According to a court filing released on Tuesday, CEOs of the same publishing houses that once rejected the price-fixing theory will now offer evidence to suggest they colluded with Apple in order to increase ebook prices. The case involves allegations that Apple and its late CEO Steve Jobs organized a conspiracy with the Big Six publishers to introduce a commission-style pricing system in order to wrest pricing power from Amazon.

The new filing, posted below, says that the CEOs of Macmillan, Hachette, Harper Collins, Simon & Schuster and Random House will testify about various aspects of Apple’s role in the alleged conspiracy. All of these companies with the exception of Random House were also named in the antitrust lawsuit brought by the Department of Justice and agreed to settle the case last year.

The government’s new filing says Macmillan CEO John Sargent is expected to testify that:

“[T]he deal that 5 of us did with Apple meant someone was gonna have to do it. Just luck of the draw that it was me. . . . The optics make it look like I stood alone, but in the end I had no doubt that the others would eventually follow.”

Such evidence could prove damaging to Apple, which is also expected to confront testimony from Amazon executives. Apple will also be forced explain a growing list of possibly incriminating comments and emails. One of these, cited by the government to show Apple played an active role in the price changes, describes SVP of internet software and services Eddy Cue telling Jobs:

“In the end, they want us and see the opportunity we give them but they’re scared to commit! It [has] less to do with the terms and more about the dramatic business change for them. . . . They just have to get some balls.”

The new filing also includes the views of other prominent executives, including News Corp’s Rupert Murdoch. According to Harper Collins CEO Brian Murray, Murdoch was “pissed at Amazon” and wanted to “screw Amazon.”

In its own filings, Apple maintains its long-held position that it is not a “ringmaster” of a conspiracy, as the government alleges, but that it simply offered the same pricing system, which is based on a 30 percent commission, that it offers to any company that sells through its iTunes store. Apple also maintains that it helped to create competition at a time when Amazon dominated the ebook market.

The next important step of the proceedings will take place on May 23, when the parties meet before U.S. District Judge Denise Cote for a pre-trial conference.

Here’s the filing (all 156 pages of it!) with some of the key points underlined:

DOJ Motion of Facts and Law

The case followed complaints by Microsoft and others over Google’s treatment of rivals’ web services in its search results. These companies argue that Google favors its own services, which are not clearly marked as such, and also that it unfairly locks advertisers onto its platform and scrapes content from third-party search and comparison sites without consent.

A recent leak outlined the terms of the proposed settlement deal, but here’s the official version:

To address these concerns, Google offers for a period of 5 years to:

(i) – label promoted links to its own specialised search services so that users can distinguish them from natural web search results,
- clearly separate these promoted links from other web search results by clear graphical features (such as a frame), and
- display links to three rival specialised search services close to its own services, in a place that is clearly visible to users,

(ii) – offer all websites the option to opt-out from the use of all their content in Google’s specialised search services, while ensuring that any opt-out does not unduly affect the ranking of those web sites in Google’s general web search results,
- offer all specialised search web sites that focus on product search or local search the option to mark certain categories of information in such a way that such information is not indexed or used by Google,
- provide newspaper publishers with a mechanism allowing them to control on a web page per web page basis the display of their content in Google News,

(iii) no longer include in its agreements with publishers any written or unwritten obligations that would require them to source online search advertisements exclusively from Google, and

(iv) no longer impose obligations that would prevent advertisers from managing search advertising campaigns across competing advertising platforms.

Authorities in the U.S. more-or-less cleared Google over similar complaints, but it’s important to note that Google’s share of the search market there is around 67 percent, whereas in the E.U, it’s around 90 percent. This gives it stronger market power in Europe, and forces the regulators’ hand somewhat (as do local laws).

A Q&A document, which outlines the Commission’s concerns in detail, points out that “it does not seem likely that another web search service will replace [Google] as European users’ web search service of choice.”

“In this context, it is important for the Commission to intervene in order to ensure that Google’s prominent market position in web search does not affect the possibility for other competitors to innovate in neighbouring markets, including in the long-term,” the document states.

The long-awaited deal is significant because it concludes a multi-year investigation by EU competition authorities, and because it is the first time that Google has bent to government demands over how it presents its search results. The details of the five-year deal, which has yet to be formally announced, were reported on Saturday by the Financial Times.

The terms of the deal

According to the FT, Google’s obligations vary depending on the nature of the search results. The most onerous conditions relate to listings like travel or restaurants where Google has a clear financial interest. In these cases, the company must identify any search listings that are Google-owned, and also provide at least three links to competing search engines. For other Google-related listings that do not produce direct revenue — weather or news, for instance — the company must provide a label.

