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Apple tells U.S. of tough talks, not collusion, with publishers

A man reads the bible from an iPad mini at the "Christ is the Answer International Ministries" group's camp near Florence February 2, 2013.
A man reads the bible from an iPad mini at the "Christ is the Answer International Ministries" group's camp near Florence February 2, 2013.

By Diane Bartz

WASHINGTON (Reuters) - Apple Inc responded to Justice Department accusations it conspired with publishers to push up electronic book prices, saying it negotiated with a number of publishing companies separately and crafted different agreements with each.

U.S. authorities have termed Apple a go-between among several publishing houses who had long wanted to break Amazon.com Inc's grip on the low-cost digital book market, which had kept publishers' prices low.

The Justice Department accused Apple in April 2012 of colluding with five publishers to push up prices as the Silicon Valley giant prepared to launch its iPad in early 2010. It has since settled with the publishers.

The publishers were News Corp's HarperCollins Publishers Inc, CBS Corp's Simon & Schuster Inc, Lagardere SCA's Hachette Book Group, Macmillan, a unit of Verlagsgruppe Georg von Holtzbrinck GmbH, and Pearson Plc's Penguin Group.

In a filing dated April 26 and released on Tuesday, Apple said that the major publishers were at the time locked in a battle with online retailer Amazon over selling books cheaply.

But Apple said the publishers had decided, independent of Apple, to eliminate discounts on wholesale book prices of e-books, to sell lucrative hardcover books first to bookstores in a practice called windowing and to take other measures to push Amazon to raise prices.

When Apple, then in the process of developing the iPad, approached the publishers to set up an online bookstore, the electronics giant ran into opposition when it demanded that Apple receive a 30 percent commission, that publishers not undersell them, and that windowing be scrapped.

Each publisher had different counterproposals, Apple said in a filing that described tough negotiations in detail.

"Early — and constant — points of negotiation and contention were over Apple's price caps and 30 percent commission. After Apple sent draft agency agreements to each publisher CEO on January 11, each immediately opposed Apple's price tiers and caps," Apple said in its 81-page proposed findings of fact.

In one case, Apple appealed to News Corp, the parent of HarperCollins, to press the publisher to sign an e-book deal. It did so on January 26, the day before the iPad launch, Apple said in its filing.

For its part, the Justice Department has argued that Apple and the publishers colluded to push prices higher via agency pricing, in which publishers set retail prices, in order to break Amazon's dominance. The result was to push U.S. e-book prices up by an average of $2 to $3 in a three-day period in early 2010.

Apple disputes this in a second filing, also made on April 26 and released on Tuesday. It says that e-book demand "exploded" with Apple's iPad launch, and the average retail price of an e-book dropped to $7.34 from $7.97.

In a filing released on Tuesday, the Justice Department said that Steve Jobs, Apple's CEO at the time, "conceded the price-fixing conspiracy" when he told his biographer that Apple had "told the publishers, 'We'll go to the agency model, where you set the price, and we get our 30 percent, and yes, the customer pays a little more, but that's what you want anyway.'"

Jobs died in October 2011 of complications from pancreatic cancer.

The lawsuit was filed in the U.S. District Court for the Southern District of New York. It is No. 12-cv-2826.

(Reporting by Diane Bartz; Editing by Ros Krasny and Edmund Klamann)

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