Penguin CEO Testifies in Apple Trial

A publishing executive said that Apple’s entry into the electronic-book market in 2010 marked the beginning of a dramatic shift away from prices set by retailers to ones set by the publishers themselves. But the testimony of David Shanks, chief executive of Penguin Group (USA) since 2001, appeared at odds with allegations by the Justice Department that Apple conspired with Penguin and four other major publishers to hoist prices industry wide.

Far from conspirators, Shanks said during the second day of an expected three-week trial, Apple and Penguin clashed on many things. Shanks said, for instance, Penguin initially proposed an agreement with Apple in which the technology company would have set the prices of e-books sold in its digital bookstore. But Apple decided against that wholesale pricing model, opting for a so-called agency model that placed pricing in the hands of the publisher, while Apple received a 30% commission on each sale. Shanks said he tried unsuccessfully to get Apple to abandon price caps of $12.99 and $14.99, and a price-matching provision that ended up in the final contract between the two companies. Shanks said he sought assurances from Apple that his competitors were agreeing to the same terms—but only partly because he feared the repercussions of adopting the agency model without the other publishers. Penguin, a unit of Pearson, also wanted to be sure the selection in Apple's digital library was large enough to draw in customers, he said.