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Amazon execs set to testify in price-fixing case against Apple

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As the federal government presses its antitrust case against Apple(s aapl), Amazon(s amzn) is taking on a central role in determining whether a court will conclude that the iPad maker illegally colluded with five publishers to fix the price of ebooks.

According to a new court filing, Apple is demanding more access to Amazon’s top ebook executives — Russ Grandinetti and David Naggar, who both have the title VP of Kindle content — because the executives have said they “will likely testify at trial on the government’s behalf.” Meanwhile, a filing by Amazon said the company sought legal advice in early 2010 in response to what it perceived as the “the existence of an illegal (possibly criminal) price-fixing conspiracy by the five publishers and one or more retailers.”

A trial in the case is possible because Apple, unlike the five publishers that agreed to settle with the Justice Department, continues to hold out. The DOJ accuses it of acting as the hub of an illegal price-fixing scheme in early 2010. The alleged scheme involved Apple offering its new tablet reading device, the iPad, as a way for publishers to introduce agency pricing and shut out Amazon unless the latter agreed to the new prices.

The latest court filings, which came to light last week, are part of a procedural dispute in which Apple insisted it had a right to obtain more testimony and documents from Amazon executives. Amazon, in response, invoked a shield known as attorney-client privilege, which allows parties to withhold information that was obtained while seeking legal advice. Last week, U.S. District Judge Denise Cote sided with Amazon in the dispute and ruled that the information was privileged.

Court filings also reveal that the dispute in question turns on two meetings between senior Amazon executives in early January 2011; one of the meetings took place at a “boathouse” at the Seattle residence of Amazon CEO Jeff Bezos.

The Amazon executives claim the reason for those meetings was to get legal advice “to avoid the very liability that the publisher Defendants and Apple are facing now.” Apple unsuccessfully argued that the meetings shouldn’t be privileged because Amazon was actually plotting business strategy and that it is now using the presence of its lawyers as a pretext to hold back information. Apple also claims its legal discovery of Amazon has already “exposed a glaring hole in the government’s case.”

A big part of the underlying case turns on “most favored nation” clauses and the publishers’ decision to impose so-called “agency pricing,” which saw retailers like Amazon and Apple take a commission from a price set by the publishers. The agency system, which publishers say was necessary to stop Amazon selling their books at a loss, was modified due to Department of Justice settlements with the publishers. Publishers can still set the prices for their ebooks, but most favored nation clauses are forbidden and retailers have broad discounting powers for ebooks.

Judge Cote, in her order denying Apple’s challenge to Amazon’s attorney-client privilege, also ordered executives from publishing house Penguin to participate in the proceedings. You can read Apple’s earlier letter to Judge Cote below.

This post was updated at 12:30 p.m. ET to clarify that a modified form of agency pricing, as described above, is still in effect.

Apple Letter Re Amazon Discovery by

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(Image by Getty Images / Spencer Platt)

3 Responses to “Amazon execs set to testify in price-fixing case against Apple”

  1. Michael W. Perry

    At the same time that Apple and several major publishers were allegedly ‘price fixing’–as if anyone can control something as amazingly fluid as ebook prices–Amazon was engaging in the preeminent move of all would-be monopolists. With a roughly 90% share of the ebook market, Amazon was selling ebooks below cost in what could only have been an move to destroy what little competition it then had. And yet the DOJ went after Apple, which at that time had virtually zero percent share of the ebook market and it did nothing about Amazon.

    Words fail when I try to express my contempt for Obama’s DOJ. It’s classic Chicago Machine politics. The current DOJ is using the power of the federal government to reward political friends (here Amazon) and destroy their competitors (Apple). The losers are the book buying public, along with authors and publishers of all sizes.

    And as for that ‘most favored nation’ pricing, Amazon has set precisely the same ‘no lower price than our’s’ conditions along with something far more chilling, rewarding those who sell their ebooks only through Amazon. Apple does not try to get authors to publish only through the iBookstore. Amazon does (Amazon Select). The latter sounds remarkably like restraint of trade.

    Apple also actively supports Smashwords, which distributes ebooks to multiple retail outlets (B&N, Sony, Kobo, as well as Apple), while Amazon is hostile toward Smashwords authors, only grudgingly accepting a few of the bestselling ebooks from it.

    Like I said, words fail me when I try to express my loathing for the current DOJ. That loathing is only exceeded by my contempt for a news media that refuses to expose its corruption.

    • “–as if anyone can control something as amazingly fluid as ebook prices–”

      The publishers named in the suit insisted on agency pricing, which did in fact allow them to control the price of their own ebooks. What got them in trouble was all of them doing that at the same time.

      eBook prices are fluid in that there is no price stamped on a physical cover, so they can be changed as often as whoever is setting the price likes. That doesn’t mean they can’t be controlled.