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Amazon, Google execs clash with Apple lawyers in ebook pricing trial

Written on:June 6, 2013
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On the fourth day of the federal government’s ebook pricing trial against Apple, Amazon and Google executives offered testimony in hearings that were often fraught and occasionally funny — but still introduced little evidence that was new or surprising to anyone who has been following the trial.

Kindling on the fire

First up was VP of Kindle Content Russ Grandinetti, whose testimony continued from the previous day and who was questioned by Apple attorney Howard Heiss. Heiss sought to demonstrate that Amazon needed participation from all of the Big 6 publishers in order to launch the Kindle Store in 2007, to make it clear that Amazon was aware of publishers’ dislike of the $ 9.99 price point long before Apple came on the scene, and that Amazon had reasons of its own to switch to agency pricing beyond the notion that Apple’s launch of the iBookstore forced it to.

For awhile, Grandinetti insisted that he didn’t know what Amazon’s market share was for ebooks in 2009. “Would you agree that Amazon was the dominant ebook retailer?” Heiss asked. Grandinetti said he was “not sure.” “Can we agree on your definition of ‘dominant’?” Heiss asked more testily, citing the definition from the New Oxford American Dictionary, “which I believe Amazon uses” (it’s built into the Kindle).

He then cited a 2010 CNET interview with an Amazon Kindle VP, Ian Freed, which was headlined “Amazon: We have 70-80 percent of ebook market.” “Do you know. Where Mr. Freed got the metrics. The data. The information,” Heiss said. Grandinetti responded that Freed was “probably relying on publisher reports.”

Heiss asked if Grandinetti was aware of publishers’ dislike of the $ 9.99 price for New York Times bestselling Kindle books. It “wasn’t secret,” he said. Grandinetti agreed, “It was not.” And Naggar referenced an October 2009 email from Kindle VP David Naggar to Grandinetti, which read in part, “The debate is RAGING and the next 6-9 months is when all the battles are going to be fought.”

What did Amazon know?

Heiss sought to show that Amazon was not unfamiliar with agency pricing before Apple launched the iBookstore. For instance, he noted that Amazon already used the agency model in other parts of its business, like newspapers, periodicals and for some music. In addition, he noted that as of 2009, publishers were publicly stating that they would consider withholding new ebooks from retailers and only releasing them a few months after new hardcovers — a practice known as windowing.

In the most fraught section of Grandinetti’s testimony, Heiss referred to a section of Grandinetti’s deposition in which he said that, following the introduction of agency pricing, ebook prices went up “across the board.” This was an “impression,” Grandinetti said. “You weren’t looking at any data?” Heiss asked. “This was anecdotal review by you?” He then went on to cite statistics showing that, according to Amazon data, four publishers actually lowered prices on many NYT bestsellers following the launch of agency pricing. “In the aggregate, prices went up,” Grandinetti said cautiously.

At this point, Heiss yelled at Grandinetti for looking at Amazon’s lawyer. “Mr. Heiss, please,” Judge Denise Cote admonished.

Heiss wanted Grandinetti to admit that Amazon didn’t put a lot of thought into its $ 9.99 pricing strategy, other than that it was cheap. Grandinetti countered that publishers lacked Amazon’s “specific knowledge” on pricing. “I take it that coming up with the $ 9.99 price didn’t offer any specific algorithm,” Heiss said, to which Grandinetti responded, “Simplicity can be sophisticated.”

Grandinetti was followed by Kindle VP David Naggar, whom Heiss questioned about contract negotiations with publishers. “We would let them know that we weren’t asking anything different from them than we were asking from others,” Naggar said. “When you told publishers that, did you simply expect them to take it on faith that you were being truthful with them?” Heiss asked. Naggar responded, “Yes.”

Next up was Laura Porco, who was formerly a director of Kindle books and now works at Amazon’s MyHabit.com. Much of Heiss’s questioning of Porco centered around her email exchanges with Madeline McIntosh, who is now the COO of Random House and was at Amazon from 2008 to 2009, when she worked under Porco. In particular, Heiss referenced one email exchange in which McIntosh referred to Porco’s belief that publishers would never sign agency contracts unless there were 90-10 terms. “What we never figured was that five publishers would band together and insist on worse terms,” McIntosh wrote at the time, to which Porco responded, “Hysterical, isn’t it? Jedi mind tricks here in Seattle.”

According to Apple, the meaning of this email exchange was that McIntosh was being funny, as publishers had actually agreed to 70-30 agency terms — a worse deal for the publishers. According to Porco, however, McIntosh was being entirely straightforward and that by “worse” terms she meant worse than wholesale.” As for the “Jedi mind tricks” reference, Porco told Heiss, “I was being very sarcastic in this email and it was quite the opposite.”

Google’s turn in the hot seat

The day ended with testimony from Tom Turvey, director of strategic partnerships at Google. Turvey was questioned by Apple attorney Orin Snyder, who concentrated his questioning on Turvey’s deposition — which Turvey was asked to provide by the government, and which the government contributed to. In particular, Snyder slammed Turvey repeatedly on a sentence in the testimony in which Turvey said he was “directly advised” by publishers that their agency contracts with Apple would not allow them to enter wholesale contracts with other retailers, like Google — when in fact other Google emails showed that this wasn’t true (Macmillan, for instance, had told Google that it could do either a wholesale or agency contract).

“I don’t recall whether I wrote these words directly or with counsel,” Turvey admitted. Snyder, who swigged from miniature bottles of water throughout the questioning and was clearly enjoying himself, persisted: “You cannot attach a name or a face…you can’t recall a single phone call…” Turvey responded, “My recollection is that these events happened. I can’t tell you with whom.” At five, Judge Cote cut Snyder off: “We’ll let Mr. Turvey escape so he can begin to enjoy his Thursday.”

Snyder also couldn’t help getting in a few digs at Google’s media business. “Would you agree Google is a powerful company in the media and entertainment space?” he asked. Turvey responded, “No, I would not.”

“Do you own an iPad?” Snyder asked. Turvey said, “I do not.”

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