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OPINION & ORDER DENISE COTE, District Judge. Table of Contents PROCEDURAL HISTORY.......................................................645 SUMMARY OF FINDINGS......................................................647 BACKGROUND................................................................648 A. Development of the E-book Market.......................................648 B. Publishers’ Discontent with the $9.99 Price Point............................649 C. January 2009-December 2009: Publisher Defendants Pursue Strategies to Combat Amazon Pricing................................................650 D. Apple’s Development of iBooks...........................................654 E. December 15 to 16, 2009: Apple’s First New York Meetings with Publishers...........................................................655 F. Apple Switches Gears and Presents An Agency Model with 30% Commission..........................................................658 G. Apple’s Term Sheet: All E-tailers to Agency and Pricing Caps................661 H. Creation of the MFN Clause.............................................662 I. January 11: Apple Distributes Draft Agency Agreements....................663 1. MFN Negotiations ..................................................664 2. 30 Percent Commission Negotiations...................................666 3. Price Tier Negotiations..............................................667 J. January 18-27: Publishers Initiate Agency Negotiations with Amazon.........670 K. January 21-26: Execution of Agreements..................................673 L. January 27: The Launch of the iPad and iBookstore.........................678 M. January 28 to 31: The Publisher Defendants Force Amazon to Adopt the Agency Distribution Model.............................................679 N. The Five Amazon Agency Agreements.....................................681 O. Prices after Agency.....................................................682 P. Random House Adopts an Agency Model ..................................685 Q. The Publisher Defendants Require Google to Adopt an Agency Model.........686 R. Concluding Observations.................................................686 DISCUSSION..................................................................687 A. Legal Standard.........................................................687 B. Analysis of the Evidence.................................................691 APPLE’S ARGUMENTS ........................................................694 A. The Monsanto Decision and Apple’s Independent Business Interests...........695 B. Apple’s Intent..........................................................699 C. Windowing.............................................................701 D. Characterization of the Evidence..........................................702 1. Initial Meetings with the Publishers ...................................703 2. Conspiracy by Telepathy.............................................704 3. Steve Jobs’s Statements..............................................705 4. The Publishers Raised Prices, Not Apple...............................705 E. Per Se Liability.........................................................706 F. Avoiding a Dangerous Precedent 707 CONCLUSION.......................... 709 This Opinion explains how and why the prices for many electronic books, or “e-books,” rose significantly in the United States in April 2010. Plaintiffs the United States of America (“DOJ”) and thirty-three states and U.S. territories (the “States”) (collectively, “Plaintiffs”), filed these antitrust suits on April 11, 2012, alleging that defendant Apple Inc. (“Apple”) and five book publishing companies conspired to raise, fix, and stabilize the retail price for newly released and bestselling trade e-books in violation of Section 1 of the Sherman Antitrust Act, 15 U.S.C. § 1 (“Sherman Act”), and various state laws. These cases represent two of four related actions brought before this Court alleging the same e-books price-fixing conspiracy between Apple and the publishers. The publishers are Hachette Book Group, Inc. (“Hachette”), HarperCollins Publishers LLC (“HarperCollins”), Holtzbrinck Publishers LLC d/b/a Macmillan (“Macmillan”), Penguin Group (USA), Inc. (“Penguin”), and Simon & Schuster, Inc. (“Simon & Schuster” or “S & S”) (collectively, “Publisher Defendants”). Only Apple proceeded to trial; the Publisher Defendants have settled their claims with both the DOJ and the States. This Opinion presents the Court’s findings of fact and conclusions of law following the bench trial that was held from June 3 to 20, 2013 to resolve the issue of Apple’s liability and the scope of any injunctive relief. As described below, the Plaintiffs have shown that Apple conspired to raise the retail price of e-books and that they are entitled to injunctive relief. A trial on damages will follow. PROCEDURAL HISTORY Fact and expert discovery in these actions concluded on March 22, 2013. The parties’ Joint Pretrial Order, proposed findings of fact and conclusions of law, and pretrial memoranda were submitted on April 26 and, following rulings on redactions, were filed on May 14. At the time the trial was scheduled, the parties agreed that a bench trial would resolve claims for liability and injunctive relief. With the parties’ consent, the trial was conducted in accordance with the Court’s customary practices for non-jury proceedings, which includes taking direct testimony from witnesses under a party’s control through affidavits submitted with the pretrial order. The parties also served with the Joint Pretrial Order copies of all exhibits and deposition testimony that they intended to offer as evidence in chief at trial.. At trial, the Plaintiffs called twelve fact witnesses and two expert economists. The Plaintiffs’ fact witnesses included three Apple employees: Eddy Cue (“Cue”), Senior Vice President of Internet Software and Services at Apple; Keith Moerer (“Moerer”), a Director of iTunes at Apple; and Kevin Saul (“Saul”), Associate General Counsel at Apple, and the lead business lawyer supporting Apple’s Internet and Software Services division. The Plaintiffs also called senior executives from each of the five Publisher Defendants: David Shanks (“Shanks”), CEO of Penguin; Carolyn Reidy (“Reidy”), President and CEO of Simon & Schuster; Brian Murray (“Murray”), CEO of HarperCollins; John Sargent (“Sargent”), CEO of Macmillan; and David Young (“Young”), Chairman and CEO of Hachette from 2006 through March 2013, who currently serves as Chairman of the Board of Directors of Hachette. The Plaintiffs called four additional fact witnesses: Russell Grandinetti (“Grandinetti”), Vice President — Kindle at non-party Amazon.com (“Amazon”); David Naggar (“Naggar”), Vice President of Kindle Content at Amazon; Laura Porco (“Porco”), Amazon’s Director of Kindle Books from 2006 to 2011; and Thomas Turvey (“Turvey”), Director of Strategic Partnerships at non-party Google Inc. (“Google”). The Plaintiffs’ expert witnesses were Dr. Richard Gilbert (“Gilbert”), Emeritus Professor of Economies and Professor of the Graduate School at the University of California, Berkeley, and a Senior Consultant (Affiliate) at Compass Lexecon, an economic consulting firm; and Dr. Orley Ashenfelter (“Ashenfelter”), the Joseph Douglas Green 1895 Professor of Economics at Princeton University. Affidavits submitted by the Plaintiffs