Judge Rules Against Apple in E-Books Trial

“Without Apple’s orchestration of this conspiracy, it would not have succeeded as it did in the spring of 2010,” the judge, Denise L. Cote of United States District Court in Manhattan, said in her ruling. She said a trial for damages would follow.

Government lawyers argued in court last month that Apple had colluded with five big American publishers to raise prices for electronic books across the publishing market.

The Justice Department brought the antitrust case against Apple and the publishers a year ago. The publishers settled their cases, but Apple executives insisted that the company had done nothing wrong, and the company continued to insist that on Wednesday.

“Apple did not conspire to fix e-book pricing and we will continue to fight against these false accusations,” Tom Neumayr, an Apple spokesman, said. “When we introduced the iBookstore in 2010, we gave customers more choice, injecting much needed innovation and competition into the market, breaking Amazon’s monopolistic grip on the publishing industry. We’ve done nothing wrong and we will appeal the judge’s decision.”

The Justice Department said the judge’s decision was a victory for people who buy e-books.

“Companies cannot ignore the antitrust laws when they believe it is in their economic self-interest to do so,” the Justice Department said in a statement. “This decision by the court is a critical step in undoing the harm caused by Apple’s illegal actions.”

It appears unlikely that the ruling will have an immediate effect on the book-buying public. The publishers who have already settled with the government are operating under the settlement’s terms, which prohibit publishers from restricting a retailer’s ability to discount books.

Since those settlements have gone into effect, prices on many newly released and best-selling e-books have gone down. One New York Times best-seller, “And the Mountains Echoed,” by Khaled Hosseini, is sold on Amazon.com for $10.99. But other e-books seem to have held closer to pre-settlement prices: “The Ocean at the End of the Lane,” by Neil Gaiman, is listed for $12.80 on Amazon.

The antitrust battle underscores the turmoil in the book industry as readers shift from ink and paper to electronic devices like tablets and smartphones, where they can buy content with the push of a button. While the publishers want to embrace new media, they are also trying to protect their profits and retain control of their businesses. Apple’s lawyers noted at the trial that the publishers had long complained that Amazon.com’s uniform pricing of $9.99 for new e-book titles was too low.

A recent survey of the publishing industry revealed that in the United States, e-books account for 20 percent of publishers’ revenue, more than $3 billion, up from 15 percent the year before. E-books have had a slower rate of adoption in Europe and the rest of the world, but analysts expect that major growth will develop in the next several years. A report by Forrester predicted that by 2017, Europe will be the largest e-book market in the world, generating revenue of $19 billion.

In his testimony, Eddy Cue, Apple’s senior vice president of Internet software and services, who was in charge of negotiating deals with the publishers, conceded that Apple opened the door for book publishers to raise prices in its own e-book store. But he said that the company was not intending to push Amazon, the dominant player in the e-book market, to raise its prices, too.

“Amazon could have negotiated a better deal,” Mr. Cue said in his testimony. “They had a lot more power.”

But the Justice Department said Apple’s deal with the publishers left Amazon with no choice but to raise prices. When Apple entered the e-book market in 2010, it changed the way publishers sold books by introducing a model called agency pricing, where the publisher — not the retailer — sets the price, and Apple took a cut of each sale. As a result, the publishers were able to set e-book prices higher. Apple proposed price caps of $12.99 and $14.99.

Apple Negotiator Defends Tactics in E-Book Trial

The executive, Eddy Cue, Apple’s lead negotiator with the publishers, said he was determined to close deals that would allow them to sell their e-books on Apple’s iBookstore in time for the introduction of the iPad in early 2010.

“I wanted to be able to get that done in time for that because it was really important to him,” Mr. Cue said, referring to Mr. Jobs. He was testifying in Federal District Court in Manhattan in the civil antitrust trial brought against Apple by the Justice Department.

“I pride myself on being successful, but this had extra meaning to me,” Mr. Cue added.

Those sped-up negotiations attracted the attention of the government, which filed a lawsuit against Apple and five publishers in April 2012. Mr. Jobs, the co-founder of Apple, died of cancer in October 2011.

Mr. Cue, the highest-ranking Apple executive to take the stand so far in a trial that began almost two weeks ago, mounted a vigorous defense of Apple, which is accused of colluding with the publishers to fix e-book prices.

