Science & Environment

Apple warns of “chilling effect” as antitrust trial ends

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NEW YORK (Reuters) – Apple Inc, on trial for allegedly colluding to raise the price of e-books, said on Thursday an adverse ruling would have a “chilling effect” on how businesses investigate new markets.

If Apple was found guilty, it would “send shudders through the business community” by condemning the ordinary negotiations that companies undertake to enter new markets, the company’s lawyer, Orin Snyder, said on the last day of the trial.

“We submit a ruling against Apple on this record sets a dangerous precedent,” Snyder said.

The U.S. Justice Department accuses Apple of conspiring with U.S. publishers beginning in late 2009 to increase the price of e-books in an effort to undercut the pricing established by then-dominant Inc. The publishers have settled with the government.

Throughout closing arguments Thursday, Apple found itself fighting back against tough questioning by U.S. District Judge Denise Cote.

At one point on Thursday, Cote asked if it was correct that Apple “understood publishers were willing to work together to put pressure on Amazon.”

Snyder responded there was no evidence Apple understood the publishers were allegedly conspiring together before it proposed creating an online bookstore for its coming iPad. Apple had no idea the publishing executives were calling each other and having dinners together.

“There is no such thing as a conspiracy by telepathy,” Snyder said.

For three weeks, the government has sought to show the popular iPad maker conspired with five of the biggest publishers to raise prices for new and bestselling books from the $9.99 set by, which at the time controlled up to 90 percent of the e-book market, had been buying books at wholesale and then selling them at times below its costs as it promoted its Kindle reading device.

Apple, by contrast, entered into so-called agency agreements in which publishers rather than Apple set book prices of up to $12.99 and $14.99, in a move the government contends enabled publishers to push back against’s pricing.

Apple in exchange got a 30 percent commission from the publishers, who included Pearson Plc’s Penguin Group, News Corp’s HarperCollins Publishers Inc, CBS Corp’s Simon & Schuster Inc, Lagardere SCA’s Hachette Book Group Inc and Verlagsgruppe Georg von Holtzbrinck GmbH’s Macmillan.

After signing the deals, the government said publishers pushed into the agency model, allowing publishers to increase prices, which shot up 9 percent industrywide, Mark Ryan, a Justice Department lawyer, said.

“Only a united industry front could move Amazon off its $9.99 price,” he said.

Cote, who has said before the trial began that she thought the government would be able to show direct evidence Apple engaged in the conspiracy, also interrupted Ryan as he made his closing argument.

At one point, she asked Ryan how he responded to Apple’s “argument that it didn’t raise prices as the e-books would have been unavailable at any price.”

Earlier Thursday, Snyder had argued that before Apple entered the market, publishers had begun withholding popular new titles from e-bookstores until the hardback version had been on sale for a number of weeks. Without Apple’s entry, those titles would not have been available as e-books immediately, he said.

Ryan, who had earlier shown statistics that publishers withheld titles just 37 times in 2009, said he rejected Apple’s argument. It was unclear how the future would have played out, he said.

“We don’t know what course competition would have taken the industry on,” Ryan said.

The Justice Department is not seeking damages against Apple. In a slide presented Thursday, the Justice Department said it wanted Apple to be prohibited from the agency model for two years and a five-year prohibition against the use of price-parity contract clauses at the center of the case, among other remedies.

Should the government prevail, a separate trial would be held on damage claims asserted by 33 state attorneys general whose case on liability was also being heard during the last few weeks.

The case is United States v. Apple Inc et al, U.S. District Court, Southern District of New York, No. 12-02826.

(Reporting by Nate Raymond- Editing by Phil Berlowitz)

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