constituted the direct testimony of four of their fact witnesses — Grandinetti, Naggar, Porco, and Turvey — and both of their expert witnesses. Apple had intended to call seven of Plaintiffs’ witnesses in its own case — Cue, Moerer, Murray, Reidy, Sargent, Saul, and Young. Thus, these witnesses’ affidavits were also received during the Plaintiffs’ case in chief. The Plaintiffs subpoenaed Shanks to testify at trial. Each of these witnesses appeared at trial and was cross-examined. The Plaintiffs also offered excerpts from the depositions of John Makinson (“Makinson”), Chairman and CEO of the Penguin Group, the parent company of Penguin; Arnaud Nourry (“Nourry”), Chairman and CEO of Hachette Livre, the parent company of Hachette; and Maja Thomas (“Thomas”), Senior Vice-President at Hachette. Apple offered counter-designations as to Nourry and Thomas. During the presentation of its defense, Apple presented affidavits constituting the direct testimony of three fact witnesses and three expert economists. Apple’s fact witnesses were Robert McDonald (“McDonald”), the manager of Apple’s U.S. iBookstore; Theresa Horner (“Horner”), Vice President of Digital Content for Barnesandnoble.com, a subsidiary of non-party Barnes & Noble, Inc. (“Barnes & Noble”); and Madeline McIntosh (“McIntosh”), Chief Operating Officer of non-party Random House, Inc. (“Random House”). Appie’s expert witnesses were Dr. Benjamin Klein (“Klein”), Professor Emeritus of Economics at the University of California, Los Angeles, Senior Consultant at Compass Lexecon, and President of EAC Associates, Inc.; Dr. Michelle Burtis (“Burtis”), Ph.D., Senior Advisor at Cornerstone Research, Inc., an economic and financial consulting firm; and Dr. Kevin Murphy (“Murphy”), George J. Stigler Distinguished Service Professor of Economics at the University of Chicago, and Faculty Research Associate at the National Bureau of Economic Research. Each of these witnesses, except McIntosh, appeared at trial and was cross-examined. The Plaintiffs did not seek to cross-examine McIntosh. As noted, the bench trial was held from June 3 to June 20, 2013, and this Opinion presents the Court’s findings of fact and conclusions of law. The findings of fact appear principally in the following Background section, but also appear in the remaining sections of the Opinion. SUMMARY OF FINDINGS The Plaintiffs have shown that the Publisher Defendants conspired with each other to eliminate retail price competition in order to raise e-book prices, and that Apple played a central role in facilitating and executing that conspiracy. Without Apple’s orchestration of this conspiracy, it would not have succeeded as it did in the Spring of 2010. There is, at the end of the day, very little dispute about many of the most material facts in this case. Before Apple even met with the first Publisher Defendant in mid-December 2009, it knew that the “Big Six” of United States publishing — the Publisher Defendants and Random House (collectively, the “Publishers”) — wanted to raise e-book prices, in particular above the $9.99 prevailing price charged by Amazon for many ebook versions of New York Times bestselling books (“NYT Bestsellers”) and other newly released hardcover books (“New Releases”). Apple also knew that Publisher Defendants were already acting collectively to place pressure on Amazon to abandon its pricing strategy. At their very first meetings in mid-December 2009, the Publishers conveyed to Apple their abhorrence of Amazon’s pricing, and Apple assured the Publishers it was willing to work with them to raise those prices, suggesting prices such as $12.99 and $14.99. Over the course of their negotiations in December 2009 and January 2010, Apple and the Publisher Defendants educated one another about their other priorities. Apple strongly hoped to announce its new iBookstore when it launched the iPad on January 27, 2010, but would only do so if it had agreements in place with a core group of Publishers by that date, could assure itself it would make a profit in the iBookstore, and could offer e-book titles simultaneously with their hardcover releases. For their part, if the Publisher Defendants were going to take control of e-book pricing and move the price point above $9.99, they needed to act collectively; any other course would leave an individual Publisher vulnerable to retaliation from Amazon. Apple and the Publisher Defendants shared one overarching interest — that there be no price competition at the retail level. Apple did not want to compete with Amazon (or any other e-book retailer) on price; and the Publisher Defendants wanted to end Amazon’s $9.99 pricing and increase significantly the prevailing price point for e-books. With a full appreciation of each other’s interests, Apple and the Publisher Defendants agreed to work together to eliminate retail price competition in the e-book market and raise the price of e-books above $9.99. Apple seized the moment and brilliantly played its hand. Taking advantage of the Publisher Defendants’ fear of and frustration over Amazon’s pricing, as well as the tight window of opportunity created by the impending launch of the iPad on January 27 (the “Launch”), Apple garnered the signatures it needed to introduce the iBookstore at the Launch. It provided the Publisher Defendants with the vision, the format, the timetable, and the coordination that they needed to raise e-book prices. Apple decided to offer the Publisher Defendants the opportunity to move from a wholesale model — where a publisher receives its designated wholesale price for each e-book and the retailer sets the retail price — to an agency model, where a publisher sets the retail price and the retailer sells the e-book as its agent. The agency agreements that Apple and the Publisher Defendants executed on the eve of the Launch divided New Release e-books among price tiers. The top of each tier, or cap, was essentially the new price for New Release e-books. The caps included $12.99 and $14.99 for many books then being sold at $9.99 by Amazon. The agreements also included a price parity provision, or Most-Favored-Nation clause (“MFN”), which not only protected Apple by guaranteeing it could match the lowest retail price listed on any competitor’s e-bookstore, but also imposed a severe financial penalty upon the Publisher Defendants if they did not force Amazon and other retailers similarly to change their business models and cede control over e-book pricing to the Publishers. As Apple made clear to the Publishers, “There is no one outside of us that can do this for you. If we miss this opportunity, it will likely never come again.” Through the vehicle of the Apple agency agreements, the prices in the nascent e-book industry shifted upward, in some cases 50% or more for an individual title. Virtually overnight, Apple got an attractive, additional feature for its iPad and a guaranteed new revenue stream, and the Publisher Defendants removed Amazon’s ability to price their e-books at $9.99. A detailed explanation of how Apple facilitated this conspiracy and changed the face of the e-book industry follows. BACKGROUND Defendant Apple engages in a number of businesses, but as relevant here it sells the iPad tablet device and distributes e-books through its iBookstore. E-books are books that are sold to consumers in electronic form, and that can and must be read on a dedicated electronic device such as the iPad, the Barnes & Noble Nook, or Amazon’s