Apple, U.S. come out swinging as e-book trial gets underway

NEW YORK — Apple Inc. and five major publishers conspired to fix prices on e-books, costing consumers hundreds of millions of dollars, a U.S. Justice Department attorney argued during the first day of a marquee antitrust trial.

Apple's attorney denied the government's accusations and said that the company had brought innovation to a broken e-book market that has benefited consumers.

The verbal sparring came on the first day of a federal antitrust trial in which federal prosecutors accused Apple of colluding with the publishers. The case represents a full-fledged assault on Apple's reputation as a pro-consumer, innovative company.

In April 2010, when Apple launched its online bookstore, prices jumped 50%, Justice Department lawyer Lawrence Buterman said during his opening statement.

"This dramatic price increase was no accident," Buterman said. "Apple knowingly and actively participated in a scheme to raise e-book prices."

In response, Apple's attorney, Orin Snyder, said the government was drawing "sinister inferences" from out-of-context, misquoted email excerpts, including some from the late Steve Jobs, the tech giant's co-founder and chief executive. Although the five publishers have settled the cases against them, Snyder said Apple has chosen to defend its principles.

"Apple is going to trial because it did nothing wrong," he said.

The civil trial in U.S. District Court in Manhattan is expected to last as long as three weeks.

The trial grew out of Apple's entrance into the e-book market in 2010, when it launched the iBookstore in tandem with the first iPad. Apple had persuaded the five publishers — Penguin, HarperCollins, Simon & Schuster, Macmillan and Hachette Book Group — to sign on to the iBookstore using a pricing model different from the one used by Amazon.com Inc., the company that continues to dominate the e-book market.

Publishers were hopeful that Apple's service would give them more control over pricing of e-books. They had complained that the $9.99 price set by Amazon was too low.

But in a lawsuit filed last year, the Justice Department accused Apple of being a ringleader of a cartel aimed at gouging consumers. Under the arrangement, Apple would get 30% of the profits.

To make its case, the government cited statements by Jobs, who told his biographer of the arrangement. Part of Apple's message to publishers was an ominous-sounding one for consumers. To make that point, government lawyers cited this quote from Jobs: "Yes, the customer pays a little more, but that's what you want anyway."

Government lawyers also cited what they say was a misleading statement that Jobs once made to a reporter about book prices from Apple and its competition: "The prices will be the same."

Later, according to the government's evidence, a publishing company executive expressed bewilderment at Jobs' comment, deeming it: "Incredibly stupid."

To support its assertion that Apple's arrangement was a bad one for consumers, the government showed a slide indicating that the average price for e-books sold by the five publishers spiked after they signed the deal.

Snyder, the Apple attorney, said the government's timeline was off — that Apple was in tense negotiations with publishers while Amazon was already rethinking its business model.

Consumers ultimately benefited from the innovation that Apple sparked in the e-book market, he said, and prices for e-books eventually declined.

"The market was in disarray and was headed for change," said Snyder, who called the government's civil case "bizarre."

"Apple should be applauded, not condemned," he added.

U.S. District Judge Denise Cote is overseeing the bench trial, which means there is no jury. Cote indicated earlier that she thinks the Justice Department could prove its case, so Snyder asked her to "hit the delete button" on her preliminary assessment.

Cote assured she would. Two publishing executives — Carolyn Reidy, president and chief executive of Simon & Schuster; and David Shanks, CEO of Penguin Group Inc. — are expected to testify Tuesday.

andrew.tangel@latimes.com

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