The federal government’s antitrust trial against Apple (s AAPL) began in New York this week, and Wednesday brought testimony from Simon & Schuster CEO Carolyn Reidy and Amazon (s AMZN) VP of Kindle content Russ Grandinetti. Here’s a wrap-up of what went down yesterday.
- Grandinetti argued that the publishers’ switch to the agency model was intended to “slow down the success of the Kindle,” Reuters reports, but as is well known by now, the company ultimately agreed to switch to agency in order to keep the ebooks in its store, signing three-year deals in which Amazon would take a 30 percent cut of each sale.
- One of the main points of the DOJ’s case is that Apple was a “facilitator and go-between” in encouraging publishers to require agency contracts with other retailers (namely, Amazon). Publishers Marketplace reports, “[Simon & Schuster CEO Carolyn] Reidy argued that Apple did not require the publisher to move Amazon and other accounts to the agency model. ‘We had the option of not doing that,’ Reidy said. ‘We wanted to do that,’ she indicated, because under the MFN clause, in not doing so they would ‘make even less money.’ At another point, Reidy said, ‘we wouldn’t have signed a contract that said let Apple tell us what we had to do with other retailers.’ A related, charged point raised by the government was an internal mail to the S&S team on January 4, in which Reidy writes in part about how to respond to Eddy Cue’s proposed Apple terms, noting that ‘we are in total agreement that…agency model should hold for all retailers.'”
- Amazon’s new publisher contracts (as well as Barnes & Noble’s new contracts) also contained most-favored-nation (MFN) clauses. As the Wall Street Journal notes: “Mr. Grandinetti’s testimony underscored one of the quirks of the government’s case against Apple: Once Amazon moved to the so-called agency model, it negotiated the same terms that the Justice Department has pronounced unenforceable in the Apple contracts, including a provision that said if another retailer were selling a book at a lower price, the publisher would have to match the lower price in Amazon’s digital bookstore.”
- The New York Times reports that “Ms. Reidy called an executive at Paramount Pictures to verify Apple’s claim that a 30 percent commission on sales in their iTunes store — which she considered too high — was standard.”
On Thursday, Grandinetti is expected to finish his testimony. After that, two more Amazon executives — VP of Kindle content David Naggar and general merchandise manager Laura Porco (who was previously director of Kindle books) — are scheduled to take the stand, followed by Google (s GOOG) director of strategic partnerships Thomas Turvey. We’ll be in court.