Through a nearly full day of testimony on Thursday, Mr. Cue denied that he had encouraged publishers to impose a new business model on other retailers, including Amazon.com. Shown a slide displaying what the government has repeatedly called a “spider web” of communications among the publishing executives, Mr. Cue said he did not know that the executives, from publishers including the Penguin Group USA and Simon & Schuster, were talking to one another during their negotiations with him.

“I struggled and fought with them,” he said. “If they were talking to each other, I believe I would have had a much easier time getting those deals done.”

But he also revealed details of an unusually long and close working relationship between him and Mr. Jobs.

Mr. Cue, Apple’s senior vice president for Internet software and services, said he spoke or e-mailed with Mr. Jobs at nearly every step of the negotiations, once calling him on his way to the airport as he left a round of talks with publishers in New York.

In one e-mail, Mr. Jobs questioned Mr. Cue about the fledgling iBookstore. “Are we going to let anyone self-publish? Does Amazon?” he wrote.

“Yes and yes,” Mr. Cue replied.

After publishers signed agreements with Apple, shocking the publishing industry, Mr. Jobs e-mailed Mr. Cue: “Wow, we have really lit the fuse on a powder keg.”

The focus of the government’s questioning turned to December 2009 and January 2010, when Mr. Cue repeatedly flew to New York, met with publishers and tried to reach deals to make their e-books available in the iBookstore on the soon-to-be-unveiled iPad.

For publishers, the appeal of Apple getting into the e-book market was enormous. Amazon, which had introduced its Kindle e-reader in 2007, commanded a 90 percent share of e-book sales at the time. But the default price for newly released and best-selling books on Amazon.com was $9.99, a paltry sum in the publishers’ eyes and one that undermined the value of the authors’ work and cannibalized hardcover sales.

Apple encouraged publishers to switch to a so-called agency model, in which the publishers set the price of a book and the retailer takes a commission. Previously, e-books had been sold on a wholesale model, where the retailer pays the publisher about half the list price, then is free to set another price. The agency model prevented Amazon from sharply discounting the books.

Five publishers — the Penguin Group USA, the Hachette Book Group, Simon & Schuster, HarperCollins and Macmillan — have already settled with the government. But Apple, intent on protecting Mr. Jobs’s legacy, is fighting the charges in a nonjury trial that was expected to last several weeks.

The defense was questioning Mr. Cue when the day ended and he will return to the stand when the trial continues on Monday.

Lawrence Buterman, a lawyer for the Justice Department, occasionally raised his voice while he questioned Mr. Cue for several hours before a packed courtroom presided over by Judge Denise L. Cote.

“Isn’t it true, sir, that throughout your negotiations with the publishers, that you constantly pitched the deal that you were proposing as a way for them to change the entire e-books market?” Mr. Buterman said.

“No, that is not true,” Mr. Cue said.

Mr. Buterman asked Mr. Cue about a previous statement by David Shanks, the chief executive of the Penguin Group USA, that Penguin would only sign a deal with Apple if three other major publishers had done so first.

“Did that strike you as a little bit like, ‘I’m only doing this deal if my competitors do it?’ “ Mr. Buterman said.

“It’s not unusual,” Mr. Cue said. “Nobody likes to be the first to sign. Everybody thinks that you get a better deal by signing last.”

According to Mr. Cue, Apple approached the negotiations with publishers the same way it did with record companies and other content providers in the iTunes store.

After Apple and other retailers started selling e-books on the agency model, prices on many best-selling and new books rose to the $12.99 to $14.99 range, infuriating many consumers.

“Who protected them?” Mr. Buterman said.

“I did,” Mr. Cue said.

“By charging them higher prices?” Mr. Buterman said.

Bits Blog: Apple's Schiller Testifies in Smartphone Patent Trial

A new day of testimony in the patent infringement trial between Apple and Samsung kicked off Friday with an iPhone history lesson from Philip W. Schiller, the most senior Apple executive yet to appear in court in the case.

David Paul Morris/Bloomberg NewsPhilip W. Schiller arriving at the courthouse on Friday.

But the morning began with a scolding from the federal judge in the case, Lucy H. Koh, directed at Samsung and its lawyer, John Quinn, over Samsung’s public release of evidence earlier in the week that she had ordered excluded from the case. The evidence, Samsung argued, would have helped the company show that Apple’s smartphone designs had been inspired by another company, Sony.

