• Grandinetti argued that the publishers’ switch to the agency model was intended to “slow down the success of the Kindle,” Reuters reports, but as is well known by now, the company ultimately agreed to switch to agency in order to keep the ebooks in its store, signing three-year deals in which Amazon would take a 30 percent cut of each sale.
• One of the main points of the DOJ’s case is that Apple was a “facilitator and go-between” in encouraging publishers to require agency contracts with other retailers (namely, Amazon). Publishers Marketplace reports, “[Simon & Schuster CEO Carolyn] Reidy argued that Apple did not require the publisher to move Amazon and other accounts to the agency model. ‘We had the option of not doing that,’ Reidy said. ‘We wanted to do that,’ she indicated, because under the MFN clause, in not doing so they would ‘make even less money.’ At another point, Reidy said, ‘we wouldn’t have signed a contract that said let Apple tell us what we had to do with other retailers.’ A related, charged point raised by the government was an internal mail to the S&S team on January 4, in which Reidy writes in part about how to respond to Eddy Cue’s proposed Apple terms, noting that ‘we are in total agreement that…agency model should hold for all retailers.’”
• Amazon’s new publisher contracts (as well as Barnes & Noble’s new contracts) also contained most-favored-nation (MFN) clauses. As the Wall Street Journal notes: ”Mr. Grandinetti’s testimony underscored one of the quirks of the government’s case against Apple: Once Amazon moved to the so-called agency model, it negotiated the same terms that the Justice Department has pronounced unenforceable in the Apple contracts, including a provision that said if another retailer were selling a book at a lower price, the publisher would have to match the lower price in Amazon’s digital bookstore.”
• The New York Times reports that “Ms. Reidy called an executive at Paramount Pictures to verify Apple’s claim that a 30 percent commission on sales in their iTunes store — which she considered too high — was standard.”

On Thursday, Grandinetti is expected to finish his testimony. After that, two more Amazon executives — VP of Kindle content David Naggar and general merchandise manager Laura Porco (who was previously director of Kindle books) — are scheduled to take the stand, followed by Google director of strategic partnerships Thomas Turvey. We’ll be in court.

The Department of Justice and Apple’s opening statements lasted for nearly the entire day, but they introduced little material that would be surprising to anybody who has been following the case since the DOJ first sued Apple and publishers in April 2012. Both parties primarily rehashed the agreements that they have been making for over a year.

Judge Cote: No, I’m not siding with the DOJ…yet

Federal judge Denise Cote, who is overseeing the case, indicated in a pretrial hearing last week that she is “leaning toward” the DOJ’s version of events, based on all of the evidence that she has seen already. Not surprisingly, Apple attorney Orin Snyder brought up that inclination in court again today, describing Cote’s “tentative view” as “not so great for my client…every defendant should be presumed to have done nothing wrong” until the end of a trial.

Cote quickly jumped in to defend her position, saying that it is customary for her to share her pretrial views if both parties agree and that it is not an uncommon practice in either New York or California courts. “You had months to think about whether you wanted my pre-trial views or not,” she told Snyder, and stressed she hasn’t made a final decision yet: “My view was a tentative view…The deck is not stacked against Apple unless the evidence stacks the deck against Apple.” She noted that both parties’ opening statements and summations “will be particularly helpful” in making her decision.

DOJ: Apple and publishers conspired to change the entire industry

In the DOJ’s opening argument, attorney Lawrence Buterman described the launch of the iBookstore in April 2010 as “the day the prices of the most popular ebooks went up across the United States as much as 50 percent … The $9.99 price for ebooks that [customers] had become accustomed to was largely gone.” Buterman argued that Apple conspired with publishers to move to agency agreements (in which the publisher sets an ebook’s retail price and the retailer takes a cut) with Apple and then forced other retailers — namely Amazon — to move to agency as well. “The key word here is collective,” Buterman said, because no one publisher was willing to adopt agency pricing on its own. Apple needed to keep “weak-kneed CEOs” in line and “move the whole market off of $9.99.”

