Apple Executive Defends Pricing and Contracts in Antitrust Case

“Wow, we have really lit the fuse on a powder keg,” Mr. Jobs wrote in the e-mail dated Jan. 30, 2010, to Eddy Cue, Apple’s senior vice president of Internet software and services.

The e-mail was brought up as evidence during the second half of Mr. Cue’s testimony in a Manhattan courtroom on Monday, where much of the discussion focused on whether Apple intended to help the publishers raise Amazon’s prices.

Mr. Cue testified on Monday that Mr. Jobs’s e-mail was not a memo congratulating him about how Apple’s entry into the e-book market affected Amazon, causing it to switch to a business model called agency pricing, where the publishers, not the retailer, set the price of the books. Mr. Cue said Mr. Jobs was remarking on the company’s ability to “cause ripples” in the e-book industry, which was then largely dominated by Amazon.

While Mr. Cue conceded that some e-book prices had gone up as a result of agency pricing, he noted that many titles might not have become available in any digital store at all if Apple had not introduced agency pricing to the market. He said he had learned from his meetings with publishers that they were unhappy with Amazon’s uniform $9.99 pricing for e-books and that they were planning to use a tactic known as windowing — delaying the release of an e-book until after the more expensive hardcover had been in stores for a while.

Mr. Cue testified that both he and Mr. Jobs believed that “withholding books is a disaster for any bookstore.”

The Justice Department was not persuaded. Lawrence Buterman, a Justice Department lawyer, asked Mr. Cue whether he was aware that only 37 e-books had ever been windowed.

“The number doesn’t matter,” Mr. Cue said. “What matters is which books. Thirty-seven could be a huge number if it’s the right books.”

Both parties showed their evidence on a projector screen. Apple’s legal team used a MacBook to shuffle between evidence documents, stacking them side by side in split screens and zooming in on specific paragraphs.

In contrast, the Justice Department’s lawyers could show only one piece of evidence at a time. One video that Mr. Buterman played as evidence failed to produce the audio commentary needed to make his point.

In its antitrust case brought a year ago, the federal government is trying to cast Apple as the ringmaster that conspired with five big book publishers to raise e-book prices. The publishers have all settled their cases.

On Monday, the Justice Department’s lawyers homed in on a condition in Apple’s contracts with the publishers: the “most favored nation” clause, which required publishers to allow Apple to sell e-books at the same price as the books would be sold in any other store. Apple has said this clause existed to guarantee that Apple customers got the lowest e-book prices. But Mr. Buterman argued that it defeated Amazon’s ability to compete on price, and that it left Amazon with no choice but to switch to the agency model while allowing the publishers to raise prices.

Mr. Cue said he disagreed. He noted that Amazon had 90 percent of the e-book market before Apple entered the game.

“Amazon could have negotiated a better deal,” he said. “They had a lot more power.”

Lawyers for Apple and the government spent much of the hearing debating whether the e-mails exchanged between Apple executives and publishers illustrated Apple’s intent to help the publishers force Amazon’s hand. In one e-mail sent to Mr. Jobs, Mr. Cue was reviewing his meeting with the publishers, saying they were interested in solving the “Amazon issue.”

Mr. Cue said he was referring to the publishers’ ability to price books above Amazon’s uniform price of $9.99 in Apple’s iBookstore. Apple had proposed price caps of $12.99 to $14.99 for new releases. But he said this did not refer to enabling the publishers to force Amazon to raise prices, too.

Gadgetwise Blog: Is the New T-Mobile Pricing a Good Deal?

T-Mobile has said it will start selling Apple products in 2013, but will stop underwriting the cost of phones with its contracts. That most likely means paying the full $650 for an iPhone.

But what most consumers overlook is that when they get a $650 iPhone 5 for $200 with a two-year contract, they aren’t really getting a discount on the phone. The $450 difference is just hidden, spread out over the life of the contract.

So it raises the question, is getting a $650 iPhone from T-Mobile a good deal? It can be — especially for heavy data users. And you don’t have to wait for the new pricing to take effect. If you know what to do you can get the deal now.

First, let’s run the numbers. How much do these phones and plans really cost? I worked through some figures with the help of Validas, which analyzes phone use and costs.

With the T-Mobile contract you’d pay $650 for the iPhone and $70 a month for unlimited talk, text and data, for a total cost of $2,330 over two years, or $97 a month. The plan promises full unlimited data without slowing down the data connection when you reach a limit, as some of the others do.

Verizon has no unlimited plan, so to nearly match T-Mobile, you’d have to choose the 20GB data plan (far more than most people use), which adds $150 to the monthly contract, driving the cost to $190 a month plus $200 for the iPhone. That totals $4,760 over two years, or $198 a month.

AT&T also has no unlimited plan, so you would also have to choose the 20GB data plan, which adds $200 a month to a $30 monthly voice and text fee. With a $200 iPhone that comes to $5,720 for two years, or $238 a month.

