Apple 2.0

Covering the business that Steve Jobs built

The Apple e-book trial: The view from the hard benches

July 11, 2013: 8:28 AM ET

I thought the judge was coming around to Apple's point of view. I was wrong.

395236932178FORTUNE -- The benches were hard. The courtroom was over-cooled. The reporting challenges were daunting (no Wi-Fi, no cellphones, no laptops). But the drama that unfolded over three weeks of testimony was compelling, and I was happy to be one of a handful of reporters who sat through the whole thing.

I thought I had a good handle on U.S.A. v. Apple -- a.k.a. the e-book antitrust case. I knew U.S. District Judge Denise Cote -- a former prosecutor -- had gone into the trial predisposed against the defendant. She said as much in a pre-trial hearing.

But I thought Apple (AAPL) had put forward a strong defense. Like the Author's Guild and at least one U.S. Senator, I thought the government was prosecuting the wrong company. At several points during the trial I thought the judge was coming around to Apple's point of view.

Having read Judge Cote's 160-page opinion, in which she questioned the credibility of Apple's key witness, ridiculed its legal defense and ruled decisively against the company, I see that my view from the benches wasn't so good after all.

How could I have been so wrong? In my post-game analysis, I see several factors that led me astray.

  • The Amazon factor. The context of the case, as I saw it, was Amazon's (AMZN) monopoly control of the e-book market and the predatory $9.99 pricing that made it impossible for Apple, Barnes & Noble (BKS) or anyone else to enter the market without selling its own e-books at a loss. But as many readers have correctly pointed out, Apple was on trial, not Amazon.
  • The publishing factor. Having worked in book publishing, I know how low the wages are, how thin the margins and what a crapshoot the bestseller game can be. Judge Cote may be an avid reader (she quoted an Emily Dickinson poem in an earlier e-book decision), but she came into the trial convinced that the publishers had colluded to raise the price of e-books -- otherwise, why would they have agreed to the settlements she supervised? -- and saw Apple's role in that framework.
  • The Cue factor. I may be a sucker for a skilled negotiator, but I found Eddy Cue -- Steve Jobs' point man in the e-book deals -- to be an unusually credible witness. Judge Cote did not, as she makes clear in a series of acid footnotes. "Cue's denial of prior knowledge of Sargent's trip to Amazon," she writes in No. 47, "was particularly brazen."
  • The lawyering factor. The government's lawyers, while competent, seemed plodding compared with Apple's legal team, which wove complex legal arguments based on recent Supreme Court rulings that had me -- but clearly not the judge -- convinced. It didn't help my objectivity that Apple's lawyers were happy to talk on background -- spinning the case their way. The only comment a government lawyer made was that in one of my stories I'd misspelled his name.
  • The law. I am not a lawyer. And even if I were, antitrust law is a beast unto itself, understood only by antitrust experts -- and even they don't agree among themselves. It seemed to me that there is fundamental difference between competitors forming a horizontal agreement to fix prices and a vertical player negotiating deals to enter the business. It also seemed to me that there's a difference between forcing companies to switch business models and writing a contract that creates a strong incentive for them to so. Judge Cote disagreed on both points. An appeals court may see things differently. At this point, what do I know?
Join the Conversation
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.

Email | @philiped | RSS
Current Issue
  • Give the gift of Fortune
  • Get the Fortune app
  • Subscribe
Powered by WordPress.com VIP.