Kindle. The Publisher Defendants publish both e-books and print books. The five Publisher Defendants and Random House represent the six largest publishers of “trade” books in the United States. These six firms are often referred to within the publishing industry as the “Big Six.” The Publisher Defendants sold over 48% of all e-books in the United States in the first quarter of 2010. A. Development of the E-book Market Amazon’s Bundle was the first e-reader to gain widespread commercial acceptance. When the Kindle was launched in 2007, Amazon quickly became the market leader in the sale of e-books and e-book readers. Through 2009, Amazon dominated the e-book retail market, selling nearly 90% of all e-books. Amazon utilized a discount pricing strategy through which it charged $9.99 for certain New Release and bestselling e-books. Amazon was staunchly committed to its $9.99 price point and believed it would have long-term benefits for its consumers. In order to compete with Amazon, other e-book retailers also adopted a $9.99 or lower retail price for many e-book titles. Prior to April 2010, the Publishers distributed print and digital books through a wholesale pricing model, in which a content provider sets a list price (also known as a suggested retail price) and then sells books and e-books to a, retailer — such as Amazon — for a wholesale price, which is often a percentage of the list price. The retailer then offers the book and e-book to consumers at whatever price it chooses. Prior to 2009, many publishers set a wholesale price for e-books at a 20% discount from the equivalent physical book wholesale price to reflect the many cost savings associated with the distribution and sale of e-books. For instance, there is no cost for the printing, storage, packaging, shipping, or return of e-books. With a digital book discount, Amazon’s $9.99 price point roughly matched the wholesale price of many of its e-books. B. Publishers’ Discontent with the $9.99 Price Point The Publishers were unhappy with Amazon’s $9.99 price point and feared that it would have a number of pernicious effects on their profits, both in the short run and long-term. In the short-term, the Publishers believed the low price point was eating into sales of their more profitable hardcover books, which were often priced at thirty dollars or inore, and threatening the viability of the brick-and-mortar stores in which hardcover books were displayed and sold. Over the long-term, they feared that consumers would grow accustomed to e-books priced at $9.99 and that the $9.99 price point would erode prices for all books, thereby threatening the business model for the publishing industry. They believed that this low price failed to reflect the true value of many books and also failed to distinguish among books in terms of the effort entailed to create and produce them and in terms of their quality, however one might measure quality. The Publishers also feared Amazon’s growing power in the book distribution business. They were concerned that, should Amazon continue to dominate the sale of e-books to consumers, it would start to demand even lower wholesale prices for e-books and might begin to compete directly with publishers by negotiating directly with authors and literary agents for rights — a process referred to as disintermediation.. As a result, the Publisher Defendants determined that they needed to force Amazon to abandon its discount pricing model. As Haehette’s Young bluntly put it, they had to “defea[t] [Amazon’s] $9.99 pricing policy,” and prevent the “wretched $9.99 price point becoming a de facto standard.” C. January 2009-December 2009: Publisher Defendants Pursue Strategies to Combat Amazon Pricing Beginning in at least early 2009, the Publisher Defendants began testing different ways to address what Macmillan termed “book devaluation to $9,99,” .and to confront what S & S’s Reidy described as the “basic problem: how to get Amazon to change its pricing” and move off its $9.99 price point. They frequently coordinated their efforts to increase the pressure on Amazon and decrease the likelihood that Amazon would retaliate — an outcome each Publisher Defendant feared if it acted alone. One of the strategies that they employed was the elimination of the existing discount on wholesale prices of e-books. This meant that the wholesale price for e-books would equal the wholesale price for physical books, and as a result, the wholesale price that Amazon paid for an e-book would be set at several dollars above Amazon’s $9.99 price point. This tactic, however, failed to convince Amazon to change its pricing policies and it continued to sell many NYT Bestsellers as loss leaders at $9.99. The Publishers were not shy about expressing their displeasure to Amazon about its $9.99 pricing. In February 2009, Penguin told Amazon that “their 9.99 model” was “not a good sustainable one.” HarperCollins similarly warned Amazon that it was “seriously considering changes to our discount structure and our digital list prices for all retailers.” In March 2009, Macmillan’s Sargent met with Amazon to express his own concern with the $9.99 price point, and indicated that “all the pubs” were talking about it. In June 2009, S & S’s Reidy bluntly told Amazon that the $9.99 price point was “a mistake” and that she would “continue to be vocal because she thinks it’s terrible for the business.” In early December 2009, Hachette’s Nourry met with Amazon’s Nag-gar, and told him that Amazon’s $9.99 pricing posed a “big problem” for the industry. According to Nourry, if Amazon raised e-book prices by even one or two dollars it would “solve the problem.” The Publisher Defendants did not believe, however, that any one of them acting alone could convince Amazon to change its pricing policy. They also feared that if they did not act as a group, Amazon would use its ever-growing power in the book distribution business to retaliate against them. As a result, the Publisher Defendants conferred about their need to act collectively if they were to have any impact on Amazon’s pricing. As a Penguin executive reported to the Penguin Group Board of Directors under the heading “competition and collaboration,” it “will not be possible for any individual publisher to mount an effective response” to Amazon “because of both the resources necessary and the risk of retribution, so the industry needs to develop a common strategy.” Thus, as early as December 2008, Stefan von Holtzbrinck of Macmillan and Hachette’s Nourry agreed “to exchange information and cooperate very tightly on all issues around e-books and the Kindle.” Nourry explained that “at the heart of our strategy” are discussions among “top publishers” in the United States “to create an alternative platform to Amazon for e-books.” He observed, however, that the goal of these ventures is “less to compete with Amazon than to force it to accept a price level higher than 9.99.” During the Summer of 2009, Nourry came to New York and met with the CEOs of Hachette’s competitors on June 29 and 30. Nourry reported after his first day of meetings that “the movement is positive” with respect to Macmillan, S & S, HarperCollins, and Penguin. While he expressed his continued fear that Amazon’s pricing would lead to “selling content at 7 $ ... [l]ike it works in the music business,” he. was reassured to know that “none of our competitors” wanted this to happen either. On a fairly regular basis, roughly once a quarter, the