The labeling will involve markers like boxes, separate page placement and “hover links.” A third party will monitor for compliance with these and other parts of the agreement.

The deal also requires Google to honor requests from news agencies and other sites not to “scrape” their content for use in its search listings, and to provide assurances that it won’t punish these sites by deleting them from the search listings altogether.

The agreement also addresses Google’s advertising practices by preventing it from imposing exclusive ad deals on its partners, and by making it easier for those partners to switch their ad campaigns to rivals like Microsoft and Yahoo.

The FT has a detailed account of the obligations here.

A victory for the EU, the public or Google?

When the deal is formally announced by EU regulators, we can expect to see considerable spin from Google and its competitors about what it really means.

At this stage, it’s clear that the deal represents the largest regulatory imposition to date over Google’s search business, which is still the core of the company and its prime money maker. This amounts to a victory for the EU and its high-profile competition commissioner, Joaquín Almunia.

While Google will hardly be celebrating the regulations, the company could have fared far worse. The five-year deal, which is legally binding, means Google avoids the sort of heavy fines and bitter regulatory battles that ensnared arch-rival Microsoft for well over a decade.

Europeans consumers, meanwhile, are likely to continue using Google as they have done so far. Despite repeated accusation by groups and companies tied to Microsoft that Google manipulates its search results, there is little actual evidence that the company blatantly puts its thumb on the scale.

The agreement may, however, serve to give Google critics some peace of mind by providing legal assurances that their worst fears won’t come true. And, as the deal is not finalized, critics and others will have time to comment on its provisions.

A different outcome from America

One of the most noticeable features of the deal is how much it differs from the outcome of a similar investigation carried out by America’s Federal Trade Commission.

In a January report, the FTC concluded a two-year antitrust inquiry by announcing that Google had done nothing wrong in the field of search. While the FTC did extract a pledge the company related to patent abuse, this was more a face-saving measure for the FTC than a burden on Google. (Here’s a plain English summary of the US investigation).

Different laws in the US and EU explain the divergent outcomes. American antitrust laws, for instance, focus on harm to consumers not competitors — a different line of inquiry to what happens in Europe. America also has more robust speech laws. Google argued strenuously that its search results are protected by the First Amendment; the FTC likely folded its cards rather than risk losing a court case over the question.

Google also controls a higher share of the search market in Europe than it does in the U.S. — more than 90 percent, compared with around 67 percent.

According to a source familiar with the investigations, Google was also more willing to settle in Europe because a legally binding EU commitment  does not expose the company to civil lawsuits.

“Amazon’s acquisition of Goodreads is a textbook example of how modern Internet monopolies can be built,” said Guild president Scott Turow in a statement issued on Friday. Turow claims that Amazon sought to eliminate Goodreads as a future competitor and that it has “squelched” an important source of independent discussion and reviews.

It’s unlikely anything so dramatic will occur in the short term. As executives from Goodreads and Amazon told my colleague Laura Owen, the book network will remain for now a standalone site and the first goal of the merger is to “do no harm.”

The data and marketing insight Amazon receives from Goodreads is likely to strengthen the retailer’s already powerful position in book selling. The question of whether this will lead to an Amazon “monopoly” is another matter altogether. Under American rules on vertical integration, a company breaks antitrust laws only it obtains a dominant positions and abuses that position to harm consumers.

Turow and the Authors Guild have already been vociferous critics of Amazon. Last year, Turow accused the company of using discounting to “destroy bookselling.” More recently, the Guild joined with the Association of American Publishers to demand that Amazon be denied control over new internet suffixes “.book” and “.author.”

Class action lawyers had earlier demanded that Isaacson provide evidence, based on his interviews with Steve Jobs, about why Jobs asked publishers to sell books on Apple’s iPad device. Isaacson refused to hand over his notes and invoked a New York law that allows journalists to shield their sources in many situations.

The lawyers, who want Apple to pay for allegedly fixing book prices, had subpoenaed Isaacson and said the reporters’ shield did not apply. Last week, however, court documents show the parties agreed to drop Isaacson from the case.

The Isaacson dispute comes at a time when Apple’s antitrust showdown with the Department of Justice and class action lawyers is coming to a head. While the five publishers who were also named as defendants decided to settle, Apple is rejecting the accusations that it acted as the hub for an illegal conspiracy to raise book prices and thwart Amazon. Meanwhile, Amazon executives are poised to testify against Apple.