Buterman repeatedly stressed that Apple and publishers acted together with the goal of changing “the entire ebook industry.” Citing an email exchange between Apple SVP of internet software and services Eddy Cue and Simon & Schuster CEO Carolyn Reidy, for instance, Buterman said, “These are not the words of an independent actor.” The DOJ also alleges that Apple was a “facilitator and go-between” to get publishers to enact higher ebook prices in the agency pricing negotiations between publishers and Amazon — when Macmillan CEO John Sargent went to Seattle to talk to Amazon about agency pricing, for example. And when individual publishers were trying to decide whether they should adopt agency pricing and join Apple’s iBookstore, the DOJ says that Apple acted as “a conduit” by telling them what other publishers were doing and thinking.

The DOJ cited the MFN (most-favored nation) clause that Apple required in its publisher contracts as an obvious way for Apple to try to control Amazon’s own ebook pricing practices: Buterman said that Apple was “fully aware that the imposition of an MFN in its agency agreements” would lead publishers to enact agency agreements with Amazon.”

Apple’s entry into the ebook market “arrested all ebook price competition,” Buterman concluded, arguing that any innovation in the space around the time that the iBookstore launched either existed before the launch or couldn’t be tied to it. “The iPad was going to be introduced regardless of whether there was an iBookstore,” he said, while describing “increased book sales and new devices” as “trends that were well underway” before Apple came on the scene.

Apple: DOJ “reverse-engineered a conspiracy”

Apple’s attorney Orin Snyder argued in his opening statement — which lasted over three hours — that the government had provided no direct evidence of a conspiracy between Apple and publishers. Apple “simply was not willing to start a new business that would lose money” by matching Amazon’s $9.99 price for bestsellers. But the DOJ, Synder said, is asking the court to “ignore the actual negotiation of the contracts that define the relationships between the parties.”

Apple and publishers were not aligned, Snyder argued: Rather, he claimed negotiations between them were “contentious and hard-fought…in some cases knock-down, drag-out fights” (becoming so “noxious” in the eyes of Random House that it would not sign a deal). HarperCollins only agreed to an agency agreement with Apple, he said, because News Corp wanted to retain a good relationship with the company. Snyder said that Apple had “no evidence — zero — that Apple knew anything about interactions between publishers.”

In response to the DOJ’s allegations that Apple acted behind the scenes to help publishers get Amazon to agree to agency pricing, Snyder said there is “iron-clad proof…in emails and in testimony that Apple told its supposed co-conspirators” that it didn’t care what kinds of agreements publishers signed with Amazon. He said Apple would not have needed a MFN clause in its agreements if it already knew the types of agreements that publishers would enact with other retailers: Instead, an MFN gave Apple “the ability to be indifferent to what happens at other retailers.” He also alleged that Amazon initiated discussions about changing the pricing model with publishers before Apple signed its own agency agreements.

“Apple should be applauded and not condemned for its beneficial impact on the ebook market,” Snyder said. Before the launch of the iBookstore, the market was “headed nowhere good.” With the iBookstore’s launch, Snyder claimed that many more parties have been able to start selling ebooks — everyone from “little brownstones in Vermont” to “solo authors acting without a publisher.”

Simon & Schuster had been the only remaining Big Six publisher that did not make its ebooks available to libraries at all.

According to the release:

“The participating libraries can acquire any Simon & Schuster ebook title at any time during the pilot’s one-year term, with each title usable for one year from the date of purchase. Each library can offer an unlimited number of checkouts during the one-year term for which it has purchased a copy; each copy may only be checked out by one user at a time. All of Simon & Schuster’s frontlist and backlist titles that are available as ebooks are eligible for the program, with new titles being made available simultaneous with their publication.”

“In making our full list available we think we will get a better sense of lending patterns and patron behavior,” Simon & Schuster CEO Carolyn Reidy said in a statement, “and I am particularly eager to start seeing the actual data so that we can better understand this still-new phenomenon.”

During the pilot, the libraries will also sell Simon & Schuster titles through their online portals, so that a patron who doesn’t want to wait on the hold list for a particular title can purchase it instead. The library gets a cut each time an ebook is sold through its platform.