CEOs of the Publishers held dinners in the private dining rooms of New York restaurants, without counsel or assistants present, in order to discuss the common challenges they faced, including most prominently Amazon’s pricing policies. Before one such dinner, Hachette’s Young promised Nourry that he would raise with his competitors their options to confront the “potentially dominant role played by ... Amazon” in e-books, “in order to control their strategy and pricing.” As Young put it, “I hate [Amazon’s] bullying behavior and will be happy to support a strategy that restricts their plans for world domination.” As the Publisher Defendants’ CEOs testified, the Publishers did not compete with each other on price; while they were serious competitors, their preferred fields of competition were over authors and agents. Thus, they felt no hesitation in freely discussing Amazon’s prices with each other and their joint strategies for raising those prices. In the Fall of 2009, Reidy explained to her superior at Simon & Schuster’s parent company CBS Corporation, Leslie Moonves (“Moonves”), that S & S was considering several different options to “get Amazon to change its pricing.” As Reidy explained, we’ve always known that unless other publishers follow us, there’s no chance of success in getting Amazon to change its pricing practices.... And of course you were right that-without a critical mass behind us Amazon won’t ‘negotiate,’ so we need to be more confident of how our fellow publishers will react if we make a move.” Reidy assured Moonves, however, that she was “fairly sure that at least two of them would-quickly follow us” and would “keep thinking of how to attack the problem (as we perceive it) of current e-Book pricing; as you realize, we think it’s too important to ignore.” Reidy acknowledged to Moonves that “we need to ‘gather more troops’ and ammunition first!” In addition to raising the wholesale price of e-books, another strategy that Publisher Defendants adopted in 2009 to combat Amazon’s $9.99 pricing was the delayed release or “withholding” of the e-book versions of New Releases, a practice that was also called “windowing.” By the end of 2009, four of the Publisher Defendants— Macmillan, Simon & Schuster, Hachette, and HarperCollins — had announced or implemented . a policy of windowing some of their most popular e-book titles on Amazon. By making the more expensive hardcover version available to the public before the lower priced e-book, the Publisher Defendants hoped to protect the sales of New Release hardcover books and to pressure Amazon to raise its e-book prices. Sargent explained his support for withholding e-books from Amazon in the following terms, “Right now it is all about tactics while we try to get hardcovers over the artificially low 9.99 price point,” and “we need to do something to budge Amazon from their current strategy.” Hachette’s Young similarly believed that “windowing ... was the only way we could deal with Amazon selling off the family jewels.” In order for the tactic of windowing to succeed, the Publishers knew they needed to act together. That several Publishers synchronized the adoption and announcement of their windowing strategies was thus no mere coincidence. For example, Hachette’s Young told Nourry in late Fall 2009, “[cjompletely confidentially, Carolyn [Reidy] has told me that they [S & S] are delaying the new- Stephen King, with his full support, but will not be announcing this until after Labor Day.” Understanding the impropriety of this exchange of confidential information with a competitor, Young advised Nourry that “it would be prudent for you to double delete this from your email files when you return to your office.” When HarperCollins soon followed with its own windowing announcement, delaying the digital release of Sarah Palin’s Going Rogue, Hachette’s Nourry congratulated Murray on his decision: “Well done for the Palin book,” Nourry wrote, “and welcome to the Club!” The Publisher Defendants’ synchronized windowing strategy was publicly reported and tied to their discontent with Amazon’s pricing. A Wall Street Journal article of December 9, entitled “Two Major Publishers to Hold Back E-Books,” reported that S & S was windowing in order to “tak[e] a dramatic stand against the cut-rate $9.99 pricing of e-book best sellers,” and that Hachette would follow suit in an effort to “preserve our industry” from authors’ work being “sold off at bargain-basement prices.” The article’s author noted that “publishers have come to fear that the bargain prices will lead consumers to conclude- that books are worth only $10, or less, upsetting the pricing model that has survived for decades.” The article reported that S & S was intentionally focusing its windowing efforts on its most popular titles; as an S & S executive explained, she was concerned that e-book sales were “cannibalizing new best-selling hardcovers, which are the mainstay of the publishing business.” A New York Times article of the same day entitled “Publishers Delay E-book Releases,” described an even broader effort among the Publisher Defendants to delay the digital release of certain popular titles. It reported that “[pjublishers have been debating the timing of e-books in part as a way to protest the low prices — typically $9.99 — that online retailers like Amazon and Sony are offering on e-book versions of new releases and best sellers.” It stated that at least four Publishers — S & S, Hachette, HarperCollins, and Macmillan— already had begun or announced an intention to window e-books in the coming year. The article described the economies of windowing and tied the strategy to the protection of Publishers’ physical book business, stating that Although publishers currently receive the same wholesale price for an e-book that they receive for a print book (meaning the retailer takes a loss on the sale of the most popular e-books), publishing houses worry that eventually, Amazon and other e-book retailers will pressure publishers to take a smaller cut on e-books. In addition, since 95 percent of the business still comes from print booksellers, the publishers want to prevent those retailers from reducing orders. The next day, the Wall Street Journal similarly announced that others had joined the windowing movement, reporting that “HarperCollins Joins Ranks of Those Delaying E-Books,” as “the debate over the timing and pricing of e-books heats up.” The article stated that, beginning in early 2010, HarperCollins will delay the release of “five to ten hardcover titles each month.” It quoted Murray saying, “We have to believe that delaying the e-book edition helped hardcover sales.” The article also reported that Penguin was “watching the current situation with interest.” The three Publisher Defendants who had announced their adoption of a windowing policy hoped that Macmillan, Penguin, and Random House would join their campaign. As Nourry expressed on December 6, in order “[t]o succeed our colleagues must ... follow us.” Five days later, S & S’s Reidy advised Macmillan that it would “love” for Macmillan “to join” Hachette, HarperCollins, and S & S in windowing, and “fel[t] if one more publisher comes aboard, everyone else will follow suit.” On December 15, Macmillan announced that, starting in January, it would delay release of most of its e-books for 90 days. It was reported in the Wall Street Journal on December 16. This left only two of the Big Six not yet committed