Saturday, June 8, 2013
Judge Cote may be backing away from her preliminary view of the DOJ's antitrust case.
Judge Cote.
Via dealbreaker.com
FORTUNE -- A subtle but potentially important shift took place Thursday in the Manhattan federal courthouse where U.S. District Judge Denise Cote just wrapped up the first week of the three-week civil antitrust case known as U.S.A. v. Apple.
Via dealbreaker.com
FORTUNE -- A subtle but potentially important shift took place Thursday in the Manhattan federal courthouse where U.S. District Judge Denise Cote just wrapped up the first week of the three-week civil antitrust case known as U.S.A. v. Apple.
One of the central questions in the case is whether Apple (AAPL) executives told the six biggest book publishers they had to change the way they did business with Amazon (AMZN) or whether the publishers came to that conclusion because of the clever way Apple structured its contracts. (See The "lynchpin" of Apple's e-book strategy.)
On Thursday, Laura Porco, one of the Amazon executives who negotiated deals with book publishers, submitted a written statement that strongly suggested the former. In it she testified that the week before Steve Jobs announced the iBookstore, five of the six major publishers told her that "they were requiring Amazon to switch its terms ... because that's what Apple required them to do."
That looked pretty damaging to Apple.
But before Porco was allowed to leave the witness stand, Judge Cote,
who alone will decide the non-jury case, had a few questions.
She zeroed in on the next sentence in Porco's written testimony:
"[The publishers] said their agreement with Apple included restrictions around consumer pricing that made it technically impossible to remain on reseller terms with Amazon or any other retailer."
Could those "restrictions" be what the publishers were referring to
when they said Apple "required" them to change their terms? Judge Cote
asked Porco. In other words, were the publishers' longstanding deals
with Amazon off because of the structure of their agreement with Apple, not direct instructions from Apple?
The lawyers at Apple's table snapped to attention.
It was the first time in four days of trial that the judge -- who in pre-trial statements
seemed to have already decided the case against their client -- asked a
clarifying question that not only favored Apple, but seemed to get to
the heart of its defense.
Orin Snyder, Apple's lead attorney, seized his advantage with the next witness.
Thomas Turvey was the Google (GOOG)
executive who signed contracts with the same publishers before Google
launched its own e-bookstore later that year. Google had been
negotiating deals with the publishers under terms similar to Amazon's,
using the so-called wholesale model where Amazon set the price of
e-books. Apple's contracts called for "agency" arrangements, where the
publishers set the price and Apple took a 30% cut. Both Amazon and
Google much preferred the wholesale model.
In his written statement, Turvey testified that in January 2010 that
representatives of the five publishers told him that they were switching
from a wholesale to an agency model.
"In addition," he continued, "each of the publishers either advised me directly or strongly implied that their agreements with Apple ... did not allow them to continue offering their books under wholesale terms." (emphasis added)
In his deposition, it turned out, Turvey said something different -- that the publishers could no longer sign wholesale deals "because of their agreements with Apple."
In questions that grew increasingly hostile, and at times almost brutal, Apple's lawyer got Turvey to admit that he couldn't remember the names of any of the publishers who told him Apple "did not allow" wholesale. He couldn't remember any of the phone calls or meetings when the conversations took place.
Had no notes to support his recollection. Did not e-mail Google headquarters to relay the important news. And couldn't even swear that he had written the words that appeared in his direct testimony, because the entire document -- submitted under oath -- was "constructed with counsel."
That is to say, the words could have been written not by Turvey, but by Google's lawyers.
Turvey, who looked shaken when he hurried out of the courtroom, returns to the stand on Monday. It will interesting to see whether Judge Cote has any follow-up questions for him.
NOTE: For a backgrounder on the legal issues in the case, you can't do better than my colleague Roger Parloff's US v. Apple could go to the Supreme Court.
