Apple enlists Winnie-the-Pooh in e-book argument

NEW YORK An Apple Inc. (AAPL) lawyer used Winnie-the-Pooh and millions of customers too in trying to convince a judge the computer giant did not manipulate electronic book prices and stifle competition when it opened an online bookstore three years ago.

Attorney Orin Snyder enlisted the popular children's title Tuesday as he questioned David Shanks, the top executive at publisher Penguin Group USA, during the second day of an antitrust civil trial resulting from a lawsuit brought last year by the Justice Department.

The Penguin chief executive officer conceded the Winnie-the-Pooh book looks "extremely beautiful" in color on Apple products and not as good in black and white on other devices. He said "irrational enthusiasm'' about the potential for 80 million to 100 million Apple customers to buy books online led the company to meet many of Apple's demands in 2010.

Snyder was trying to rebut government claims Apple and five book publishers conspired to eliminate Seattle-based Amazon.com's $9.99 bargain price for popular e-books by agreeing to a pricing policy that forced millions of consumers to pay more than they should have for most online books.

Under questioning by Justice Department lawyer Mark Ryan, Shanks said Penguin was not pleased that Amazon was selling its electronic books below cost before Apple entered the market, since the publisher tried to maintain "a fairly delicate ecosystem in publishing, where we are trying to have everybody make a profit: the author, the publisher and the reseller."

Penguin, the last of five publishers to settle its case with the government, tried to maintain a pricing agreement with Amazon that would enable the online megastore to continue its $9.99 price for e-books but had to change its position once Barnes & Noble (BKS), then the second-largest seller of e-books, entered the market with a pricing scheme similar to Apple's, Shanks testified. He said Penguin otherwise would have risked losing money.

Apple has insisted that its entrance into the e-book market improved the online book industry and stabilized prices in the long term.

Shanks said Apple insisted on limits to prices for e-books at a time when some believed the prices for e-books could be steadily increased. He said the negotiations with Apple were not unlike many of the other 100 or so negotiations he has conducted in his 35 years in the book-publishing industry.

Now, he testified, Penguin is better able to project its sales of hardbacks, paperbacks and e-books, in part because the electronic book industry is established and more predictable and because it is clear the number of printed books is decreasing. The company agreed in a deal announced last month to pay $75 million to settle claims against it.

Under questioning from U.S. District Judge Denise Cote, Shanks conceded he was worried about whether Amazon would retaliate against Penguin for its dealings with the Cupertino, Calif.-based Apple.

He said Penguin had decided it did not want to enter the Apple deal to price e-books at $12.99 and $14.99 unless at least three of the largest six publishers were joining the Apple bookstore as well. Without them, he said, consumers would be disappointed that there was not a sufficient selection of books available.

"We think the consumer want to feel they're viewing the whole gamut of books, he said.