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Steve Jobs as J.D. Rockefeller

By
Philip Elmer-DeWitt
Philip Elmer-DeWitt
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By
Philip Elmer-DeWitt
Philip Elmer-DeWitt
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June 2, 2013, 5:30 AM ET
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FORTUNE — The first federal antitrust trial in almost a decade — U.S.A. v. Apple Inc. et al. —  is scheduled to begin Monday in a Manhattan courthouse.

The et al. in the title are five book publishers accused of conspiring in late 2009 and early 2010 to raise the prices of e-books.

The publishers — Penguin, HarperCollins, Simon & Schuster, Macmillan and Hachette Book Group — have already settled with the Department of Justice, leaving Apple (AAPL) as the sole defendant.

Asked about the e-book case last week, Tim Cook called it “bizarre.” And to many observers it must seem that way.

We usually think of antitrust violations being committed by monopolies — Microsoft (MSFT), say, with its 90% control of the PC operating system market.

But at the time of the alleged conspiracy, it was Amazon (AMZN), not Apple, that controlled 90% of the e-book market.

Moreover, even if the book publishers did agree among themselves to fix e-book prices — a “horizontal agreement” that is, by definition, a violation of the Sherman antitrust act — Apple in this scenario was a bookseller, not a publisher. It had a vertical, not horizontal, relationship with the market.

So the DOJ’s case against the company rests on the allegation that Apple was the “ringmaster” at the center of the publishers’ conspiracy.

The “ringmaster” theory is key to the government’s argument. Without it, the case against Apple collapses.

The language comes from a 1998 case in which the FTC proved that Toys “R” Us was the ringmaster that convinced 10 major toy manufacturers to boycott warehouse clubs like Costco.

But the theory, according to David Balto, the FTC’s policy director during the Toys “R” Us trial, dates back to 1879. That’s when Pennsylvania indicted John D. Rockefeller on charges that he monopolized the oil trade by persuading a cartel of railroads to withhold shipments from a would-be competitor. Rockefeller didn’t own a railroad, but it was he who orchestrated the conspiracy.

So the question is: Was Steve Jobs the J.D. Rockefeller of the e-books cartel?


Cue and Jobs. Photo: EU.

The DOJ says he was. They quote extensive e-mail traffic between Jobs and his point man, Eddy Cue, exchanges between Jobs and the CEO of Harper Collins, and a particularly damning quote attributed to Jobs in Walter Isaacson’s biography:

“We 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’.

“They went to Amazon and said, ‘You’re going to sign an agency contract or we’re not going to give you the books.’ “

Balto, for one, thinks the government has an open-and-shut case. And U.S. District Judge Denise Cote, who will decide it without a jury, seems to agree. (See Judge says Apple is likely to lose.)

Apple’s lawyers, not surprisingly, disagree. They say the publishers — convinced that Amazon, with its below-cost $9.99 pricing, was lowering the perceived value of their most popular titles — had come up with the agency model on their own, long before Jobs and Cue showed up. Apple went along with the deal, they claim, for its own business reasons.

Apple calls the DOJ’s version of events a “fiction,” a theme Tim Cook echoed at an industry conference last week.

“We refuse to sign a settlement that says we did something we didn’t do,” he said. “So we’re going to fight it.”

Does Apple have a persuasive defense? We’ll find out. The trial is scheduled to begin Monday at 9:30 a.m. ET and is expected to last three weeks.

Meanwhile, you can form your own opinion. The two sides have laid out their competing narratives in pre-trial briefs:

  • Plaintiff’s Proposed Conclusions of Law
  • Apple Inc’s Pre-Trial Memorandum of Law
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