Outcome of E-Book Case Could Hurt Competition, Apple Lawyer Says

Orin Snyder, a lawyer at Gibson, Dunn & Crutcher who represents Apple, made that point in a Manhattan courtroom on Thursday, the last day of the three-week antitrust trial. He told Judge Denise L. Cote of United States District Court that if Apple was found liable for conspiring with publishers to raise e-book prices, “that precedent will send shudders through the business community.”

In the future, he said, retailers negotiating with content providers might then feel pressured to “not utter a word” about their discussions with other companies and offer substantially different terms to each party.

He said that in negotiations, businesses typically inform one competitor what another competitor is willing to do. “It is perfectly lawful to do all of that,” he said.

In its antitrust case brought a year ago, the federal government accused Apple of being the “ringmaster” in a conspiracy with five big book publishers to raise e-book prices across the industry. Before Apple entered the market in early 2010, Amazon controlled 90 percent of e-book sales, and the publishers were not happy with Amazon’s uniform price of $9.99 for e-books. The publishers have all settled their cases, but Apple has said it is fighting as a matter of principle because it has done nothing wrong.

Much of the debate at the trial has centered on a condition, known as the “most-favored-nation” clause, that Apple made in its contracts with publishers. It guarantees that if a publisher offers an e-book at a lower price to one retailer, the book will cost the same in Apple’s e-book store. The Justice Department argues that Apple and the publishers used the most-favored-nation clause to defeat price competition and pressure Amazon to change the way it sold books and raise its prices as well.

On Thursday, as the lawyers wrapped up their arguments, Judge Cote peppered both Apple and the government with questions.

Several of her questions to the government revolved around one thought: why would Apple want to change the industry’s business model? Mark W. Ryan, a lawyer for the Justice Department, argued that Apple believed its iPad hardware was so ahead of anyone else’s, it wanted to eliminate price competition in the e-book market so that the iPad could compete with the Amazon’s Kindle solely on hardware, not book prices.

Mr. Ryan noted that the government’s concern was not solely the most-favored-nation clause, but the way that Apple and the publishers deliberately used the clause to force Amazon’s hand. “It’s the collusion to move the market to the place where competition would not otherwise take it,” he said.

If Amazon had continued the way it sold books under what is called the wholesale model — where publishers charged retailers about half the cover price for a book and Amazon sold the books for $9.99 — then the retailers would have lost a substantial amount of money selling the books for $9.99 to Apple because Apple takes a 30 percent cut.

That, Mr. Ryan said, is why the publishers understood they had to collectively force Amazon into the agency model, where the publishers, not the retailers, set the price of the books. They could use the most-favored-nation clause to put pressure on Amazon while also threatening to delay the release of their e-books until after the more expensive hardcover versions had been on the market for a while, he said.

Judge Cote challenged the government’s interpretation that Apple was deliberately scheming to help the publishers raise prices. Allowing them to raise their prices in Apple’s e-book store could be viewed as a “sales pitch” to get the publishers to agree to sign on with Apple in the month and a half leading up to the iPad introduction, she said.

In Apple’s closing statements, Mr. Snyder spent most of his time trying to illustrate that Apple fought “tooth and nail” with the publishers before cementing the contracts. He showed e-mails between Eddy Cue, Apple’s senior vice president of Internet software and services, and the chief executives of the big publishers that demonstrated they were negotiating rather than cooperating.

Judge Cote asked Mr. Snyder whether Apple took the position that it had not understood that the publishers were forming a collective effort to raise prices industrywide, when the fact they were working together seemed obvious from articles published by The New York Times and The Wall Street Journal. Those articles said a group of publishers had announced plans to “window,” or delay, the release of e-books.

Mr. Snyder said that the articles just showed how business was done, and that they did not prove that the publishers were already conspiring. “When one company does one thing, the other companies take notice and do the same thing,” he said.

The big question surrounding the trial is whether there will be a change to the way businesses negotiate if Apple loses, as Mr. Snyder suggested. Charles E. Elder, an antitrust lawyer at Irell & Manella, which is not involved in the case, said that most-favored-nation clauses present unusual challenges under antitrust laws. While they ensure a customer gets the best deal, they can discourage price-cutting because the consequence of lowering prices for one retailer will be lowering prices for other retailers protected by the clause.

