U.S. v. Apple e-book case: The meeting in Amazon’s Jeff Bezos’ boathouse

“‘I’m not comfortable discussing the contents of that meeting.’ That’s what Russell Grandinetti, Amazon’s vice president for Kindle content, said when asked in court Friday about a meeting he attended in Amazon CEO Jeff Bezos’ Seattle boathouse on Sunday Jan. 24, 2010,” Philip Elmer-DeWitt reports for Fortune.

“It was the only question in more than four hours of testimony that Grandinetti declined to answer,” P.E.D. reports. “Jan. 24 was a significant date in several respects. Amazon executives knew that Apple (AAPL) had scheduled a major product announcement for the following Wednesday. They suspected it was going to be a tablet that could read e-books — a market they currently dominated.”

P.E.D. reports, “Although Grandinetti wouldn’t say anything about the meeting in Bezos’ boathouse — not even if Bezos attended it — documents presented into evidence showed that the next day, Jan. 25, Amazon began developing its own terms for an agency contract. Those terms, as it turned out, were remarkably similar to the ones Apple was negotiating with the publishers… Those terms are among the ones the government has characterized in Apple’s contracts as part of an illegal scheme to fix prices.”

Read more in the full article here.

[Thanks to MacDailyNews Reader “Ellis D.” for the heads up.]

Related articles:
U.S. v. Apple: If what Amazon did was lawful, why isn’t Apple’s behavior also lawful? – June 6, 2013
Apple says differences in publisher deals disprove U.S. DOJ’s e-book conspiracy allegation – June 5, 2013
U.S. v. Apple iBookstore case could go to the Supreme Court – June 5, 2013
Apple accuses DOJ of unfairly twisting Steve Jobs’ words in e-book case – June 4, 2013
U.S. DOJ prosecutors accuse Apple of driving up e-book prices – June 3, 2013
U.S. v. Apple goes to trial; DOJ claims e-book price-fixing conspiracy with Apple as ringmaster – June 3, 2013
U.S. DOJ takes Apple to trial alleging e-book price-fixing – June 2, 2013
In pretrial view, judge says leaning toward U.S. DOJ over Apple in e-books case – May 24, 2013

42 Comments

  1. The government bureaucrats in the DoJ are waiting for an invitation to Apple’s bathhouse for a round cigar filled talking, some bank notes squashed in large envelopes and a massage given by scantily clad women.

    That’s equal opportunity under the Obama administration.

    1. You have an unhealthy, inaccurate, fanatical and hateful obsession with Obama. You have now disqualified yourself as one whose comments I can respect on a variety of subjects, and I shall simply disregard further posts. You seem to have a problem, definitely a credibility problem.

    2. You seem to know a lot about Obama. Have you been to the White House lately, or is it the Senators that call you up and keep you informed? You always seem so confident about your statements that I am sure you that you must be part of the inner circle. The rest of us get our information from the phony news so it is really good to have a true insider like you share the facts!

  2. I just don’t get this: how is letting publishers set whatever price they want while Apple charges a flat 30% fee for their service equal to price fixing by Apple? Can someone please explain tis to me?

    1. The argument, and I’m not a lawyer and will not offer an opinion on what I think of it, is that part of Apple’s terms where that they could lower their price to meet any competitor’s price (aka Amazon) and still keep 30% of the selling price. If Apple sold an ebook for $15, they would keep $4.50 and hand over $10.50 to the publisher. If Amazon bought an ebook for $10, and sold it for $9.00, Apple would be contractually allowed to also sell the ebook for $9.00, keeping $2.70 and turning over $$6.30 to the publisher. Apple’s agreement essentially said that they keep 30% regardless of selling price, and that they were explicitly allowed to match any competitor’s selling price, regardless of whether that competitor was selling at a loss (like Amazon tended to do).
      In essence, Apple’s contract guaranteed them a 30% cut of the selling price, where as the publisher was not guaranteed any profits. If the publishers wanted to make use of Apple’s marketplace, they essentially had to force all of their sellers to an agency model to make sure that they made *any* profit. Otherwise a retailer could pay regular wholesale for an ebook, sell it for a small loss to push sales of their own ereader (cough Amazon cough), which would then allow Apple, who doesn’t pay a wholesale price for the ebooks it sells, to lower it’s price to match and end up causing the publisher to lose money on every sale completed through Apple’s market.
      In a way, it’s similar to how Microsoft’s retail sales agreements with PC manufacturers had Microsoft being paid a license fee for every PC sold, regardless of whether that PC included Windows. That artificially raised the cost of PC’s for anyone who bought one to run linux, for example, or who bought one to use for a separately purchased copy of Windows, and thus put a barrier in place to that market.

      1. Two things:
        1) the publisher’s 70% cut gives no indication of profits
        2) it’s actually not at all similar to the Microsoft OEM deal, as that deal gave Microsoft revenue for a product the OEM didn’t sell.