To ensure that no jurors had been tainted by the release, Judge Koh ushered in members of the jury, one by one, and asked if they had seen any news coverage of the case since the last time they were in the courtroom. One juror admitted to reading headlines about the case on the Internet but did not recall seeing anything related to the Samsung press release. Judge Koh warned jurors not to read press reports about the case and said the court planned to save them for the jurors.

“We’re going to compile all of the articles about this case,” Judge Koh said. “At the very end of this case, you’re going to get it all.”

Mr. Schiller, Apple’s senior vice president for worldwide product marketing, entered the courtroom in San Jose, Calif., shortly after 9 a.m. During questioning by Apple lawyers, Mr. Schiller discussed how the iPhone had come to be.

“First, Apple had been known for years for the Mac. Then we had a big hit called the iPod — it really changed the view inside and outside the company,” Mr. Schiller said, adding that Apple began looking at other products it could build. “People were suggesting every idea: make a camera, make a car — crazy stuff.”

“We realized that at the time, cellphones weren’t good as entertainment devices,” Mr. Schiller said. “In addition, at the same time, we’d already started working on a tablet device that would become the iPad.”

Citing press coverage in early 2007, Mr. Schiller said that leading up to the release of the product, “we didn’t need any marketing; we allowed the press to talk about the iPhone.”

That approach soon changed. Apple’s lawyers showed a slide indicating how much money Apple had spent on advertising for the iPhone. Mr. Schiller said that in 2008, it spent $97.5 million in the United States. In 2009, it spent $149.6 million.

Mr. Schiller spoke of Apple’s products as if he was speaking at one of the company’s product unveilings, focusing repeatedly on beauty, design and simplicity.

The Apple legal team seemed to be using this as a cornerstone of their case.

Through court documents and questioning, they continually emphasized the idea that customers are drawn to Apple because of the quality and design of its products. Mr. Schiller said customers buy products like the iPhone and iPad over other products because of Apple’s “consistent design.” He said: “All together, it’s a simple, beautiful look that has stayed consistent across the product line. Customers value beautiful products.”

When asked by Apple lawyers if copying of its products was a problem for Apple, Mr. Schiller said, “It’s a huge problem.” He said that it was confusing for customers, who might see a product advertised on a highway billboard for just a split second.

Mr. Schiller was shown a slide of an iPhone 3GS next to a number of Samsung smartphones. He said  he thought Samsung had “ripped off a bunch of our design elements.”

In challenging the originality of the iPhone, Samsung lawyers cited the LG Prada phone that was on the market before it. The phone had a full touch screen with an onscreen keyboard instead of a physical one.

Samsung’s legal team cited an internal Apple e-mail thread discussing different marketing approaches for the iPhone. In one e-mail, Steve Sinclair, an employee in the Apple marketing team, noted that the company could not say that the iPhone was the first full touch-screen phone. “Not true,” he wrote, then linking to a Wikipedia page for the LG Prada phone.

Bits Blog: Apple's Schiller Testifies in Smartphone Patent Trial

A new day of testimony in the patent infringement trial between Apple and Samsung kicked off Friday with an iPhone history lesson from Philip W. Schiller, the most senior Apple executive yet to appear in court in the case.

David Paul Morris/Bloomberg NewsPhilip W. Schiller arriving at the courthouse on Friday.

But the morning began with a scolding from the federal judge in the case, Lucy H. Koh, directed at Samsung and its lawyer, John Quinn, over Samsung’s public release of evidence earlier in the week that she had ordered excluded from the case. The evidence, Samsung argued, would have helped the company show that Apple’s smartphone designs had been inspired by another company, Sony.

To ensure that no jurors had been tainted by the release, Judge Koh ushered in members of the jury, one by one, and asked if they had seen any news coverage of the case since the last time they were in the courtroom. One juror admitted to reading headlines about the case on the Internet but did not recall seeing anything related to the Samsung press release. Judge Koh warned jurors not to read press reports about the case and said the court planned to save them for the jurors.

“We’re going to compile all of the articles about this case,” Judge Koh said. “At the very end of this case, you’re going to get it all.”

Mr. Schiller, Apple’s senior vice president for worldwide product marketing, entered the courtroom in San Jose, Calif., shortly after 9 a.m. During questioning by Apple lawyers, Mr. Schiller discussed how the iPhone had come to be.

“First, Apple had been known for years for the Mac. Then we had a big hit called the iPod — it really changed the view inside and outside the company,” Mr. Schiller said, adding that Apple began looking at other products it could build. “People were suggesting every idea: make a camera, make a car — crazy stuff.”

