Following Penguin’s David Shanks to the witness stand in the Apple e-book price fixing trial, S&S CEO Carolyn Reidy was feisty and contentious, often challenging the intent of the government’s questions or offering unsolicited interpretations of its language and phrasing. Late in the day, Amazon v-p of Kindle content Russ Grandinetti also took the stand facing stiff scrutiny from Apple’s lawyers who seem fixated on Amazon’s demands for contract parity with the iBookstore during negotiations with the Big Six publishers to establish terms for the new agency pricing model.
Much like they had done during Shanks’ time on the witness stand, government attorneys quickly presented a series of e-mails, handwritten notes, phone logs and other documents detailing contact and meetings between Reidy, S&S staff and then-Apple executive Eddie Cue, Apple associate general counsel Kevin Saul and others. Among their first items presented as evidence was a handwritten note by Reidy from an initial meeting with Apple detailing projected pricing of $12.99 to $14.99 for e-books as well notes about “mininum price maintenance,” Apple’s “price tiers” (charts tying the price of e-books to physical books) and notations that Apple had met with all of the Big Six.
As they had done with Shanks, the government pressed Reidy on the nature of Apple’s Most Favored Nation clause and their contention that the MFN is a key element in the alleged price-fixing conspiracy and a cover for the Big Six to move all their retail partners to the agency model in a concerted effort to raise e-book prices above the $9.99 price point. Indeed Reidy and the government butted heads over the interpretation of the MFN’s impact. Reidy debated the government attorney over whether the MFN “forced” publishers to move all resellers to the agency model, in the governments phrasing, or whether moving resellers to agency was “needed” and a “practical business decision,” in her view, a seeming semantic variation on the established notion that the move was inevitable under the circumstances. “The MFN made us want to do it [move all resellers to agency],” Reidy said, “it was an option, we didn’t have to but as a practical business matter it made sense.”
Reidy made it clear that during that initial meeting she wanted even higher prices on e-books than Apple was projecting (“I wanted prices to go up even more,” she said) and was initially in favor of a minimum price maintenance agreement, “but I made the connection that the agency model would give us what we wanted,” she said. Responding to a question about retail price wars, Reidy was forthright, emphasizing that retail price wars devalue the product and agreed they “don’t make sense” in the words of the government attorney. Though when asked if Apple believed they could stop price wars, Reidy said, “it’s more complicated than that. Apple’s not the whole market,” and she explained that Apple did not want “a great disparity” between high and lower e-book prices, “there would still be some price competition but across the whole of the catalog.” She was quick to emphasize that S&S welcomed Apple into the book market and saw their entry as a new and powerful retail platform for selling books as well as a chance to take back control of S&S e-book pricing.
The government also focused on Reidy’s contact with other Big Six CEOs. At one point, Judge Cote asked for the display of two large charts showing both the number of calls between all the Big Six CEOs that were tied to the dates of the Apple negotiations as well as a visual representation of the quantity of calls between certain CEOs. On the charts you could see spikes in calls based on dates and events and in one chart Reidy was shown to have to talked most frequently during the period to Hachette CEO David Young and Penguin’s David Shanks, and less frequently to Macmillan’s John Sargent and HarperCollins' Brian Murray.
Reidy has testified under oath that she did not talk about S&S’s negotiations with Apple or her plans about moving to the agency model “with anyone in the publishing industry,” during a period from late 2009 to early 2010 (when negotiations between the Big Six and Apple were going on) and she reaffirmed her testimony under questions from the government. But government attorneys presented a handwritten note by Reidy about a phone call between herself and Murray which appeared to be notes (“close to Amazon, two issues left” the notes said) about Apple negotiations over e-book prices. In addition, the government noted that during the period in question, Reidy was invited by literary agent Simon Lipskar (at the time, agents were apprehensive about the nature of the agency pricing model) to do a presentation in front of the Association of Author Representatives about the difference between the wholesale model and the agency model.
While the government (who asked Reidy if she had talked about “negotiations” or had had “conversations” about the Apple talks with others in the industry) clearly saw both these instances as inappropriate contact, Reidy brushed them off. She asserted that the Murray call and notes “were not about negotiations, we’re using the term differently.” And while she admitted to talking to a room full of agents about the agency model while she was in the process of negotiating a move to that model, Reidy simply said that, “I didn’t say that S&S was going to do it.” The government did not appear satisfied by her answers.
The government also introduced an e-mail from S&S general counsel that linked to a video of the late Apple CEO Steve Jobs being interviewed by the Wall Street Journal at the launch of the ipad in 2010. In the video segment, Jobs is asked why would a consumer buy a $14.99 e-book from the iBookstore when they could get it for $9.99 from other retailers. Jobs responded, “that won’t be the case, prices will be the same,” adding that there will be “new sales terms” and that “publishers will withhold new e-books form Amazon because they are not happy with the prices.” The letter from S&S counsel called the Jobs statement “incredibly stupid.” Asked by the government if, “thats how it was supposed to work,” Reidy was unfazed and said, “it depends, but he’s right, prices would be the same, but we did not threaten Amazon at all.”
Reidy also gave a long list of the problems she and other publishers had with Amazon, including “devaluing our product, lowering prices to sell more of their machines, a price, $9.99, that’s not enough money for our authors or for us, forcing other retailers to sell at a loss, I could go on.” At one point the government asked her directly if S&S wanted to slow e-book growth to protect the value of print books. Reidy denied that but said, “there’s probably some note by me saying that,” emphasizing somewhat inexplicably that “physical books aren’t all that profitable.” Indeed, the government immediately did present such a note.
Late in the afternoon Amazon's Grandinetti took the stand, not long after Reidy had descried her own encounter with Amazon when she notified them that S&S was shifting to the agency model. Reidy said Grandinetti said he “wasn’t surprised” to get her call, asked a few questions and the call ended. He called back, however, in a different mood, Reidy said, and “threatened our business.” According to Reidy he said, “we’ll have to look at this whole thing. Maybe we shouldn’t sell any of your books,” before shifting to demands that they immediately start negotiations on a new contract.
Once on the stand, Grandinetti came under intense questioning from the Apple lawyer—Apple seems determined to highlight Amazon’s role in these events—principally focused on Amazon’s terms with publishers under the new agency agreement. They also asked about the meeting between Amazon and Macmillan’s Sargent, the notorious encounter that resulted in buy buttons being removed from Macmillan titles. Grandinetti said the meeting “was tense” but that Amazon and Macmillan eventually reached a 3 year deal on the agency model in which Amazon demanded and received “parity” with Apple’s deal, including guarantees that e-books will be cheaper than physical books, an MFN, commission parity (30% to Amazon) and no windowing of e-books among them.
The day ended with the Apple lawyer focused on the negotiations between Amazon and the Big Six for terms on the new agency agreement. Asked if he considered the agency model’s 30% commission “a reasonable” business term, Grandinetti was hesitant and careful in responding. “We were presented with an ultimatum,” Grandinetti said, “we’ve never done business in this way before, under those circumstances its hard to say what is reasonable.”
Grandinetti is likely to return to the stand today. In addition Amazon executives David Naggar and Laura Porco, in addition to Google’s Thomas Turvey are also scheduled to testify.