      2. Yeah, except you left out the part that the publishers could’ve told Apple, “No”.

        I don’t know, if there was a chance I could actually lose money on each sale would I gamble away the wholesale deal I already had? No, but what happened was the publishers took this opportunity and used it as leverage to get Amazon out its sell-at-a-loss model and restore books back to their proper value.

      3. Excellent explanation- thanks!

        However, the agency model on its own seems entirely legal to me. If you’re right about what the government is upset about, then it’s the clause about being able to match any competitor’s price and still keep 30%. This, too, seems reasonable to me. The issue is that Amazon was dumping books to promote their ereaders. Isn’t this kind of dumping illegal? Selling below cost (at a loss) to push your competitors out of business? If anything, the government should be suing Amazon, not Apple.

        BTW, without the competition clause no one (and I mean no one) would buy a single book from Apple (why would you spend $15 at Apple when Amazon sells the same thing for $10?). I don’t think the publishers liked Amazon’s methods one bit as it lowered the perceived value of books. So Apple was really helping the publishers get the amount they wanted.

        The irony is that there are all kinds of sales on ebooks these days- seems to be pretty much a free market these days. So why are they crying over spilt milk?

      4. Shiva, Apple profit per ebook would be increased by a higher selling price, but overall profit would likely be maximized by a somewhat lower price with higher sales volume. The same applies to the publisher.

        Besides, Apple hosts lots of free content and receives no compensation to offset operation and distribution costs. The publishers have the power to set their own prices.

      5. I also read something like these lines: Apple organized the publishers into a group that behaved as a cartel (group monopoly) that could force Amazon to increase its e-book prices.

      6. Here’s the deal.

        What Apple did was it gathered up the world’s largest publishers, got them all to agree to set, fixed prices of new releases and best sellers for $12.99 and $14.99, and then got them to agree to not sell for any less or even any more anywhere else.

        Apple thus colluded with industry to inflate and fix eBook prices. Do you fucking people complain when you shop at Walmart or Costco and buy stuff for cheaper at local, smaller stores? Should both of these stores be called evil and taken to court? No, because they do things on volume and sell for cheap. Do you not buy things that are blowout prices where the retailer is surely losing money on the sale? No, you fucking buy it and get a rush from it. “Look what I got! Super cheap.”

        Hypocrites.

        It’s called competition, and that’s what this is about. Apple should not be allowed to lock in inflated, fixed prices like this. Amazon loses money? Too fucking bad Apple, deal with it. Just like people have to deal with you and none of you idiot fanboys feel sorry for anyone else put out of business by Apple. You are sadistic when companies struggle and people lose jobs.

        You’re immature idiots. So why should anybody care about Apple? You people actually make excuses for them like eBooks should cost MORE. Imagine if this was Amazon inflating the prices. What would you say then? You’d be calling them evil.

        You’re all just idiots.

        1. You still haven’t read SJ’s full email, have you? If you did you’d know that those prices were MAXIMUM prices that he was willing to charge. Publishers were still free to set ANY price below that.

          Of course, dealing with the truth would upset your little model of Apple as totally evil, wouldn’t it? There ought to be a term for an anti-fanboi.

          1. Yes I have and you haven’t understood what Apple did. They were locking in prices of NEW RELEASES AND BEST SELLERS at $12.99 and $14.99. These books WOULD NOT BE LESS OR MORE.

            Inflation and price fixing.

      1. My name is floom. I’m an irrational, out of work geek loser with nothing else to do in my life. I just posted the above as sfgh. I’m upset that sfgh pointed out a flaw in my thinking when I basically said:

        “If people didn’t want to pay Apple’s higher prices, they could just go buy the book somewhere else at a competitors for cheaper”.

        I got the famous sfgh idiot of the day award for this comment. And I admit, it was very stupid, because under Apple’s contract, nobody would be able to sell the same book for any less.

        Man, am I a FUCKING IDIOT.

        1. I’m sfgh and I just posted the above as Floom as over and over again I’ve been knocked down and my theories proven baseless so I can’t help it but pick on Floom.

          one more time Apple has collided the ebook trade. Amazon is tops!

          AND
          there is absolutely nothing unusual for a billion dollar company to hold major strategy meetings (ebooks is the future.. ) at a boat house… So you apple fan boys should shut the heck up.

      1. Yes. Therefore, Grandinetti has to STATE that he wishes not to answer that question because of his rights under the 5th Amendment. Did he invoke the 5th Amendment? DOES that boathouse meeting actually incriminate HIM? If not, then he MUST answer or face contempt of court charges.

        1. Yep, leading to peterblood’s comment.

          But why is it only our right if we “invoke” it? Our “justice” system is such a disaster. It is plain stupid that in order to avoid incriminating yourself you have to state that the answer would be incriminating. That makes invoking the 5th incriminating, which it protects you from being required to do. My head spins at that “logic”.

          Regardless, I expect that he did and the report left that out. If not, he should have been pressured on it further.