Even though the Isaacson biography is no longer part of the case, a court transcript shows Steve Jobs will remain a central figure. In response to a question about who decided to sign contracts with book publishers, Apple executive Keith Moerer said, “Ultimately, I would say it was — Steve. But working closely with — with Eddy, Mr. Cue.”

Meanwhile, other recently filed court documents identify one recipient of a highly publicized Jobs email about Amazon and pricing — the recipient was James Murdoch, a senior executive at News Corp, parent company of HarperCollins. The other recipient(s) are still redacted. You can see the email below:

Steve Jobs Emails by

How this settlement is different

According to documents filed with the court Friday (PDF, and see links below), Macmillan agreed to many of the same settlement terms that HarperCollins, Simon & Schuster, Hachette and Penguin already agreed to — but there are also significant differences. Retailers will immediately be allowed to discount Macmillan’s ebooks, in order to “provide for more prompt relief to consumers.” In the cases of the three original settling publishers (HarperCollins, Simon & Schuster and Hachette) and Penguin (which settled in December), “several months passed before consumers saw the benefits of the settlements through lower retail prices on many of the settling publishers’ ebooks.” In Macmillan’s case, however, according to the competitive impact statement:

That “two-year cooling-off period” means that, for two years, settling publishers can’t restrict retailers like Amazon from setting, changing, or lowering ebook prices. The settlement means Macmillan gets a back-dated head start on this period, so it will again be able to restrict discounting in December 2014. Most-favored nations clauses are prohibited for five years, but Macmillan had already removed those from its contracts.

Unlike the other big-six publishers, Macmillan also publishes digital textbooks. Those are exempt from the settlement because the DOJ antitrust case focused only on trade books.

Finally, there are provisions to make it clear that Macmillan’s parent company, Holtzbrinck, would be in trouble if it “worked in concert with Macmillan to evade Macmillan’s obligations under the settlement.”

“Our company is not large enough to risk a worst case judgment”

In his letter, Sargent describes massive legal bills that Macmillan — the smallest of the big-six publishers, and the only one that is entirely privately owned — would have had to pay in “a worst case judgment”:

As each publisher settled, the remaining defendants became responsible not only for their own treble damages, but also possibly for the treble damages of the settling publishers (minus what they settled for).  A few weeks ago I got an estimate of the maximum possible damage figure. I cannot share the breathtaking amount with you, but it was much more than the entire equity of our company.

Court docs

Macmillan’s proposed final judgment (PDF)

Competitive impact statement (PDF)

So why were the feds investigating Google in the first place?

A group of Google competitors, many of them tied to Microsoft, claimed the company was breaking antitrust laws by kicking competitors down its search rankings. Sites like Yelp and Kayak complained that Google favored its own search and travel businesses ahead of theirs in the search listings.

The Federal Trade Commission responded by “exhaustively” investigating a wide range of Google’s business practices, including its ad business and use of patents.

So what did the FTC find?

Today, the FTC concluded that Google didn’t break any laws in the way it displayed its search results. The agency said that Google did change the way its search algorithm sorted results but that those changes were “plausibly connected” to efforts to improve its user experience — not simply to crush competitors.

The FTC did say that Google misbehaved by using standards-essential patents (ones it is supposed to share at reasonable royalty rates) as a weapon. Google responded by saying it won’t do that anymore.

So why is this a big win for Google?

It’s a win for Google because the government won’t get all up in its search results. Microsoft and others had hoped the government would impose some sort of “search neutrality” requirement on Google but that won’t happen now. The end of the investigation also means that Google won’t have to reveal any of the “secret sauce” that it uses to order the search results.

The company also avoided a so-called “consent decree” about its search practices; these decrees set out what the agency thinks a company has done wrong and how it must behave in the future. Consent decrees also act as a magnet for private lawsuits.

As for the patent issue, it was just a sideshow that has little effect on Google’s core business or strategy.

So Google can do what it likes with its search results?

Pretty much. In the past, the company claimed its results were strictly objective but more recently it has argued that search listings are simply a matter of opinion protected by the First Amendment.

The company did, however, make a voluntary pledge today to remove snippets from Yelp reviews and other such sites if the company in question asks them to; Google also said it won’t punish those who opt out.

Is this bad news for consumers?

Not necessarily. So far, Google has stayed more or less true to its stated mission of helping people find any type of information (search “Google sucks” for instance). It’s only in so-called “search verticals” like shopping that Google, like rival Bing, has really been putting its thumb on the scale and favoring certain partners. But in the future who knows what Google will do.

So who loses?

