Apple 2.0

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Who dropped the dime on the Apple e-book five?

April 19, 2012: 3:16 PM ET

Decoding the Department of Justice's antitrust whodunnit

FORTUNE -- At a hearing in a Manhattan federal court Wednesday, attorneys for Apple (AAPL) and two major book publishers said that rather than settling -- as three of their co-defendants had -- they wanted to go to trial to defend themselves against U.S. government charges that they had colluded illegally to raise e-book prices. (See The Apple e-book conspiracy: Three days in January.)

Which means we may soon be able to fill in the blanks in the United States v. Apple Inc. et al. -- a 36-page roman a clef with more mysteries, clues and likely suspects than an Agatha Christie whodunnit.

For the bookish types who labor in the field of trade book publishing, the Justice Department's complaint is a better read than many of the manuscripts they receive. That's partly because of the delicious specificity of its details -- the 56 phone calls, the text of secret e-mails, the names of the high-price Manhattan eateries where the alleged conspiracy took place -- and partly because of the unanswered questions it raises.

The consensus among authors and editors, not surprisingly, is that the DOJ got this exactly backward, taking aim not at Amazon (AMZN), a retail monolith with a 90% stranglehold on e-books that was selling some books below cost, but at Apple (an electronics giant but an e-book upstart) and five publishers that are, by comparison, tiny fish gasping for air.

How did this get started? How did it go so wrong? And, most intriguingly, who fed the DOJ's investigators all those details?

In other words, who dropped the dime?

We may have to wait for the trial to get definitive answers, but there are enough thinly veiled hints in the complaint to allow some educated guesses. (If you haven't read the document yet, you might want to do so now. You can get it here.)

  • The "corporate superior" who provided "double deleted" e-mails translated from French would have to be Hachette, the only co-defendent based in France.
  • The "large print and e-book retailer" whose e-mails from Penguin CEO David Shanks are quoted verbatim could only be Barnes & Noble (BKS), an Amazon competitor whose share of the e-book market grew to 27% after Apple introduced the so-called "agency model" and whose share price dropped 6.4% one day after the antitrust suit was filed.
  • And the unnamed "non-defendant publisher CEO" who makes at least five appearances in the complaint is, according to three sources who declined to go on the record for fear of angering the largest and most powerful publisher in New York, Markus Dohle, CEO of Random House.

Random House's Dohle

Random House is mentioned only once in the DOJ document, as one of six publishers that Apple vice president Eddy Cue telephoned in late 2009 to schedule exploratory meetings. But as an unnamed participant, its CEO is right in the thick of things.

He's present at at least two of the restaurant meetings where the alleged collusion took place. He had to hear twice about Shanks' "displeasure" that he was still letting Amazon sell his e-books for $9.99. And in 2010 the "holdout CEO" was repeatedly cajoled by Apple -- once by Steve Jobs himself -- to join the other five in their rebellion against Amazon.

Apple, according to the DOJ, "flatly refused to sell his books until he agreed to sign an agency deal."

"I remember feeling quite strongly that my publisher ought to get on the agency model," says James Gleick, whose most recent book, Information, was published by a Random House subsidiary. "I thought any publisher that didn't was crazy."

Random House eventually did sign with Apple, but neither the company nor its CEO was charged in the DOJ's complaint.

Dohle was a surprising and controversial choice to lead the world's largest English-language publishing house. He was in charge of printing for Bertelsmann, the German media conglomerate, when he was given the post in 2008. "He ran a very different kind of business," says one executive who knows him. "He's like a teenager, a perfectly nice guy with more energy than a Mexican jumping bean. But this is a very collegial group, and I never felt he understood the business."

Whether he'll be eating lunch in this town again with any of his colleagues remains to be seen.

Random House  and Barnes & Noble public relations did not return several requests for comment. Reached by phone, Apple and Hachette declined to comment.

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About This Author
Philip Elmer-Dewitt
Philip Elmer-DeWitt
Editor, Apple 2.0, Fortune

Philip Elmer-DeWitt has been following Apple since 1982, first for Time Magazine, and now on the Web for Fortune.com.

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