Eddy Cue, the Apple executive who played a pivotal role in the building of iTunes and the iBookstore, revealed some potentially embarrassing information this morning at the company's ebook antitrust trial in Manhattan.
Cue took the stand after being called by Lawrence Buterman, an attorney for the US Department of Justice, which has accused Apple of participating in a scheme in 2010 to raise and fix ebook prices. Cue confirmed that very early on, when Apple was weighing whether to enter the ebook market, he discussed a plan with then CEO Steve Jobs that called for offering Amazon a deal: Apple would stay out of the ebooks market if Amazon stayed out of music. This kind of arrangement could be considered anticompetitive and illegal.
Apple never went through with the plan but the government certainly tried to illustrate that Cue and Jobs were willing to play fast and loose with the rules as they began to enter the ebook market. The morning definitely went to Buterman, who appeared to poke holes in Cue's story as well as embarrass Apple. Cue is likely to have an easier time in the afternoon when Apple's attorneys get a chance to question him. If Apple loses, it is likely to be required to pay damages by more than 30 different states and would have to absorb a serious hit to its reputation.
Cue acknowledged that as a result of Apple's agreement, ebook prices rose
The DOJ filed a lawsuit last year accusing Apple and five of the country's book publishers of conspiring to fix ebook prices and limit Amazon's ability to discount ebooks. The publishers believed the low prices hurt their distribution and Apple wanted to snatch away one of Amazon's most important competitive advantages, the government alleges. The publishers, however, settled with the government, leaving Apple alone to fight the charges.
Key to the government's claims is Apple's insistence that the publishers force Amazon to agree to an "agency" model, giving publishers the power to price ebooks and handcuff Amazon's managers when it came to discounting. Cue said on the stand that at some point, Apple quit caring because their contracts with the publishers guaranteed that Apple would get access to the lowest price offered online — and still be allowed to take its 30 percent commission.
The government tried to show that Apple was playing fast and loose
Cue acknowledged that as a result of Apple's agreement with the publishers, ebook prices rose. The government argues that because of Apple's guarantee to get the lowest possible price, the company forced publishers to require that all retailers boost prices. Cue said he was indifferent about what other retailers did.
"Do you think your customers cared?" Buterman asked, as someone in the audience gasped. "Who protected Apple's customers from the higher prices?"
"I did," Cue said. He told the court that customers were happy with the iBookstore. Later Buterman asked Cue if any of Apple's customers complained about the higher prices. Cue responded that "they may or may not have, I can't recall." Buterman then asked if any of Apple's customers thanked the company for raising prices. This is how it went for much of the morning.
UPDATE: Cue told the court that he "felt tremendous pressure" to get the ebook deal done with the publishers and was working on it "24 / 7." He said he had worked for more than 24 years for Apple and over a decade with Jobs. "You have to understand that Steve was near the end. I wanted to get [the ebook deal] done for him."