Simon & Schuster would not comment on how much it will charge libraries for ebooks. (Random House, for instance, charges three times more than the retail price in some cases.)

Digital library distributor 3M is handling the trial for the New York and Brooklyn Public Libraries, with BiblioCommons powering the purchase option. Distributor Baker & Taylor is handling the trial and purchase option for the Queens Library.

With Simon & Schuster’s announcement, all of the Big Six publishers are making at least some ebooks available to libraries, with various restrictions. Random House makes all of its ebooks available to libraries, but, as noted above, at prices as much as three times higher than the retail price. HarperCollins allows its ebooks to be checked out 26 times before the library has to buy a new copy. Hachette only makes new ebooks available to some libraries in a pilot program, and charges more than retail price. Macmillan is running a two-year trial that makes 1,200 older ebooks available to libraries.

Simon & Schuster, like many other publishers, works with a company called Attributor “to track and remove infringing copies of digital, audio and print titles published by Simon & Schuster from online sites.” Authors will now have access to Attributor’s data through the Simon & Schuster Author Portal, which also lets them track their book sales. Literary agents will have access to the data as well.

Reidy laid out the piracy info that authors will receive:

“The reports that you will see provide information about the number of infringements identified and takedown notices sent to infringing sites, success rates in removing infringements, the types of sites where infringement is occurring, the specific urls and geographic distribution of sites where unauthorized copies are offered and more.  (We expect that in the future we will expand upon the information currently available.)”

A screenshot of the type of data that authors will get is below.

Simon & Schuster’s move could lead the other publishers that work with Attributor to make piracy data available to publishers as well. Attributor was acquired by digital watermark company Digimarc in December.

Photo courtesy of Shutterstock / Ilona Baha

With the launch of Archway, Simon & Schuster hopes to get a piece of the rapidly growing self-publishing market. According to Bowker, over 235,000 books are self-published annually — up 287 percent since 2006. (The actual figure is likely higher since Bowker only counts titles with ISBN identification codes. Titles published without them — like ebooks offered exclusively through Kindle — are not included.)

Free self-publishing services, like Smashwords and Amazon’s KDP, focus on ebooks, while Author Solutions emphasizes print and retail distribution and has higher prices and lower ebook royalties. Archway’s “fiction” publishing package, for example, ranges in price from $1,999 to $14,999. That includes ebook distribution, but Archway authors can’t choose an ebook-only publishing option for now, though the company may add one later. Archway will pay an ebook royalty of 50 percent of net sales, so if an ebook is distributed to Kindle, for example, an Archway author would receive 50 percent of the sale minus Amazon’s 30 percent fee.

Archway is offering services like a “concierge” — “a dedicated publishing guide who will coordinate each step of the book production process” — and access to a speakers bureau. Archway titles will be included in the booksellers’ catalog Edelweiss. And Archway authors “will have the opportunity to create high-quality videos and book trailers for distribution” to the online video networks that Simon & Schuster works with, like Roku and Blinkx. Simon & Schuster is not hiring any staff; services like the “concierge” will be provided by Author Solutions.

Simon & Schuster will monitor the sales of Archway titles and may sign some authors for traditional publishing deals. In recent months, the publisher signed self-published romance authors Jamie McGuire and Colleen Hoover. “We’re excited that we’ll be able to help more authors find their own path to publication and at the same time create a more direct connection to those self-published authors ready to make the leap to traditional publishing,” Simon & Schuster CEO Carolyn Reidy said in a statement.

Penguin acquired Author Solutions for $116 million in July, but the company continues to operate independently and “Penguin is not involved in any of our partnership businesses,” ASI CEO Kevin Weiss told me. ASI already operates white-label self-publishing services for Harlequin and HarperCollins’ Thomas Nelson, for example. “We have an agreement with [Penguin] that all of our partnership businesses are confidential,” Weiss said. “Prior to [a book] being in distribution,” Penguin can’t see it and it is “sealed off behind our firewall…I informed Penguin that we are launching this deal, but I did not get their permission.”