Sprint does have an unlimited plan for $110 a month. That plus the $200 iPhone comes to $2,840 total for two years, or $118 a month.

Bottom line: the T-Mobile deal is the best by a margin of $21 a month over the next best deal.

But this isn’t a perfect comparison. Very few people use anywhere near 20GB of data. According to research by Validas, only 1 percent of smartphone owners use more than 4GB of data a month.

For a few dollars less than the T-Mobile plan, you could buy a 1GB monthly data plan from AT&T or Verizon, one that should satisfy the data needs of 83 percent of smartphone owners, Validas said.

That means that for the 17 percent of phone users who require more than 1GB of data a month, T-Mobile’s is certainly the best deal.

You don’t have to wait for T-Mobile to start its new pricing to take advantage of this deal. It is available now by buying a SIM card from T-Mobile. In this case you are just buying the chip that gives the phone its identity, and you are bringing your own phone. And it doesn’t have to be an iPhone; it can be any phone that works on the GSM network, which is also the network AT&T (and most of Europe) uses.

In Europe, Publishers Dealt a Setback Over e-Book Pricing

BERLIN — The European Commission settled its antitrust case against Apple and four book publishing groups over e-book price fixing on Thursday, in what was described as a victory for the leading online seller, Amazon, and a setback for publishers fighting for the ability to set prices for electronic literature in the digital marketplace.

The European Union’s competition commissioner, Joaquín Almunia, said he was ending his office’s investigation after Apple and the publishers — Simon & Schuster, HarperCollins, Hachette, and Holtzbrinck, the owner of Macmillan — agreed to end their attempt to set prices for e-books through a series of preferred selling agreements.

Under those agreements, made in 2010, publishers could set their own prices on e-books, with the retailer acting as an agent taking a commission. Apple championed this agency model.

For print books, by contrast, publishers act as wholesalers, charging retailers about half the cover price for a book and then allowing retailers to set their own price to consumers. Amazon built a huge business by offering consumers discounts under this wholesale model.

Publishers fear that under the wholesale model, Amazon can sell e-books for less than it pays, taking a loss in the short term to drive smaller competitors out of business, thus gaining a monopoly, to the detriment of the publishers.

European Union officials, however, see things differently: that collusion by publishers would lead to higher prices for consumers.

“Obviously, the coordination of commercial behavior between competitors — here, with the help of Apple — is forbidden by our competition rules,” Mr. Almunia said in Brussels in a statement. “Whatever the publishers’ initial concerns about retail prices, dealing with this situation through collusion is not acceptable.”

Under terms of the settlement, Apple and the publishers agreed to immediately end their preferred agency agreements, the legal pacts that contained “most favored customer” clauses effectively blocking sales to price discounters. Apple and the publishers, Mr. Almunia said, tried to make the agreements standard in the industry.

Amazon and other online retailers that refused to agree to the group’s pricing terms, Mr. Almunia said, “were told they might not be supplied with e-books if they did not agree to the switch.”

“Retailers had little option but to surrender their discretion in setting retail prices if they wanted to avoid a serious disruption of their business,” he said.

The decision by Mr. Almunia, a Spanish jurist who has set a pattern of compromise since becoming Europe’s top antitrust officer in February 2010, followed a similar resolution in the United States. In September, a federal judge approved the U.S. Justice Department’s settlement with HarperCollins, Simon & Schuster and Hachette.

Mr. Almunia had opened the European investigation in December 2010. He had signaled recently that a compromise was in the works, and the announcement on Thursday was seen as no surprise by European competition lawyers.

Jean-François Bellis, a lawyer in Brussels who represented Microsoft in its own multiyear European antitrust case, said Mr. Almunia’s settlement in the e-book case reflected his preference for fast, inexpensive solutions to corporate attempts to abuse market dominance.

“This is something indeed that was expected,” Mr. Bellis said. “I am seeing more and more that the commission is resorting to settlements. This is a more practical approach than fines and lengthy prosecutions.” Apple benefits from the resolution because it will not have to pay a fine, Mr. Bellis said.

The regulator’s decision will not help the fragile situation of many publishers, said Françoise Dubruille, director of the European and International Booksellers Federation, a Brussels group representing the 27 E.U. national bookselling organizations, which in turn have many small and medium-size publishers, in addition to large groups, as members.

Ms. Dubruille said the settlement would effectively further Amazon’s ability to set the purchase price of e-books in Europe, which would not help a struggling publishing industry.

“We aren’t happy about this,” Ms. Dubruille said of the decision. “We think the big players in this industry have disproportionate power and influence in the digital market. We want to see fair competition. This might look like a victory for consumers, but in the long run, this is bad news, because the pressures on prices will increase.”

Apple and Amazon did not immediately respond to requests for comment.