this, as long as

they move Amazon to the agentmodel too for new releases for the

first year. If they dont, Im not

sure we can be competitive

P bli h R i MFN F Th t A


58/81

Publishers Recognize MFN Forces Them to Agency

Russ Grandinetti

Meeting

PX-0482

John Sargent

January 20, 2010



59/81

January 20, 2010

Russ Grandinetti

Meeting

PX-0482

John Sargent


PX-0482

Jan 20th: Russ met with John Sargent in NY. John

indicated that he was working on an agency model

but his plan was to offer both an agency and

reseller model.



60/81


Eddy Cue

PX-0037, PX-0712

John Sargent

Dinner

January 20, 2010

Russ Grandinetti

Meeting

PX-0482

John Sargent

A l I i t M ill G t A ith E


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Apple Insists Macmillan Go to Agency with Everyone

Eddy Cue

PX-0037

John Sargent

E-Mail

January 21, 2010

Eddy Cue

PX-0037, PX-0712

John Sargent

Dinner

January 20, 2010

Russ Grandinetti

Meeting

PX-0482

John Sargent



62/81

Eddy Cue

PX-0037

John Sargent

E-Mail

January 21, 2010

Eddy Cue

PX-0037, PX-0712

John Sargent

Dinner

January 20, 2010

Russ Grandinetti

Meeting

PX-0482

John Sargent


PX-0037

I am willing to give up on manypoints. The

stumbling block is the single large issue that we

clearly had a misunderstanding about.

John Sargent

DinnerI understand. I dont believe we are asking

you to do anything, you havent told us you are

doing. We are just trying to get a commitment.

Eddy Cue



63/81


Russ Grandinetti

Phone Call

PX-0482

John Sargent

January 21, 2010

Eddy Cue

PX-0037

John Sargent

E-Mail

Eddy Cue

PX-0037, PX-0712

John Sargent

Dinner

January 20, 2010

Russ Grandinetti

Meeting

PX-0482

John Sargent

Apple MFN Requires


64/81

Russ Grandinetti

Phone Call

PX-0482

John Sargent

January 21, 2010

Eddy Cue

PX-0037

John Sargent

E-Mail

Eddy Cue

PX-0037, PX-0712

John Sargent

Dinner

January 20, 2010

Russ Grandinetti

Meeting

PX-0482

John Sargent

pp qMacmillan to Move Amazon to Agency

PX-0482

Jan 21st: John and Russ by phone. John realized

that the Apple contract required him to only offer

the agency model only and wanted to talk through

options with Russ.

Apple Enlists Publishers to Convince Other Publishers


65/81


Brian Murray

Eddy Cue

E-mail from HarperCollinsCEO Brian Murray to

Mr. Cue indicating that hecannot do the deal with

the pricing MFN

3:07 p.m.

PX-0310



66/81


Eddy Cue

Cue calledMacmillan

CEO Sargentfor approximately 2

minutes

3:47 p.m.

PX-0788

John Sargent

Sargent calledMurray for

approximately8 minutes

4:01 p.m.

PX-0788

Brian Murray

John Sargent

PX-0005

HarperCollinsultimately agreed tothe MFN and signed

the Apple AgencyAgreement on

January 26

Brian Murray

Eddy Cue

Spoke on thephone for

approximately 11minutes

3:34 p.m.

PX-0788

2 Min11 Min 11 Min2 Min 8 Min

Phone Calls Between Publisher Defendant CEOs


67/81

in December and January

Brian Murray

David Shanks

John SargentCarolyn Reidy

David Young

Calls Between Publisher Defendant CEOs


68/81

from December 1, 2009 to January 31, 2010

NumberofCalls

December 2009 January 2010

Dec. 8, 2009

Apple begins

reaching out to

publishers

(PX-0314)Dec. 15, 2009

Apple holds initial

meeting with Big

Six publishers(PX-0262)

Jan. 11, 2010

Apple sends draft

contracts to each

publisher

(PX-0248; PX-0249; PX-

0285; PX-0322; PX-

0286)

Jan. 26, 2010

All five publisher

defendants have

signed the

agreement

(PX-0005)

Jan. 4-5, 2010

Apple sends identical

e-mails to publishers

proposing key terms

(PX-0021; PX-0473, PX-0476, PX-

0041; PX-0040; PX-0306)

Jan. 21-22, 2010

Apples deadlines

for publishers to

commit to the deal

(PX-0707; PX-0042)

PX-0020


69/81

PX-0020

Hey, do you have any more in, or still at 3?

John Sargent

give me a call on my cell (408-309-9215).Eddy Cue

PX-0029


70/81

PX-0029

My orders from London. You must have the

fourth major or we cant be in theannouncement.

Hopefully this is not an issue but if it is I will

call you at 4pm. It would be a huge mistake to

miss this if we have 3.

Eddy Cue

David Shanks

PX-0718


71/81

PX-0718

Penguin

No change here, he is waiting for the

others to sign. We have executables

ready to sign but he wants anassurance that he is 1 of 4 before

signing (not in the contract).

DX-239


72/81

DX 239

Penguin

Once previous two are signed, I

will head to their offices to get thisone signed.

PX-0032


73/81

PX 0032

Throw in with Apple and see ifwe can all make a go of this to

create a real mainstream ebooks

market at $12.99 and $14.99.

iPad Launches with Best-Selling e-Books at $14.99


74/81

iPad Launches with Best Selling e Books at $14.99

Amazon Prices Its Best Sellers at $9.99


75/81

Amazon Prices Its Best Sellers at $9.99

PX-0607


76/81

PX 0607

I cannot believe that Jobs made the statement below. Incredibly stupid.

Mossberg wondered why someone should buy a [b]book for $14.99 when

you can buy one from Amazon for $9.99 on the Kindle or Barnes & Noble? Aconfident Jobs replies, That wont be the case.... The prices will be the same.

PX-0053


77/81

PX 0053

Hi Eddy. I am gonna need to figure out our final

agency terms of sale tonight. Can you call me please?

John Sargent

I just tried. Call me on my cell 408-309-9215.Eddy Cue

Subject: Re: URGENT!!

PX-0514


78/81

PX 0514

But we also asked for aguarantee 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 goingto sign an agency contract or

were not going to give you the

books.

PX-0284


79/81

0 8

Great news and congratulations!!!Eddy Cue

I wanted to tell you before you read iton line that we have finally reached an

agreement with Amazon on our new

terms of sale.The playing field is now

level.

* * *

Please keep this to yourself until the

announcement.

David Shanks

DX-434


80/81

PX-0542


81/81

The other point that came out of the conversation was Heathers view that Indigo

and the major publishers all have a massive stake in ensuring that the success ofthe physical book as a format continues (they are not making money out of ebook

sales in the present price wars with Amazon) and that she would welcome a

combined meeting on how we might achieve this in Canada.

8.84"

We would never meet with Barnes and all our

competitors. The Government would be all over that. We

would meet separately with Indigo being the facilitator

and go between. That is how we worked with Apple and

the government is still looking into that.

David Shanks

Opening statement in US v. Apple

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