The ongoing e-book price-fixing case between
) and the U.S Department of Justice took an interesting turn,
after the former's senior VP for Internet Services and Software
Eddy Cue appeared as a central witness.
In his testimonial to the Manhattan federal court, Eddy Cue
denied involvement in any price fixing with the five publishers
namely, HarperCollins Publishers Inc, Simon & Schuster Inc,
Hachette Book Group, Macmillan and Penguin Group. Currently,
Apple is the only defendant in the case with the others having
settled with the government.
In Apr, 2012, the Department of Justice (DOJ) filed a civil
antitrust lawsuit against Apple and these five publishers for
conspiring and manipulating e-book prices. The DOJ alleged that
the conspiracy resulted in inflating e-book prices by an average
$2.0 to $3.0 in a three-day period in early 2010, which resulted
in consumers paying millions of dollars more for e-books.
In May this year, the DOJ filed an e-mail as evidence, from
Apple's late CEO Steve Jobs to James Murdoch of
), the parent company of HarperCollins, which invited News Corp
to join the e-book market along with Apple to sell e-books at
$12.99 and $14.99.
The DOJ alleged that Apple feared
) dominant position in the market and believed that it would be
difficult to compete against its low priced business model. This
bought the two parties (Apple and the publishers) together to
fight a single common enemy: Amazon.
As per the DOJ's investigation, the next phase comprised a number
of secret meetings (also e-mail & phone conversations)
between the two parties in Manhattan and certain parts of Europe.
As per the DOJ, Eddy Cue was the main negotiator between these
five publishers and Apple, who hatched a conspiracy to shift the
e-book industry from the wholesale model practiced by Amazon to
an agency based model, which helped publishers to inflate e-book
He testified that the negotiations were hurriedly done in order
to showcase the iBookstore at the time of the launch of Apple's
inaugural iPad in Jan 2010. However, he denied Apple's
involvement in forcing the agency model on any other
publishers/retailers, including Amazon.
In regard to the higher e-book prices after Apple opened
iBookstore, he argued that the publishers were not happy with the
Amazon's low $9.99 pricing policy, and they demanded higher
prices from Apple at the time of negotiations.
Although this may not have been in the best interest of the
general public, Apple's entrance into the e-book market improved
it greatly, as consumers got a lot of book choices at reasonable
prices. Eddy Cue said that the deals enabled Apple to sell
e-books within the same price range as that of the cheapest
We believe that Eddy Cue's testimonial has been looked upon
favorably by investors. Apple's stock price gained 1% ($3.77) to
close at $435.96 at the close of Jun 13, 2013, after a steady
decline over the last three days.
We believe that Apple will vehemently fight off the anti-trust
allegations to not only protect its reputation but also its late
founder's legacy. On the other hand, since the e-book segment
does not form a major part of Apple's business, we believe that
the lawsuit will not be a major overhang on the stock.
However, Apple is expected to continue to face a number of other
headwinds that include the lack of new innovative products and
increasing competition from Samsung and
), which will keep the stock range bound in the near term.
Currently, Apple has a Zacks Rank #4 (Sell).
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