At the end of day four of Apple's e-book price-fixing trial, Google got in the game. For more than an hour, Apple attorney Orin Snyder aggressively dismantled Google Director of Content Partnerships, Tom Turvey, a witness for the government, who in a sworn statement had indicated that the five accused publishers "advised" him in January of 2010 that they were switching to the agency model, and had “strongly implied” that their Apple contracts forbade them from agreeing to wholesale terms for Google’s yet-to-launch e-bookstore.
But under protracted, confrontational questioning from Snyder, who portrayed Google as a business rival to Apple, Turvey could not recall a single name of anyone at any of the five publishers who “directly informed him” of the publishers’ plans, or of Apple contract details. Turvey, also, did not have any notes, or any documentation at all—emails, scribbles, or phone records from him or anyone on his team—to back up his assertions. Turvey even stipulated that he could not say which sentences he personally wrote in his own statement, admitting it was drafted with the help of counsel.
Snyder seemed to revel in Turvey’s inability to elaborate or back up his sworn statement, and persisted in his questioning, clearly seeking to knock out this piece of the government’s case—albeit a minor one—for good. Turvey had not finished his testimony when the clock struck 5 p.m., and he will be back on the stand when the trial resumes Monday.
Most of the day’s testimony was devoted to Amazon—with Apple attorney Howard Heiss finishing his methodical questioning of Amazon’s v-p of Kindle content, Russ Grandinetti, from the day before. Grandinetti was followed by Amazon v-p's David Naggar, and Laura Porco, who, together, were the three lead contacts in negotiations with publishers.
Here, Apple attorneys tried to lay the foundation for one of their major defenses—that Amazon had examined the benefits of the agency model, and were actually satisfied to take it on. Apple, however, mostly failed to lay a glove on any of the three Amazon witnesses, with each sticking to their narrative: that Amazon did not want agency, and the model was forced onto them by five publishers suddenly, and simultaneously.
In his questioning of Grandinetti, Heiss was able to establish that the e-book market in 2009 was experiencing “unrest,” and that, as a new market, the wholesale model for e-books was not an established tradition. But there was little to bolster Apple's assertion that Amazon had internally discussed agency terms prior to Apple's contracts with publishers.
In one of the more interesting moments, Grandinetti refused to discuss a January 24, 2010, meeting at Amazon CEO Jeff Bezos’ “boathouse,” saying there were “serious legal matters under discussion at that meeting.” The following day, Amazon outlined what it would accept in any agency deal in an internal memo. But Grandinetti reiterated that Amazon was never interested in agency. “The whole agency model was unusual to us,” he stressed.
Apple also sought to show that the terms it sought in its publisher deals were simply good business practice, by showing that Amazon had insisted on the same terms in their deals. Among the terms Amazon insisted on for its agency deals was a price parity provision—like the one Apple used in its deal—and a “business model parity” provision, Grandinetti said. It was important to Amazon—as it was to Aple—that it not be undersold on price, Grandinetti explained. And, the business model parity was to ensure that if publishers were to switch models again with a new competitor—for example offering subscriptions—that Amazon could also use any new model. When Apple attorneys questioned why Amazon was seeking lengthy three year agency deals with publishers if they disliked the model so much, Grandinetti was blunt—they were unsure of what would happen in the near future, and wanted some stability for Kindle customers. There was no certainty that terms would improve year-to-year, he noted, and things could “get worse.”
Grandinetti also elaborated somewhat on the disabling of the Macmillan buy buttons, conceding to Apple lawyers that the move was partly done to gain some leverage in forthcoming agency negotiations, and that Amazon officials thought there was a “non-zero” chance that Macmillan might change its mind, although that chance was remote. Grandinetti characterized Macmillan’s agency proposal to Amazon as an ultimatum.
Naggar, was up next, and proved to be a strong witness—composed, in a sharp suit, delivering crisp yes or no answers. He was on the stand for only about an an hour. Critically, Naggar disputed Apple’s contention that, following the Macmillan buy-button episode, Amazon wanted to negotiate agency terms with Random House. That contention was made in an internal email from Random House COO Madeline McIntosh to her bosses—but Naggar calmly denied McIntosh’s assertion. He said a February 1, 2010 meeting was part of a normal business review, and that McIntosh was seeking to understand “parameters” under which Amazon would accept agency with Macmillan. But as for Amazon coming to NY to sketch out agency terms with Random, Naggar stressed he never said that, and didn’t know why McIntosh would have written that in her email.
Amazon’s day on the stand concluded with Laura Porco—a friend and former colleague of Random House’s Madeline McIntosh, who also disputed Apple’s contention that Amazon had discussed alternative e-book models. Porco recalled how, in early 2009, she and McIntosh did have an informal “brainstorm” about potential models, including a revenue-sharing model, but concluded that Amazon would need a 30% revenue split, while publishers would never agree to more than 10%. Porco elaborated that revenue-sharing was far different from agency—because Amazon would have kept pricing power. But, she said, the conversation wasn't serious, and went nowhere, and was never raised again.
That is, until an email from McIntosh following the Apple deals in January, 2010. In the email, McIntosh referenced the conversation—and the 30% agency split Apple was receiving. Porco responded: “Jedi mind tricks here in Seattle.” Apple attorneys had sought to portray that exchange as evidence that Amazon was in fact favorable to an agency model—which Porco swiftly shot down. “I meant quite the opposite,” she said, saying the entire exchange was sarcastic.
Porco also said that at a dinner on June 18, 2010, McIntosh told her that other publishers were doing deals with Apple, and planning to switch to an agency model. Porco said she then approached meetings held that week with publishers as a “fact-finding” mission. In those meetings, each publisher did inform Amazon officials they were considering moving to agency. Porco said her reaction was “alarm.”
Porco also discussed how Amazon helped the only non-agency publisher, Random House, increase its market share on Amazon after its competitors switched to agency, and higher prices.
Trial proceedings will resume on Monday, with Turvey, Brian Murray of HarperCollins, Markus Dohle of Random house, and either John Sargent from Macmillan, or Keith Moerer from Apple, slated to testify.