to windowing.. Penguin’s Makinson reported in December that Hachette had started to “put a lot of pressure” on Penguin “to join the windowing movement,” but Penguin refused to do so. Penguin’s McCall was well aware that “[i]f other publishers don’t follow suit” with windowing, Amazon’s $9.99 “predatory pricing will continue, and we’ll lose.” When Penguin and Random House chose not to join their competitors and delay the release of e-books, Hachette’s Young found their refusal “deeply divisive and disappointing.” Even though by the Winter of 2009, four of the Publisher Defendants had delayed the release of some e-books or announced an intention to so, they knew that windowing was not a long-term solution to Amazon’s $9.99 pricing model. Among other things, windowing carried serious risks. As Sargent recognized, windowing was “really bad” because it encouraged piracy. Reidy noted that windowing “did not seem the wisest course” since “it doesn’t seem smart to penalize the e-Book reader: we in fact want to encourage e-Book purchases, so long as we can maintain our margins and income.” She feared that windowing could “alienate an entire portion (and a growing one) of our audience.” As Sargent admitted to an author on December 14, while windowing could be used as a short-term tactic, “[windowing is entirely stupid,” and “actually makes no damn sense at all really.” As a Penguin study showed, when a Publisher delayed the release of e-books, its sales never recovered. The lost customers neither bought the print book at a higher price nor returned to purchase those e-books when they finally became available. Sargent, for one, hoped that over time Publishers would be able to move to a system of simultaneous release of e-books with their physical counterparts, but at.-a higher price point of between $12.95 and $14.95. In order to do so, the Publishers would need to find a way to gain long-term control over pricing, including on Amazon. “The questions is,” Sargent wondered, “how to get there?” Other Publisher Defendants envisioned even higher price points for e-books, but pondered the same fundamental dilemma. It was in this context that Apple arrived on the scene and provided the Publisher Defendants with the means to achieve their shared goal. D. Apple’s Development of iBooks Apple is one of America’s most admired, dynamic, and successful technology companies. Its innovative devices are immensely popular not only in this country but around the world. But, as of 2009, Apple had no e-bookstore. Consumers could read e-books on Apple’s devices through third party software, such as apps, but Apple did not yet have its own e-reading software or e-bookstore with a collection of books available for purchase. Apple did not have an e-bookstore in 2009 because it did not yet have a device that its founder Steve Jobs (“Jobs”) believed would be a great e-reader. He demanded no less before he would invest his company’s energies 'in e-books. That was about to change. In 2009, Apple was close to unveiling the iPad. With this revolutionary tablet, Apple was able to contemplate the . arrival of its first great device for reading e-books. Therefore, under the direction of Apple’s Cue, Moerer and others began studying the e-book industry. As of 2009, Cue had worked at Apple for twenty years and had played a major role in creating Apple’s content stores, beginning with Apple’s Online Store in 1998, the iTunes Store in 2003, and the App Store in 2008. Since 2004, Cue had been responsible for running all of Apple’s digital content stores and had led Apple’s negotiations in its deals with major content providers. By June, Cue’s team had assembled data that showed that the book market in North America was larger than the music market. The book industry was estimated to be roughly $35 to $42 billion in size, with trade books comprising $12.5 billion of that figure. While trade e-books accounted for just $100 million or so of those numbers, that market was growing at an exponential rate. Apple’s McDonald predicted that the e-book market could reach nearly $1 billion in 2010. Apple, of course, knew that Amazon was the dominant e-retailer (“e-tailer”) of books. While part of Amazon’s success could be attributed to its Kindle, Apple understood that another reason for Amazon’s success in the e-book market was its low prices. As of that time, Apple had little experience with competing on price when selling content; indeed, it considered itself a price “leader” in selling music, apps, and other content. It was also clear to Cue that “all the content owners hate Amazon.” As early as February 2009, Cue recognized that “[t]he book publishers would do almost anything for us to get into the e-book business.” Apple had also discovered analyst reports in June 2009 that indicated that a price of $12.99 could be a more profitable price point for e-books than Amazon’s $9.99. By November 2009, Apple had compiled a “Business Outlook” for audio book and e-book opportunities. It concluded that selling e-books as individual apps was “flawed.” It was at that relatively late date that Jobs authorized Cue to pursue the development of a dedicated Apple e-bookstore (the “iBookstore”) for the iPad. Apple planned to demonstrate the iPad to the public at the Launch on January 27, 2010, and planned to ship the devices to stores in early April 2010. Apple believed that the iPad would be a transformational e-reader. In contrast to the black-and-white e-reader devices on the market at the time, the iPad would have the capacity to display not only e-book text but also e-book illustrations and photographs in color on a backlit screen. The iPad would also have audio and video capabilities and a touch screen, which Apple believed would be seen by readers as a particularly attractive feature. Even though the iPad Launch would happen with or without an iBookstore, Apple did hope to announce its new iBookstore at the Launch. This would ensure maximum consumer exposure and provide a dramatic component of the Launch. But, this left Cue with less than two months for Apple to acquire enough content to create a viable Apple e-bookstore, and that period included the Christmas and New Year holidays. As a result, Apple streamlined its efforts and concentrated on executing agreements with the Big Six Publishers for trade e-books. It would broaden its campaign to add more publishers and to include other kinds of e-books, including textbooks and every other kind of e-book, after the Launch. Cue also had his own reasons for working hard to make the iBookstore a reality in time for the Launch. He was, of course, an able and experienced negotiator. He took pride in all he had achieved for Apple and wanted to succeed in adding an e-bookstore to its other content domains. Cue believed that with the introduction of the iPad the iBookstore held the potential to be another rousing success for his company. But, beyond professional pride, Cue had more personal reasons for making the iBookstore a reality in record-breaking time. Cue knew that Jobs was seriously ill and that this would be one of his last opportunities to bring to life one of Jobs’s visions and to demonstrate his devotion to the man who had given him the opportunity to help transform American culture. E. December 15 to 16, 2009: Apple’s First New York Meetings with Publishers Beginning on December 8, 2009, Cue’s team contacted the Publishers to set up meetings the following week to discuss an “extremely confidential” subject. Apple made it clear in these calls that it would be trying to meet with each of the Big Six CEOs on its whirlwind trip to New York City. Apple’s requests for meetings in New York was an exciting turn of events for the Publishers and prompted a flurry of telephone calls among them. They speculated about how they might turn Apple’s entry into the e-book business to their advantage in their battle with Amazon. They were well aware of the press reports that Apple would be announcing the arrival of another revolutionary device. Reidy, Murray, and Young exchanged at least five telephone calls on December 10 and 11 alone. These calls among the Publisher Defendants’ CEOs would continue and intensify at critical moments during the course of the Publishers’ ensuing negotiations with Apple. See Appendix A. Even before it met with any of the Publishers on December 15, Apple already knew several things that are important to the events that would unfold in the coming weeks. As previously described, Apple understood that the Publishers wanted to pressure Amazon to raise the $9.99 price point for e-books, that the Publishers were searching for ways to do that, and that they were willing to coordinate their efforts to achieve that goal. By December 15, the Wall Street Journal and New York Times articles of December 9 and 10 had described the windowing commitment made by three of the Big Six. Cue viewed the e-book market at the time to be dysfunctional and ripe for Apple’s arrival. For its part, Apple had decided that it would not open the iBookstore if.it could not make money on the store and compete effectively with Amazon. Apple knew that it needed access to a large number of titles. It was unwilling to allow e-books to be windowed at any Apple store. Apple also preferred to sell e-books at prices below their physical counterparts, although that object largely fell by the wayside in the coming weeks. Prior to meeting with the Publishers, Apple assumed that it would purchase e-books from them under the wholesale model and resell them, in line with the arrangement Apple used to obtain movies and TV shows for resale through its iTunes store. .As a master negotiator, Cue came well prepared for his meetings. He knew how to convey Apple’s conditions for entry and at the same time give the Publishers an incentive for entering, almost overnight, into a partnership with Apple. He decided to entice the Publishers by conveying an unambiguous message that Apple was willing to sell e-books at prices up to $14.99, that is, at a price point $5 above Amazon’s price for many New Releases and NYT Bestsellers. Cue, Moerer, and their in-house attorney Saul met separately with Haehette, Penguin, and Random House on December 15, and with HarperCollins, Macmillan, and S & S on December 16. If there was one Publisher that Apple most desired to have in its iBookstore, it was Random House, the largest Publisher. As events unfolded, however, that would be the only Publisher who declined to join the iBookstore before the Launch. Following a script, Apple conveyed in each of these meetings that it hoped to be able to begin selling e-books through an e-bookstore within the next 90 days as a feature on a new web-enabled machine. Apple expected that its entry into the market with an iBookstore on this device would help make books “cool” for the iTunes generation and quickly make Apple the vehicle through which a significant percentage of e-books were sold. Cue emphasized that Apple would only launch an e-bookstore if it got all of the major Publishers to sign on. As Cue intended, each of the Publishers understood that this was a reference to the Big Six. The parties exchanged thoughts about a workable business model in these meetings. Apple learned that current wholesale prices for e-books typically fell in the range of $13 to $15, and some were even sold at prices as high as $17.50. Cue told Publishers that they would need to lower their wholesale prices for Apple if Apple were to enter the business. In order for Apple to compete with Amazon it needed to be able to price e-books as cheaply as Amazon did, and it was not willing to pursue a strategy of loss leaders. As Reidy recorded, Apple expressed that it “cannot tolerate a market where the product is sold significantly more cheaply elsewhere.” Well aware of the Publishers’ experimentation with windowing, Apple also told Publishers that it opposed windowing; it believed that withholding e-books alienated customers and led to piracy. Random House and Macmillan agreed, telling Apple that they believed windowing was “a terrible, self-destructive idea,” even though Macmillan admitted that.it might be considering “holdbacks” on some NYT Bestsellers. Hachette and later HarperCollins surprised Apple with their suggestion that, instead of a wholesale model, Apple adopt an agency model for the distribution of e-books. Hachette told Apple that it had already discussed switching to an agency model with Barnes & Noble and had concluded that it was an attractive business model for selling e-books. During these meetings, Cue rejected the idea. Within days, however, he would reconsider their suggestion. Mainly, however, the Publishers told Apple how unhappy they were with Amazon’s $9.99 price point. Every Publisher with whom Apple met lamented Amazon’s pricing New Releases and NYT Bestsellers at $9.99. Several of them made clear that, they were actively searching for a way to gain more control over pricing and were implementing tactics they did not enjoy, like windowing, in an attempt to effect the change that was of utmost importance to them. For example, Penguin in its meeting with Apple shared its view that a $9.99 e-book was not a “sustainable model.” The next day, S & S frankly admitted “hating” Amazon pricing, and HarperCollins revealed that it was interested in the agency model in order “to fix Amazon pricing.” HarperCollins advocated that e-book prices be set in the range of $18 to $20, which Cue viewed as utterly unrealistic. Listening to the Publishers, Cue understood that they were afraid that Amazon’s pricing strategy threatened their overall business. Apple, in turn, assured the Publishers that it was not interested in entering the e-book market by pursuing a low-price strategy. Apple opined that $9.99 was not yet “engrained” in the consumer mind, and suggested in each meeting pricing e-books at between $11.99 and $14.99. The Publishers were thrilled. Macmillan agreed immediately with Apple’s suggested $14.99 retail price for New Releases. As Cue promptly reported to Jobs on December 15, after he had completed the first three of his six meetings, “[cjlearly, the biggest issue is new release pricing and they want a proposal from us.” Cue was confident that he would be able to build the iBookstore in time for the Launch. -As he told Jobs, “[njothing scared me or made me feel like we can’t get these deals done right away;” ‘ In his view, the Publishers had been “ecstatic” about what Apple’s arrival could mean for “their industry.” On the heels of their initial meetings with Apple, the Publisher Defendants enthusiastically shared the good news that Apple was willing to enter the e-book market with a significantly higher price point for newly-released e-books. On December 17, Reidy reported the “[tjerrific news!” to Moonves that Apple was entering the e-book market and “was not interested in a low price point for digital books.” Reidy