Apple 2.0

Covering the business that Steve Jobs built

Day 4 of Apple e-book case: The meeting in Jeff Bezos's boathouse

June 6, 2013: 2:12 PM ET

The name -- and property -- of Amazon's CEO surfaces in Apple's e-book antitrust trial.

A pivotal meeting took place here on Jan. 24, 2010. Photo: David Dykstra

The site of a pivotal Amazon meeting three days before Steve Jobs introduced the iPad. Photo: David Dykstra

FORTUNE -- "I'm not comfortable discussing the contents of that meeting."

That's what Russell Grandinetti, Amazon's (AMZN) vice president for Kindle content, said when asked in a Manhattan federal court Friday about a meeting he attended in Amazon CEO Jeff Bezos' Seattle boathouse on Sunday Jan. 24, 2010.

It was the only question in more than four hours of testimony that Grandinetti declined to answer.

Jan. 24 was a significant date in several respects. Amazon executives knew that Apple (AAPL) had scheduled a major product announcement for the following Wednesday. They suspected it was going to be a tablet that could read e-books -- a market they currently dominated.

Also, Grandinetti and two colleagues had spent the previous week in New York City meeting with the six biggest book publishers. At each of those meetings they got an earful about changing the terms with which the publishers sold their e-books to Amazon. Most were interested in switching from the so-called wholesale model, which allowed Amazon to sell their e-books for $9.99, to an agency model, where the publishers would set their own, presumably higher prices.

Although Grandinetti wouldn't say anything about the meeting in Bezos' boathouse -- not even if Bezos attended it -- documents presented into evidence showed that the next day, Jan. 25, Amazon began developing its own terms for an agency contract.

Those terms, as it turned out, were remarkably similar to the ones Apple was negotiating with the publishers, including a 30% commission on each e-book sale, price parity with competitors and a guarantee that Amazon would get access to e-books on the same day hardcover books were released.

Those terms are among the ones the government has characterized in Apple's contracts as part of an illegal scheme to fix prices.

Bezos with Kindle. Photo: Emmanuel Dunand/AFP/Getty Images

Bezos with Kindle. Photo: Emmanuel Dunand/AFP/Getty Images

The last one -- getting e-books in a timely fashion -- seems to have been of particular interest to Amazon's Bezos. The summer before, Random House, the largest of the big six publishers and like the others unhappy with Amazon's $9.99 e-book price, threatened to hold back its e-book titles for several months to give the hardback versions a chance to sell.

"That," Bezos wrote in an e-mail dated June 3, 2009, "would be an absolute declaration of war."

Eight months later, when Steve Jobs introduced the iPad, four of the big six were delaying their e-book releases.

Faced with the prospect of the best-selling e-books appearing on Apple's iBookstore months before they appeared on the Kindle bookstore, Amazon capitulated. On Jan. 31 it began negotiating agency deals with the publishers.

NOTE: Several readers have asked how a witness under oath could get away with not answering a direct question. You'd be amazed at how much evidence in this case has been redacted because it contained trade secrets, business data, privileged conversations with attorneys etc.. Apparently Apple's lawyer had been told in advance that there were Amazon lawyers present at the meeting in the boathouse, and he backed off as soon as Grandinetti declined to discuss what was said there.

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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

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