Mr. Elder said that he “would be very surprised” if the judge found Apple’s most-favored-nation clause illegal, and that he was not aware of any case where such a thing has happened. He said this antitrust case was based on the theory that the most-favored-nation clause resulted from a price-fixing conspiracy among the publishers that was furthered by Apple. If the judge holds Apple liable, he said, this case will be unlikely to have a “revolutionary impact” on businesses.

“Horizontal conspiracies to fix prices have always been illegal,” Mr. Elder said.

Judge Cote is expected to write her decision in the coming weeks.

Outcome of E-Book Case Could Hurt Competition, Apple Lawyer Says

Orin Snyder, a lawyer at Gibson, Dunn & Crutcher who represents Apple, made that point in a Manhattan courtroom on Thursday, the last day of the three-week antitrust trial. He told Judge Denise L. Cote of United States District Court that if Apple was found liable for conspiring with publishers to raise e-book prices, “that precedent will send shudders through the business community.”

In the future, he said, retailers negotiating with content providers might then feel pressured to “not utter a word” about their discussions with other companies and offer substantially different terms to each party.

He said that in negotiations, businesses typically inform one competitor what another competitor is willing to do. “It is perfectly lawful to do all of that,” he said.

In its antitrust case brought a year ago, the federal government accused Apple of being the “ringmaster” in a conspiracy with five big book publishers to raise e-book prices across the industry. Before Apple entered the market in early 2010, Amazon controlled 90 percent of e-book sales, and the publishers were not happy with Amazon’s uniform price of $9.99 for e-books. The publishers have all settled their cases, but Apple has said it is fighting as a matter of principle because it has done nothing wrong.

Much of the debate at the trial has centered on a condition, known as the “most-favored-nation” clause, that Apple made in its contracts with publishers. It guarantees that if a publisher offers an e-book at a lower price to one retailer, the book will cost the same in Apple’s e-book store. The Justice Department argues that Apple and the publishers used the most-favored-nation clause to defeat price competition and pressure Amazon to change the way it sold books and raise its prices as well.

On Thursday, as the lawyers wrapped up their arguments, Judge Cote peppered both Apple and the government with questions.

Several of her questions to the government revolved around one thought: why would Apple want to change the industry’s business model? Mark W. Ryan, a lawyer for the Justice Department, argued that Apple believed its iPad hardware was so ahead of anyone else’s, it wanted to eliminate price competition in the e-book market so that the iPad could compete with the Amazon’s Kindle solely on hardware, not book prices.

Mr. Ryan noted that the government’s concern was not solely the most-favored-nation clause, but the way that Apple and the publishers deliberately used the clause to force Amazon’s hand. “It’s the collusion to move the market to the place where competition would not otherwise take it,” he said.

If Amazon had continued the way it sold books under what is called the wholesale model — where publishers charged retailers about half the cover price for a book and Amazon sold the books for $9.99 — then the retailers would have lost a substantial amount of money selling the books for $9.99 to Apple because Apple takes a 30 percent cut.

That, Mr. Ryan said, is why the publishers understood they had to collectively force Amazon into the agency model, where the publishers, not the retailers, set the price of the books. They could use the most-favored-nation clause to put pressure on Amazon while also threatening to delay the release of their e-books until after the more expensive hardcover versions had been on the market for a while, he said.

Judge Cote challenged the government’s interpretation that Apple was deliberately scheming to help the publishers raise prices. Allowing them to raise their prices in Apple’s e-book store could be viewed as a “sales pitch” to get the publishers to agree to sign on with Apple in the month and a half leading up to the iPad introduction, she said.

In Apple’s closing statements, Mr. Snyder spent most of his time trying to illustrate that Apple fought “tooth and nail” with the publishers before cementing the contracts. He showed e-mails between Eddy Cue, Apple’s senior vice president of Internet software and services, and the chief executives of the big publishers that demonstrated they were negotiating rather than cooperating.

Judge Cote asked Mr. Snyder whether Apple took the position that it had not understood that the publishers were forming a collective effort to raise prices industrywide, when the fact they were working together seemed obvious from articles published by The New York Times and The Wall Street Journal. Those articles said a group of publishers had announced plans to “window,” or delay, the release of e-books.

Mr. Snyder said that the articles just showed how business was done, and that they did not prove that the publishers were already conspiring. “When one company does one thing, the other companies take notice and do the same thing,” he said.

The big question surrounding the trial is whether there will be a change to the way businesses negotiate if Apple loses, as Mr. Snyder suggested. Charles E. Elder, an antitrust lawyer at Irell & Manella, which is not involved in the case, said that most-favored-nation clauses present unusual challenges under antitrust laws. While they ensure a customer gets the best deal, they can discourage price-cutting because the consequence of lowering prices for one retailer will be lowering prices for other retailers protected by the clause.