understood that “they [Apple] don’t want Amazon’s $9.95 to continue.” Hachette’s Nourry similarly told Cue after their initial meeting that he was glad it appeared “our business interests are very much aligned.” HarperCollins later reflected that Apple was the Publishers’ “best partner” because it “do[es]n’t like deep discounting.” Several of the Publishers hashed over their meetings with Apple with one another. After Young had met with Apple but before S & S had its meeting, Young could not resist calling Reidy to share the wonderful news that the “Top Man” at Apple opposed $9.99 pricing. He hesitated to say more because S & S would be meeting with Apple the following day, and he did not want to “spoil [the] fun.” Young and Reidy promised to “check in” with each other after S & S had its meeting with Apple, and did so in several calls over the course of the next two days. At a breakfast meeting, Penguin’s Makinson discussed the Apple meetings with Hachette’s Nourry. On December 17, Rupert Murdoch, Chairman and CEO of HarperCollins’ parent company News Corp., relayed to Random House that Apple would soon be launching an e-reader and would be “selling books at 15 dollars.” Charlie Redmayne, a HarperCollins’ digital officer, bluntly suggested to Murray immediately after their meeting with Apple on December 16 that they coordinate a response to Apple with the other Publishers. As Redmayne wrote, in light of their “[g]reat meeting ... I wou[ ]ld talk to the other CEO’s early and look to present in early Jan.” F. Apple Switches Gears and Presents An Agency Model with 30% Commission Having received an enthusiastic reception from the Publishers, the Apple team returned to Apple’s headquarters in Cupertino, California and quickly absorbed what it had heard. One idea that it considered proposing to the Publishers, but rejected, was an across-the-board 25% discount for e-books off the wholesale price for physical books. With many NYT Bestsellers having a $12 wholesale price for the hardcover book, this would allow a $9 digital wholesale price, which Apple’s Moerer thought should be “acceptable” to the Publishers for all of their e-books with the possible exception of a few blockbusters. Cue quickly decided, however, to go a different route. Unless the Publishers agreed to lower wholesale prices for e-books, Apple would run the risk of losing money if it tried or was forced to match Amazon’s pricing to remain competitive. The wholesale model also allowed the Publishers to try to control digital book prices by windowing e-books. As Apple had expressed to the Publishers, it strongly believed that withholding content would interfere with the growth of the digital market and was inconsistent with its business goals and practices. Apple thus embraced the model that Hachette and HarperCollins had proposed — the agency model. Apple was already familiar with this model since it used the agency model to sell apps through its App Store. Apple realized that the recent turmoil in the digital book business strengthened its hand in proposing this new business model to the Publishers. Apple did not have to open an e-bookstore when it launched the iPad; it could add the iBookstore later. On the other hand, the Publishers were searching for an alternative to Amazon’s pricing policies and excited about Apple’s entry into the e-book industry and the prospect that that entry would give them leverage in their negotiations with Amazon. Apple appreciated that, in the words of Macmillan’s Sargent, the Publishers viewed Apple as “offer[ing] the single best opportunity [they] would ever have to correct the imbalance in our e-book market.” Apple settled on an agency model with a 30% commission, the same commission it was using in its App Store. Agency would give the Publishers the control over e-book pricing that they desired, and ensured that Apple would make a profit from every e-book sale in its iBookstore without having to compete on price. Apple realized, however, that in handing over pricing decisions to the Publishers, it needed to restrain their desire to raise e-book prices sky high. It decided to require retail prices to be restrained by pricing tiers with caps. While Apple was willing to raise e-book prices by as much as 50% over Amazon’s $9.99, it did not want to be embarrassed by what it considered unrealistically high prices. The agency model presented one significant problem. Apple wanted its iBookstore to be a rousing success. For that to happen, Apple needed not only content but also customers. Apple realized that if it moved to an agency model with the Publishers, Apple would be at a competitive disadvantage so long as Amazon remained on the wholesale model ánd could price New Releases and NYT Bestsellers at $9.99, or even lower to compete with Apple. Since it was inevitable that the Publishers would raise e-book prices when given the opportunity — indeed, Apple expected the Publishers to raise the prices to the tier caps — e-books priced at $9.99 by Amazon would doom the iBookstore. Why would a consumer buy an e-book in the iBookstore .for $14.99 when it could download it from Amazon for $9.99? To ensure that the iBookstore would be competitive at higher prices, Apple concluded that it needed to eliminate all retail price competition. Thus, the final component of its agency model required the Publishers to move all of their e-tailers to agency. Apple expected that this proposal would appeal to the Publishers. After all, it would allow them to “fix” their “problem” with Amazon’s pricing. Apple’s first meetings with the Publishers in New York had occurred on a Tuesday and Wednesday. Just three days later, on Saturday, Cue was ready to test drive his agency model and hear preliminary reactions from the Publishers. On December 19, Cue emailed three of the six Publishers’ CEOs to set up thirty minute meetings for the following Monday or Tuesday to “update you [on] all my findings and thoughts.” Cue already knew from the meetings earlier in the week that Hachette and HarperCollins were enamored of the' agency model and did not contact them again at this stage. He had pegged Penguin’s CEO as a “follower,” and chose to hold off on contacting him. After all, Penguin and Random House were the only Publishers that had not publicly announced any plans to withhold e-books from Amazon. Cue decided instead to test his proposal with S & S, Macmillan, and Random House. Cue chose these three Publishers carefully. He considered Reidy a real “leader” among her fellow CEOs. He was not wrong. As described below, she was instrumental in convincing both Penguin and Macmillan to sign up with Apple when they were wavering. She was in frequent contact with Young, Shanks and Sargent at every critical juncture in the weeks before the Launch. Cue reached out to Macmillan’s Sargent for a different reason. He had been impressed with Sargent’s personal history, in particular his family’s storied connection with the publishing industry. Cue believed that a partnership with Macmillan would add caché. But, most importantly, Cue wanted the largest Publisher, Random House, to come on board. Cue succeeded in speaking with key executives from each of these three Publishers early the following week. He explained that he had met with all of the Big Six the preceding week, and had come to the conclusion that the way forward would involve four components. First, the e-book “industry” needed to move to the agency model, which would allow the Publishers to set the prices and introduce what Cue euphemistically termed “some level of reasonable pricing.” Second, Apple would need a 30% margin on e-books sold through Apple. Third, he proposed- setting prices for New Release e-books at $12.99, that is, $3 over Amazon’s $9.99 price. Finally, to remove all retail price competition, the Publishers would have to adopt the agency model for all of their etailers. Reidy described her conversation with Cue in a detailed email to colleagues at S & S that day. According to Reidy, Cue “didn’t think anything [other than the agency model] would keep the.' market from its current pricing ‘craziness.’ ” Reidy did not hesitate over the suggestion that the industry as a whole be moved to an agency model; Reidy had replied to Cue, “if we make these our terms, then they are our terms.” Overall, Reidy was intrigued, but worried that the 30% commission for Apple would be too “steep.” Markus Dohle (“Dohle”), Chairman and CEO of Random House at the time, similarly described his conversation with Cue to colleagues at Random House. Dohle reported that Cue “thinks that book prices are becoming too low — he is worried about the consumer perception. Therefore he suggests an ‘agency model.’ ” Eliminating price competition with Amazon was essential to Cue since “[h]e assumes that if we find a new TOS [terms of sale, wholesale] model which would provide A[pple] with an acceptable margin, Amazon would lower the prices again following ,.. their loss leader[] strategy.” As Dohle reported, when he expressed concern about Amazon’s willingness to accept an agency model, Cue suggested that “windowing could be used to establish a distributor [agent] model” if Amazon balked. Shortly after his conversation with Cue, Sargent wrote to Cue to suggest a pricing strategy that would allow Publishers to price some e-books at $19.95, but that “put the majority of new releases at the -14.95 or 12.95 price points.” Introducing the concept of a dual model, an idea that would continue to have appeal for Sargent in the following weeks, Sargent also suggested that Apple offer two alternative terms of sale — a “30% agency model with no windowing,” and “[a] [discount model that includes windowing” — allowing each Publisher to “decidfe] which model to buy under.” Sargent later reflected to another Macmillan executive that he believed this dual approach “[w]ould force Amazon’s hand.” On December 21, Cue advised Jobs that his talks with the Publishers had gone “well and everyone understood our position and thought it was reasonable.” Cue observed that the Publishers recognized “the plus” of moving to an agency model, namely it “solves Amazon issue.” On the “negative” side, they were troubled by a commission for Apple that was as high as 30%. That gave the Publishers a “little less” than they would like. As of that point, Cue believed that the Publishers were willing to pursue a strategy of moving all of their e-tailers to the agency model, and in fact several Publishers had told him so. The Publishers believed, however, that a $12.99 price for an e-book would be too low if the physical book sold for more than $35. Cue reported that he had urged them to focus “on the other 99% and we can figure out how to solve the exceptions” later. Buoyed by the reactions of the three Publishers to Apple’s proposal that the entire e-book industry be converted to an agency model — with higher prices for e-books, a 30% commission for Apple and no retail price competition — Cue’s team turned their energies toward fleshing out a structure for this arrangement. They entered the Christmas break with every hope that an iBookstore could be announced at the Launch. G. Apple’s Term Sheet: All E-tailers to Agency and Pricing Caps Shortly after the Christmas holidays, Cue wrote to each of the Publishers to present Apple’s term sheet. On January 4 and 5, the first Monday and Tuesday in the new year, Cue wrote six essentially identical emails. Only the introduction varied. For the three Publishers with whom he had talked in late December, Cue began his emails with, “As we discussed.” For the other three, he began with the following comment: “After talking to all the other publishers and seeing the overall book environment, here is what I think is the best approach for e-books.” In these emails, Cue recapped the key components of Apple’s proposed agency model. It included the elimination of retail price competition and raising many e-book prices by at least $3. Cue wrote, “Just like the App Store, we are proposing a principal-agency model with you, where you would be the principal and iTunes would sell your product as your agent for your account. In exchange for acting as your agent iTunes would get a 30% commission for each transaction.” For “hardback books” that retail for less than $35, the Publisher would set a price for an e-book at any price up to $12.99; for trade or mass-market paperback books, the price would be capped at $9.99; and for any book that retailed above $35, the e-book price would .be capped at $14.99 and increments of $5 above that. Cue added that a “realistic” price for an e-book would be less than 50% of the retail price for the hardcover book. He emphasized that “to sell e-books at realistic prices ... all resellers of new titles need to be in agency model.” In closing, Cue reiterated that Apple “think[s] these agency terms accomplish!; ] all the goals we both have.” It was as apparent to the Publishers as it was to Apple that Apple’s proposal would only allow the Publishers to raise the consumer prices for e-book versions of their key titles above Amazon’s $9.99 price point to the proposed price caps if they moved Amazon and their other entailers to agency. Reidy immediately advised her S & S colleagues that she was “in total agreement” that the “[ajgency model should hold for all retailers; these would become our terms.” Reidy’s notes on her copy of Cue’s e-mail captured the benefits she saw accruing from Apple’s proposal. The ability to raise e-book prices and protect the physical book business was front and center. Her notes read: “Higher price slows Ebks/casual purchaser/keeps retailers/stops authors leaving.” In the conversations that followed the dissemination of the term sheet, Publishers told Apple that the proposed price caps were too low. Apple reiterated that it would not tolerate windowing, it did not want to lose money, and it did not want any price competition. It advocated for an industry-wide adoption of the agency model as “the only way” to “move the whole market off 9.99.” H. Creation of the MFN Clause One week after it distributed the term sheet, Apple distributed a draft contract. During the intervening week, however, Cue’s thinking about how to achieve an industry-wide shift to the agency model changed. His in-house counsel had been working on an alternative way to reach that goal that was even more effective in protecting Apple’s interests. Saul proposed using an MFN clause for retail prices. The MFN guaranteed that the e-books in Apple’s e-bookstore would be sold for the lowest retail price available in the marketplace. Apple had used an MFN in one of its music agreements, but the music had been purchased under a wholesale model. Apple’s use of an MFN for a retail, price was a unique feature of its e-book agency agreements. By combining the MFN with the pricing tiers, the pricing discretion Apple gave to the Publishers with one han