          1. I’m no lawyer but I believe the Jury is instructed not to interpret the 5th as an admission of guilt, although people are human and can’t turn off memories like a Robot so I am sure the jury becomes tainted by anyone invoking the 5th no matter what they are instructed to do, so I agree with your point.

            Invoking the 5th might be logical if we were a race of Robots, but in the Human race it does seem pretty illogical the way the system works.

  3. If this question was asked under cross-examination, in what universe’s court would this be allowed? You’re not comfortable? Well OK then – next question!

    1. lol
      Prosecution: Did you willfully, on the morning of November 24, shoot and kill Lee Harvey Oswald?
      Jacob Rubinstein: I’m not comfortable discussing the contents of that morning.
      Prosecution: Oh okay, Jack, sorry…but do you prefer Ding-Dongs to Twinkies?

  4. “‘I’m not comfortable discussing the contents of that meeting.”

    tough shit, Russ..this ain’t a Bavarian spa created for your pleasure, it’s a court of law and you’re under oath pursuant to a penalty of contempt…that’s how Matlock woulda handled it.

  5. why is the court handling amazon with delicate hands?

    I guess the lawyers and the judge are thinking of writing their memoirs or perhaps a self help book (“how to succeed in law without really trying” ) etc and you can’t offend the book seller amazon which controls 90% of the ebook market and a big chunk of all print publishing( and an even bigger chunk of specialist book retailing. Convenience store book kiosks don’t carry LAW manuals next to the Lee Childs … )

    None of the publishers had the balls to go to court to defend the DOJ case as they might have to accuse amazon of something (like being a monopoly which has the habit of blacklisting people it doesn’t like ) , if amazon drops a big publisher they are DEAD.

    seriously it’s really scary that one company is on the throat of all the big publishers yet the DOJ is BLIND….

  6. Looks like a double standard. Amazon can make book deals but Apple can’t and is considered an illegal practice. Even though Amazon was charging more than what Apple was asking in some cases doing the same kind of deals. No wonder why Tim Cook at D11 said there’s no reason for us not to fight this as Apple did nothing wrong. And boy is Apple proving that in SPADES! The DOJ is really looking more crooked than Amazon or Apple in trying to prosecute Apple for absolutely NOTHING.

    1. Notice how focused you are on Amazon. All of you.

      Who gives a fuck about Amazon. This is about Apple. Even if Amazon did something wrong, it doesn’t exclude and abdicate Apple of any wrongdoing.

      “Hey, my neighbour killed someone I think and never got caught. Why am I being prosecuted for murdering my girlfriend?”

      “Hey, I saw someone jaywalk the other day, why am I… ME… getting a ticket and they didn’t?”

      You delusional idiots. This is about Apple and Apple alone.

      And again and again you refuse to listen: Apple worked to inflate and fix eBook prices by colluding with industry. AMAZON NEVER DID THIS.

      “The government are idiots! The DOJ are morons!”

      Meanwhile, you all sit in your basements bullshitting around like you are any good for society or other people. Sadistic idiot fanboys with zero social skills or any skills for that matter.

      Even MDN… the people behind it are morons. I like this site because it aggregates good tech articles but it’s all hypocritical.

      MDN take: “Google is evil!” Yet, Google’s ads are plastered all over this site and it’s what pays the bills. Google pays this guys bills.

      Here I am again busting all of your delusional fanboy asses.

      Nighty night.

      1. I’m sfgh

        to repeat why are you all so OBSESSED with amazon?

        look at me..
        only in 32 of my last 35 posts on this issue have I mentioned amazon myself. ( in the other two I basically just called people who criticize me – i.e apple fan boys -names like twit , idiots etc ).

        and for your information for me to post here at MDN an apple Fan Site numerous times attacking all things apple and apple fans does NOT, not I repeat show similar delusional behaviour as you apple fan boys talking about amazon (in an article ABOUT amazon)…

        repeating myself over and over again with the same facts is not delusional at all (as I have to repeat them as those facts are constantly being disproved by various posters)

        I’m sfgh and I will not rest until the whole world knows that apple Collided with publishers to destroy the ebook trade.
        and I’m definitely not illusional…

        1. I am sfgh

          I’m the greatest brightest most brilliant forum poster on MDN.
          I know everything, EVERYTHING about this Apple DOJ case, none of you fanboys debating me is even close to my flawless understanding Be in awe of my scintillating awesome intellect. My golden aura of awesome intelligence is beyond compare. In law even Judge Scalia, Rutledge, Clearance Thomas etc are not in my league. I know everything, every nuance , every precedent, every important case in anti trust law.

          I am sfgh!

          I and I will keep posting here until you all acknowledge that I am right and kowtow before me like the ignorant peasants you are.

          and by god unlike you apple fanboys I am NOT delusional !

  7. The more I read the the more I think Apple got a case here. But, DOJ might just force it’s will through. It has taken Apple to court becaus Apple is guilty in their eyes.

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