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Friday, August 17, 2012 - Page updated at 05:00 p.m.

Apple claims Amazon was 'driving force' behind government lawsuit

By Amy Martinez
Seattle Times business reporter

The rivalry between Apple and Amazon.com for control of the e-book market just got hotter.

In a legal memo Wednesday, Apple accuses Amazon of working with the Department of Justice to bring e-book price-fixing claims against the Cupertino, Calif., tech giant and five major publishers last April.

"Amazon was the driving force behind the government's investigation, and it told a story to the government that has yet to be scrutinized," Apple says in its memo filed with the Southern District of New York.

"Amazon talked with the government repeatedly throughout the investigation, even hosting a two-day meeting at its Seattle headquarters," Apple goes on to say. "In all, the government met with at least 14 Amazon employees — yet not once under oath."

Amazon did not respond to an email seeking comment Thursday.

The Justice Department announced in April that it was suing Apple and five publishers on charges they conspired to raise e-book prices, while simultaneously disclosing a settlement with three of them to restore discounting authority to Amazon and other e-book sellers.

Amazon called it a victory for buyers of its Kindle e-reading devices and announced plans to cut prices on Kindle e-books, the very thing publishers had hoped to prevent when they negotiated a new business model with Apple two years ago.

In Wednesday's filing, Apple argues that the proposed settlement is unlawful because it forces Apple to terminate its contracts with the three publishers "before a single document has been introduced into evidence, before any witness has testified, and before the court has resolved the disputed facts."

Apple says a ruling on the settlement should be postponed until after its trial next June.

Apple also cited hundreds of public comments opposing the proposed settlement. "Many," the company wrote, "expressed concerns about the possibility that the government has unwittingly placed a thumb on the scales in favor of Amazon, the industry monopolist."

Amazon accounts for between 55 and 60 percent of U.S. e-book sales, while Barnes & Noble controls 25 to 30 percent of the digital-book market, according to estimates. Apple's share is believed to be in the range of 10 to 15 percent.

At the center of the lawsuit is Apple's "agency" model with the five publishers: Hachette, HarperCollins, Macmillan, Penguin and Simon & Schuster. Under the model, Apple takes a 30 percent cut of the proceeds from e-book sales and lets publishers set the retail prices. (In contrast, publishers long have sold books to retailers at a fixed cost, and retailers sell them to consumers at whatever price they want.)

Amazon was forced into similar agreements, and prices for new digital best-sellers soon rose from $9.99 to $12.99 and $14.99, according to the lawsuit.

The Justice Department's proposed settlement with the three publishers — Hachette, HarperCollins and Simon & Schuster — requires them to give e-book sellers such as Amazon the freedom to cut prices for at least two years.

Apple now says more scrutiny of Amazon's role in the lawsuit is needed.

"The government required that Amazon turn over a mere 4,500 documents, a fraction of what was required of others," Apple wrote.

Amy Martinez: 206-464-2923 or amartinez@seattletimes.com. Information from Seattle Times archives is included.

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