Russell Grandinetti

Day 3 of the Apple e-book trial: Enter Amazon

June 6, 2013: 7:46 AM ET

The tenor of the Apple trial changed dramatically when Amazon took the stand.

Amazon's Grandinetti.

Amazon's Grandinetti.

FORTUNE -- The lawyers defending Apple (AAPL) in the e-book antitrust case would like nothing better than to make the trial be about Amazon (AMZN), not their client, and on Wednesday they got their chance when Russell Grandinetti took the stand.

In earlier testimony from two publishing executives -- Penguin's David Shanks and Simon & Schuster's Carolyn Reidy -- Grandinetti played the heavy.

As Amazon's VP for Kindle content, it was he who managed the company's 80% to 90% share of the e-book market, he who used the publisher's e-book titles as $9.99 loss leaders to promote Kindle sales, he who "threatened our business" (in Reidy's words) after they threw in with Apple.

And Grandinetti had the leading role in one of the most dramatic scenes in the e-book story.

On Thursday Jan. 28, 2010, the day after Steve Jobs introduced the iPad, he and Macmillan CEO John Sargent had a tense meeting in Amazon's Seattle headquarters during which Sargent told Grandinetti that Macmillan wanted to change the terms of their contract from the traditional wholesale model, where Amazon set the prices for e-books, to the agency model that Apple had introduced, where the publishers set the prices.

Grandinetti testified Wednesday that he expressed in no uncertain words how "unpalatable" he found Sargent's "ultimatum," and he ended the meeting by escorting Sargent out the building. The next day Grandinetti removed Amazon's "buy" button from all of Macmillan's titles -- not just e-books, but printed books as well.

Grandinetti eventually "capitulated" (his word) and negotiated agency deals with all five of the publishers the Justice Department has named as co-conspirators with Apple in a scheme to raise the price of e-books.

It was when Grandinetti described those negotiations that the tenor of the trial changed. Apple's defense team could hardly contain their glee as attorney Howard Heiss, in sometimes combative questioning, got Grandinetti to describe the terms of those contracts.

They were, point by point, the same terms Apple had negotiated -- terms the government had described two days earlier as "a deliberate scheme orchestrated by Apple to fix prices" and which were voided last year as part of the publishers' settlements of the changes against them.

Amazon's contracts even contained the price-matching, or MFN, provision that was supposed to be the linchpin of Apple's illegal stratagem.

"We made it very clear to the publishers," Grandinetti testified, "that we would not sign without price parity."

If Judge Denise Cote, who will decide the case, took the point that Apple was trying to make -- that what it did in negotiating its contracts is what any company would have done to further its business interests -- she showed no sign.

Grandinetti's theory of the case, by the way, is that the publishers, who held a "monopoly" on the sale of their own titles, had a particularly nefarious reason ganging up on Amazon.

"It was our belief," he testified, "that the reason we were in this situation was that some of the publishers wanted to slow the sale of the Kindle."

Grandinetti returns to the stand on Thursday.

Current Issue
  • Give the gift of Fortune
  • Get the Fortune app
  • Subscribe
Powered by WordPress.com VIP.