The biggest loser is Microsoft, which funded a long-running cloak-and-dagger lobbying campaign to convince the public and government that its arch-enemy had to be regulated. Sites like Yelp, Kayak and Expedia also lose in the sense that Google can now push them down its search listing with impunity (though there is no sign for now that Google is actually doing this).

The FTC is also a loser because it ran a high profile two-year investigation but came up dry. In this context, the patent ruling is just a minor victory that lets the agency save face.

Did the FTC simply cave in to Google?

Not really. The FTC was in an awkward spot because it didn’t have a slam-dunk case. The agency would have had to prove the existence of a Google monopoly and that Google abused that monopoly; it would also have to clear the First Amendment issue. Rather than risk the embarrassment of losing a lawsuit, the FTC decided to fold its cards instead.

But aren’t European regulators going to force Google to bend on search rules?

The European Commission suggested in December it will come down harder on Google. According to a source familiar with the matter, the outcome is likely to be a “commitment decision” in which Google promises to behave a certain way or else be fined. The source added, however that the rules of a European “commitment” do not expose companies to private lawsuits so, unlike in the U.S., Google will be willing to enter a binding agreement.

It’s too soon to know what that outcome will be but we’re likely to find out in the next month.

(Image by Kzenon via Shutterstock)

Speaking to reporters on Thursday afternoon, FTC Chair Jon Leibowitz said the agency, in a 4-1 vote, would force Google to stop using standards essential patents in order to to ban rivals’ gadgets from the market place.

On the question of so-called “search bias” — whether Google unfairly demoted rival companies’ sites in its search listings — Leibowitz said the FTC had “exhaustively” examined the issue but concluded that there was no evidence had broken any antitrust laws. He said the FTC had found a “plausible connection” between Google’s listings and efforts to improve user experience, and pointed to efforts by other companies to “game” Google’s algorithms.

In response to criticism from Microsoft and others that the FTC was being soft on Google, Leibowitz cited the late Supreme Court Justice Earl Warren to say that the country’s antitrust laws exist to protect competition not competitors.

Under the deal, Google is also making commitments to let competitors like Yelp exclude snippets from its search results and to share certain data that helps marketers buy ads on different platforms.

You can read details here. We will have a good rundown of the winners and losers of the deal soon.

In a ruling issued Thursday in San Diego, U.S. District Judge Cathy Ann Bencivengo dismissed an antitrust complaint filed by Sambreel, a controversial advertising company that offers products with names like PageRage that let users tweak the look of their Facebook page.

“We are pleased by the decision,” said Facebook’s lead counsel, Craig Clark, in an email statement. Sambreel’s lawyers did not immediately respond to a request for comment.

The companies got in a bitter fight earlier this year after Facebook “gated” users who had downloaded the Sambreel products — meaning the users had to remove PageRage software before they could log on to the social network. Sambreel responded with an aggressive legal and public relations campaign, arguing that Facebook broke antitrust laws. Judge Bencivengo, however, was having none of this:

According to antitrust experts speaking at a New York book event this week, books should be treated like any other good in the market.

“There’s never been a defendant sued for antitrust who didn’t think their market was special,” said Chris Sagers of Cleveland State University, adding that “agency pricing” (a commission-style pricing system used by the publishers to check Amazon) is just another word for price-fixing.

And according to Ariel Katz, a law professor at the University of Toronto, publishers have been engaging in cartel-like behavior for more than a century. In 1908, for instance, a publisher sued the department store Macy’s for disobeying notices that required books to be sold for at least $1 (the publisher lost and the Supreme Court established copyright’s first sale doctrine).

The recent price-fixing charges, in which publishers allegedly ganged up with Apple in order to stop Amazon, also appear to be classic cartel behavior — meaning the government was justified to sue them to protect the free market. Yet, it also feels intuitively wrong to equate book publishers with oil barrons, AT&T or other antitrust villains.

This is because books are not oil or boots or buttons. They are the repositories of our collective knowledge and exemplify what is best about humanity. Nina Elkin-Koren of the University of Haifa, who also spoke at the event, questioned the antitrust experts about whether it is appropriate to leave something as important as books to the whims of the market.

In the language of economists, the question is whether books are a big enough “cultural externality” to justify interfering with the market through corporate protectionism or government regulation.

Sagers suggested that governments can indeed make economic policies to favor cultural and intellectual activities but that the right way to do is by favoring cultural creators directly — and not through intermediaries like publishers.

The antitrust experts make a compelling case for regarding publishers as just another cartel. It will be interesting to see if the theory continues to hold up as Amazon expands its ever-growing influence on the nation’s reading habits.

The experts spoke at “In Re Books,” a two-day conference on law and the future of books held at New York School.