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Apple executive defends e-book deals

Eddy Cue, who led the negotiations with publishers, testifies at federal antitrust trial.

June 14, 2013|Andrew Tangel and Chris O'Brien
  • Eddy Cue, the Apple Inc. executive in charge of negotiating the company's controversial e-book deals, leaves federal court in Manhattan on Thursday.
Eddy Cue, the Apple Inc. executive in charge of negotiating the company's… (Victor J. Blue, Bloomberg )

NEW YORK — Eddy Cue, the Apple Inc. executive in charge of negotiating the company's controversial e-book deals, defended how the tech giant started its online bookstore as he made his highly anticipated appearance on the witness stand in a federal antitrust trial.

During five hours of testimony Thursday and questioning that at times grew contentious, government lawyers pressed their case that the agreements Apple signed in 2010 with five major publishers amounted to a conspiracy to get consumers to pay more for electronic books.

Lawrence Buterman, one of the federal prosecutors trying the case, asked Cue whether Apple customers thanked him for making them pay more for e-books.

No, Cue responded, but consumers did thank him for creating an e-bookstore. "We gave them a great offer," Cue said.

"I did not raise prices," he added, noting major publishers had that power under the agreement.

In the antitrust case filed last year, the Justice Department labeled Cue the "chief ringleader" of a cartel designed to fix e-book prices. The case stemmed from Apple's launch of the iBookstore in 2010 that came as part of the unveiling of the first iPad.

The five publishers involved in the case have all settled, leaving Apple to fight on alone. Apple denies that it colluded with the publishers to fix prices, and argues that the iBookstore has brought innovation and competition to the e-book market.

Because Cue led negotiations with the publishers, he was seen as the star witness in the federal trial that began last week.

Although not a household name, Cue has in recent years become one of the most influential executives at Apple. Under a reorganization last year, he was named senior vice president of Internet Software and Services, a position that reports directly to Apple Chief Executive Tim Cook.

Cue is now responsible for a large portfolio of Apple services, including Apple Maps, Siri and iCloud, as well as negotiating many of the Cupertino, Calif., company's deals with entertainment partners.

Cue took the stage at Apple's Worldwide Developers Conference in San Francisco this week to introduce the iTunes Radio, the company's new streaming music service. Cue had reportedly been dashing around New York trying to finalize deals with music companies in recent weeks so Apple could announce the service at the conference.

On Thursday, he was back in New York to make his appearance at a federal court in Manhattan over his similar role in striking deals with publishers three years ago.

The government has focused on how prices for bestsellers and new releases rose after Apple rolled out its e-bookstore.

Amazon.com Inc., by far the dominant force in the e-book market then and now, had set prices at $9.99, drawing complaints by publishers who wanted to charge more. Under an agreement with Apple, publishers could sell their titles on the company's online bookstore for $12.99 and $14.99. Apple would get 30% of the profits under the agreement.

Under questioning from Buterman, Cue acknowledged telling publishers that Apple needed them to adopt the so-called agency model, a method of pricing books that gave more control to publishers rather than retailers. Cue also acknowledged that he expected the agreement could mean higher prices for bestsellers and new releases.

"For some books, I believed it would," he said.

Cue later realized Apple might not be able to legally enforce an agreement that would require publishers to get retailers to adopt an agency model. That gave rise to the "most favored nation" clause that required publishers to meet the lowest prices for titles on the market.

"Our consumers were protected by [the] price points," Cue said.

The government has tried to portray Apple as part of a conspiracy ahead the iBookstore's launch. But Cue said "not one" of the publishers indicated to him that they were talking with one another about their pending deals with Apple.

The government's case has involved a trove of e-mails, phone records and other company records focusing on a six-week period from December 2009 through January 2010.

Cue is expected to resume testifying Monday.

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chris.obrien@latimes.com

andrew.tangel@latimes.com

Tangel reported from New York and O'Brien from San Francisco.

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