“We realized that at the time, cellphones weren’t good as entertainment devices,” Mr. Schiller said. “In addition, at the same time, we’d already started working on a tablet device that would become the iPad.”

Citing press coverage in early 2007, Mr. Schiller said that leading up to the release of the product, “we didn’t need any marketing; we allowed the press to talk about the iPhone.”

That approach soon changed. Apple’s lawyers showed a slide indicating how much money Apple had spent on advertising for the iPhone. Mr. Schiller said that in 2008, it spent $97.5 million in the United States. In 2009, it spent $149.6 million.

Mr. Schiller spoke of Apple’s products as if he was speaking at one of the company’s product unveilings, focusing repeatedly on beauty, design and simplicity.

The Apple legal team seemed to be using this as a cornerstone of their case.

Through court documents and questioning, they continually emphasized the idea that customers are drawn to Apple because of the quality and design of its products. Mr. Schiller said customers buy products like the iPhone and iPad over other products because of Apple’s “consistent design.” He said: “All together, it’s a simple, beautiful look that has stayed consistent across the product line. Customers value beautiful products.”

When asked by Apple lawyers if copying of its products was a problem for Apple, Mr. Schiller said, “It’s a huge problem.” He said that it was confusing for customers, who might see a product advertised on a highway billboard for just a split second.

Mr. Schiller was shown a slide of an iPhone 3GS next to a number of Samsung smartphones. He said  he thought Samsung had “ripped off a bunch of our design elements.”

In challenging the originality of the iPhone, Samsung lawyers cited the LG Prada phone that was on the market before it. The phone had a full touch screen with an onscreen keyboard instead of a physical one.

Samsung’s legal team cited an internal Apple e-mail thread discussing different marketing approaches for the iPhone. In one e-mail, Steve Sinclair, an employee in the Apple marketing team, noted that the company could not say that the iPhone was the first full touch-screen phone. “Not true,” he wrote, then linking to a Wikipedia page for the LG Prada phone.

Bits Blog: Design and Drama Mark First Day in Apple-Samsung Trial

Michael Nagle/Getty Images

Apple’s hallowed design process was the topic of the first witnesses the company called in its high-profile court case against Samsung over smartphone patents.

In his testimony before a jury in a federal courthouse in  San Jose, Calif., Christopher Stringer, a longtime Apple industrial designer, provided a colorful account of the secretive methods by which Apple conjures up products like the iPhone and iPad. His testimony is part of an effort by Apple to show that Samsung swiped Apple’s patented inventions for use in its own electronics devices.

Wearing an all-white suit, Mr. Stringer, who was instrumental in crafting the first iPhone and iPad, described his job in poetic terms. “My job is to imagine objects that don’t exist and guide the process that brings them to life,” he said in a British accent.

The day concluded, though, with expressions of frustration by an Apple lawyer, Harold McElhinny, and the judge in the case, Lucy H.  Koh, over the public release by Samsung of evidence that Judge Koh had ordered excluded from the case. Samsung’s lawyer, John Quinn, had argued that the evidence would help it show that the iPhone was inspired by Sony product designs.

Mr. McElhinny called the release an “intentional attempt to pollute the jury.”

Judge Koh demanded to know who on Samsung’s legal team had authorized and drafted the press release and asked to speak with Mr. Quinn, who was nowhere to be found. Samsung’s legal team said he was headed to a dinner in Los Angeles.

In his testimony earlier, Mr. Stringer said that Apple’s design team consists of 15 or 16 designers who work around a small kitchen table, a sharp contrast to Samsung’s 1,000 designers.

Asked whether Apple had factored manufacturing costs or component requirements into the design of the iPhone and iPad, Mr. Stringer came across as indignant. He testified that Apple’s designers were in full control of the design process and made all decisions based purely on design.

“The world had never seen anything like this — there were legions of phones available — but none satisfying. This broke new ground. It was more than a phone,” Mr. Stringer testified.

He called the iPhone a “cultural icon.” The iPad, he said, was a “breathtakingly simple device.”

Mr. Stringer was particularly blunt about Samsung. “We’ve been ripped off by everyone, Samsung in particular,” said Mr. Stringer. “We’re offended.”

When asked whether he paid attention to what competitors were doing, he said “on occasion” and “very rarely.”