Mr. Elder said that he “would be very surprised” if the judge found Apple’s most-favored-nation clause illegal, and that he was not aware of any case where such a thing has happened. He said this antitrust case was based on the theory that the most-favored-nation clause resulted from a price-fixing conspiracy among the publishers that was furthered by Apple. If the judge holds Apple liable, he said, this case will be unlikely to have a “revolutionary impact” on businesses.

“Horizontal conspiracies to fix prices have always been illegal,” Mr. Elder said.

Judge Cote is expected to write her decision in the coming weeks.

DealBook: Lawyer Withdraws From Case by Man Claiming Facebook Ownership

John Anderson/Wellsville Daily ReporterPaul Ceglia, who claimed he owns half of Facebook, at home in 2010.

The lawyer representing a man claiming to own a substantial stake in Facebook withdrew from the case on Tuesday, just a day after he defended his client in an interview with The New York Times.

Federal prosecutors arrested the entrepreneur, Paul Ceglia, last week on fraud charges, accusing him of forging the e-mails and contract that supported his two-year-old claim against the social networking giant.

Dean Boland, the lawyer for Mr. Ceglia, notified the court that he was dropping out of the civil lawsuit. His reasons for withdrawing were filed under seal, but in the public portion of his filing, Mr. Boland supported his client.

“The undersigned feels it is important to emphasize in the strongest terms possible, that the reasons underlying this request, provided to the court for its review, have nothing to do with any belief by the undersigned that plaintiff is engaged in now or has been engaged in during the past, fraud regarding this case,” Mr. Boland wrote.

In an interview with The Times on Monday, Mr. Boland backed his client’s claims and said he would continue to pursue the case against Facebook. He said that the government’s criminal charges would help his client’s cause because it suggested that some of Mr. Ceglia’s evidence was authentic.

Prosecutors say that Mr. Ceglia, 39, of Wellsville, N.Y., filed a spurious lawsuit claiming that Mark Zuckerberg, a co-founder of Facebook, promised him an at least 50 percent in the social network in 2003, and that he doctored, fabricated and destroyed evidence to support his claims.

“Ceglia’s alleged conduct not only constitutes a massive fraud attempt, but also an attempted corruption of our legal system through the manufacture of false evidence,” Preet Bharara, the United States attorney in Manhattan, said in a statement. “Dressing up a fraud as a lawsuit does not immunize you from prosecution.”

Mr. Ceglia has been detained since his arrest on Friday and is expected to make an appearance and enter a plea in Federal District Court in Buffalo on Wednesday. A federal public defender represents him in the criminal case.

Mr. Boland is the latest lawyer to withdraw from his civil case.

Mr. Ceglia’s lawyers have included Robert W. Brownlie of DLA Piper, the world’s largest law firm, and Dennis C. Vacco, a former New York attorney general now in private practice. Mr. Brownlie and Mr. Vacco dropped out of the case after Kasowitz Benson Friedman & Torres, another law firm that had briefly represented Mr. Ceglia, notified them that it believed Mr. Ceglia’s supposed contract with Mr. Zuckerberg was a sham.

Mr. Brownlie, who last year staunchly defended the legitimacy of his client’s claims to The Times, has not returned multiple calls and e-mails seeking comment. Mr. Vacco declined to comment, citing attorney-client privilege.

In his withdrawal filing on Tuesday, Mr. Boland, of Lakewood, Ohio, said that no one had proved that Mr. Ceglia’s claims were fraudulent.

“Myself and prior counsel all have and had a duty to bring to this court any evidence of fraud, even fraud by our own client, should we have come across it,” Mr. Boland wrote. “No prior counsel and current counsel, including the undersigned, have done so. The undersigned, at no time, has encountered evidence of fraud by plaintiff.”

Facebook’s lawyers at Gibson, Dunn & Crutcher have suggested that Facebook could pursue disciplinary claims against some of the lawyers that represented Mr. Ceglia.

“Now that Ceglia is being brought to justice for his crimes, Facebook intends to hold accountable all of those who assisted Ceglia in this outrageous fraud,” Orin Snyder, a partner at Gibson Dunn, said in a statement. “Facebook will send a strong message that it does not tolerate legal shakedowns and will take aggressive action against all those who file abusive lawsuits against the company.”