Apple conspired with other major publishers to control prices so as to undermine Amazon.com.
That was the position of the Justice Department in U.S. v. Apple Inc., a lawsuit filed in the U.S. District Court for the Southern District of New York in April of 2012. The allegations were that Apple joined with other five major publishers to prevent Amazon from offering e-books at bargain rates. At that time Amazon controlled 90 percent of the e-book market. Amazon lost its primacy, and prices for new and best-selling e-books went from $9.99 to $12.99 or $14.99.
In July of this year, U.S. District Judge Denise Cote found Apple guilty of violating federal antitrust laws, holding that the company played a “central role” in the conspiracy. The other publishers had already agreed to a settlement in which they would pay $166 million to recompense consumers. The publishers are Lagardere SCA’s Hachette Book Group Inc., News Corp’s HarperCollins Publishers LLC, Penguin Random House LLC, CBS Corp’s Simon & Schuster Inc, and Verlagsgruppe Georg von Holtzbrinck GmbH’s Macmillan.
Apple’s attorney indicated that Apple intends to appeal Cote’s July ruling on liability. This is hardly unexpected.
Judge Cote is considering imposing a penalty that would restrict the types of contracts Apple would be able to execute for five years. For two years, Apple would be prohibited outright from making contractual deals with publishers to discount e-books. After that Apple could start negotiating with each publisher every six months. Apple would be unable to renegotiate with the publishers en masse. The essence of the conspiracy, says the Justice Department, was Apple’s grant by fiat to publishers that allowed them to control pricing and thereby undercut Amazon.
The government is now seeking the expansive measure of an injunction against Apple. Apple calls this a “draconian and punitive intrusion” into its business. Judge Cote has indicated she may not give the Justice Department, and the 33 U.S. states and territories that had joined in the action, all that they want.
The Justice Department is also proposing that Apple would be required to hire a full-time internal antitrust compliance officer and use a court-appointed external monitor to ensure Apple’s compliance with the court’s directives. Judge Cote seems inclined to give the government half of what it is seeking. She said her preference was to demand that Apple have a “vigorous” in-house antitrust compliance program in lieu of a monitor from outside.
After liability comes damages. A trial on the damages allegedly suffered by states and consumers will follow. Judge Cote has declined to put the case on hold pending appeal. Damages sought could reach hundreds of millions of dollars.
A trust is a contractual combination of entities designed to reduce or threaten to reduce competition. Antitrust laws are designed to protect trade and commerce from unlawful restraints, monopolies and unfair business practices. The Sherman Act, enacted in 1890, made it illegal for competitors to make agreements with each other that would limit competition.
Other antitrust laws followed. In the 1800s, industry controlled major parts of the economy, such as railroads, oil, steel, and sugar.
Apple is preemptively seeking to prevent certification of a class action by consumers, relying on recent major U.S. Supreme Court rulings that have limited the ability of plaintiffs to litigate as a group. One of the most notable Supreme Court decision in that regard was Dukes v. Wal-Mart, in which the Court found that the massive sex-discrimination lawsuit could not proceed as a class action, because of a failure to identify companywide policies that had a common effect on all the women covered by the class action. Another basis for the decision was that alleged discrimination by sex had varying impacts on women as to their levels of pay and instances of promotions at lesser rates of pay than men received. There were too many women in too many different situations to be certified as a class.
The decision was the product of a 5-4 vote along familiar conservative and liberal ideological lines. The lawsuit could have involved a class of up to 1.6 million women, resulting in billions of dollars in damages against Wal-Mart.
We all know that Apple is not the only big player in the electronics industry that has been so pursued. Microsoft spent 21 years battling prosecution by the government for antitrust violations. A court ruling in 2000 found that it was an unlawful monopolist for using its dominance of the PC market to hobble such competitors as Netscape’s Navigator Web browser. In 2002, Microsoft escaped being split up by a settlement agreement with the government, approved by the court, together with a consent decree, which had the effect of curbing some of its business practices.
After the finding of liability for conspiracy, Apple must gird up its loins again in a defense against the imposition of formidable damages.
By: Tom Ukinski