Later, a lawyer for Samsung showed an e-mail dated Jan. 19, 2011, from Mr. Stringer to another Apple employee that seemed to undercut his earlier comment about watching rivals: “Paul, I need your latest summary of our enemies for an ID brainstorm on Friday,” the e-mail read. “If you have any more data beyond this please could you update the chart? I wonder if there’s anything worth noting about the HP/Palm leak.”

The e-mail contained a spreadsheet listing the core features and dimensions of iPhone competitors.

Asked again whether he  paid attention to Apple’s competitors, Mr. Stringer said: “We were interested in understanding the feature sets of our competitors.”

Apple’s lawyer had one follow-up question: “Was that used to design some new Apple product?” Mr. Stringer responded: “Absolutely not.”

One other witness from Apple, Philip Schiller, the company’s senior vice president of worldwide marketing, briefly took the stand before the court adjourned for the day. He was asked about influences on the company’s products.

“We don’t use any customer input in the new product process,” Mr. Schiller said. “We never go and ask the customer, ‘What feature do you want in the next product?’ It’s not the customer’s job to know. We accumulate that information ourselves.”

Mr. Schiller is expected to testify again on Friday.

Apple-Samsung Trial Highlights Tricky Patent Wars

A jury will be asked to sort through all that to settle a dispute between Apple and Samsung Electronics beginning Monday in a federal court in San Jose, Calif.

The jury trial is the latest phase in a global campaign of smartphone patent litigation that began more than two years ago. The legal clashes mainly pit Apple against rival smartphone makers whose handsets are powered by Google’s Android software, notably Samsung, HTC and Motorola Mobility, which Google bought last year. Dozens of lawsuits and countersuits have been filed in courtrooms around the world.

Yet the escalating patent battle is more than just legal maneuvering. Patents can be powerful tools for determining the rules of engagement for major companies in a fast-growing industry like smartphones.

Patents are declarations of invention that are often easily obtained from government patent examiners, but their real value — their validity and strength — is determined in court.

A few significant rulings in favor of one side or the other, industry and patent experts say, could shape the competitive landscape in smartphones and a sister industry, tablet computers. Court decisions, they say, can provide the basis for negotiating the terms and cost of licensing and cross-licensing of patents — or for keeping certain patented features exclusive to one company.

“Once you determine who is the genuine innovator, and in what technologies on the product, you reset the playing field,” said Kevin G. Rivette, a Silicon Valley patent consultant and former vice president for intellectual property strategy for I.B.M.

But to bring a real shift in the marketplace, Mr. Rivette added, one side must have “strong patents, not incremental ones.”

That issue is much debated, and litigated, in the smartphone arena.

Apple scored some points in June. Judge Lucy H. Koh, who will also preside over the jury trial that begins this week, issued a preliminary injunction against Samsung, ordering it to stop selling its Galaxy Nexus smartphone in the United States.

Judge Koh found that Samsung had infringed on an Apple patent for a “universal interface,” which broadly describes crucial ingredients found in Siri, Apple’s question-answering application (though the patent itself was filed by Apple before it acquired Siri in 2010).

But the power of smartphone patents in general suffered a blow in another federal court in June.

Richard A. Posner, a prominent federal appeals court judge in Chicago, dismissed a case involving Apple and Google’s Motorola Mobility subsidiary. In his “pox on both of your houses” ruling, Judge Posner ridiculed Apple’s broad claims for its user-experience patents and Motorola’s claim that Apple should pay it a rich royalty on its basic communications patents. Both companies are appealing that ruling.

Fierce patent battles in new industries have been the rule for more than a century, from the steam engine to semiconductors. The lessons of history are decidedly mixed.

Sometimes, patent warriors can hold off rivals for years, as the Wright brothers did in the airplane business — though the cost in time, money and innovative energy diverted was daunting even then. In 1912, Wilbur Wright wrote, “When we think what we might have accomplished if we had been able to devote this time to experiments, we are very sad.”

In smartphones, some analysts say, the sheer number of patents and the speed of innovation in product development undermine the power of patents. Because a smartphone combines many communications and computing technologies, as many as 250,000 patents may touch the device, according to estimates by RPX, a patent licensing company.

“You necessarily litigate individual patents, but there are thousands of patents behind the ones in court,” said Mark A. Lemley, a patent expert at the Stanford Law School. “That complexity and the speed of innovation may well make it easier to invent around the patent system in smartphones.”

Indeed, for its new Galaxy models, Samsung developed an alternative to one of the Apple-patented features cited in this week’s trial.