Apple Downplays Role Of 'Kindle Threat' In Alleged e-Book Conspiracy

Apple CEO Steve Jobs discusses iPhone 4.0 in Cupertino

A court filing provides new insight into Apple’s version of events concerning an incident in which Steve Jobs told a reporter that “unhappy” publishers might withhold e-books from Amazon.

According to Apple (NSDQ: AAPL), lawyers “mischaracterized” the exchange and Jobs simply meant to say that his company had a different strategy when he claimed “Amazon (NSDQ: AMZN) screwed it up.”

The new details are set out in Apple’s request last week to throw out a class action suit in which the company is accused of conspiring with publishers to fix the price of e-books.

The Steve Jobs comments were made to the Wall Street Journal’s Walt Mossberg shortly before the launch of the iPad in January of 2010. Since then, class action lawyers have pointed to Jobs’ words as the smoking gun in a scheme in which Apple and the publishers allegedly conspired to force Amazon to raise e-book prices.

In its filing, Apple argues that its business plan was to sell as many e-books as possible and that it had no incentive to raise prices. It also claims that is was a new and inexperienced player in a business in which Amazon dominated with 90 percent marketshare.

The “Kindle threat”

Apple’s argument is believable in that it was — and is — a relative bit-player in e-books.

But this argument is also a red herring because it doesn’t address the more serious charge in the lawsuit — that Jobs schemed with the publishers in order to slow Amazon’s rise into tablets. The theory is not far-fetched given that, less than two years after the launch of the iPad, Amazon launched the first serious competitor in the form of the Kindle Fire.

In the court filing, Apple acknowledges this accusation but downplays it as a far-fetched “fallback” strategy on the part of the class action plaintiffs:

But this allegation just strings together antitrust buzzwords.. Nor does this “Kindle theory” make sense on its own terms. For example, if Amazon was a “threat” that needed to be squelched by means of an illegal conspiracy, why would Apple offer Amazon’s Kindle app on the iPad? Why would Apple conclude that conspiring to force Amazon to no longer lose money on eBooks would cripple Amazon’s competitive fortunes? And why would Apple perceive the need for an illegal solution to the “Kindle threat” when it had an obvious and lawful one which it implemented – namely, introducing a multipurpose device (the iPad) whose marketing and sales success was not centered on eBook sales?

Apple’s choice to downplay the “Kindle Threat” in the filing and focus instead on the e-book market may be a strategic choice to deflect attention away from an argument where it may be vulnerable — in court and before the government.

The anti-trust noose tightens

Reports this week say the Justice Department, after months of investigation, is about to file a formal lawsuit against Apple and the publishers.

This is bad news for Apple that is made even worse by rumors that at least some of the publishers are in settlement talks with the government. If this is the case, those publishers may be seeking to obtain a lenient settlement in return for offering damning evidence of the conspiracy even if others don’t see it that way.

“These are business executives with competing interests,” said Andre Barlow, an anti-trust expert and former Justice Department lawyer. “Maybe some of them don’t believe what they’re doing is illegal and they don’t want to settle.”

Barlow says the behind-the-scenes investigations and settlement talks are a way for the government to obtain leverage. “They could be obtaining witnesses.”

For Apple and the publishers to dig in for a fight poses another risk. Namely, the government will air more of the companies’ dirty laundry than if they choose to settle.

According to Barlow, prosecutors have discretion in how much information they include with a complaint that is filed with an anti-trust settlement. If a company has cooperated in the investigation, the prosecutors may hold back on certain details because the complaint is for the public record and not for a trial.

But if the purpose of the government’s complaint is to win in court, prosecutors will use all their ammunition. This ammunition can then, in turn, be scooped up by consumer class action lawyers looking to strengthen their own case.

Apple has tough lawyers and doesn’t like to lose but it has its back up to the wall on this one.

The company did not immediately respond to a request for comment.

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