Apple To Fight E-book Claims in Monday’s Trial, Observers Say
Apple looks set to fight against e-book price setting claims in a trial beginning Monday in the U.S. District Court in Manhattan, industry observers told us. The case centers on Department of Justice’s claims that, as Apple was introducing the iPad and entering the e-book market, it and five major publishers conspired to increase e-book prices by requiring distributors -- especially Amazon, which was selling all e-books at $9.99 -- to abide by prices set by publishers. Apple remains the sole defendant in the case after the publishers -- Hachette, HarperCollins, Macmillan, Penguin and Simon & Schuster -- settled with the department. During a preliminary hearing last month, presiding Judge Denise Cote said that, having read only some of the evidence, she thinks DOJ has evidence to prove that Apple conspired with the publishers, according to news reports (http://reut.rs/122cFXw).
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Apple CEO Tim Cook defended the company during the All Things Digital D11 conference last week (http://dthin.gs/12hyRgp). During the conference, Cook called the case “bizarre” and said the company is “going to fight.” “We've done nothing wrong there, and so we're taking a very principled position of this,” he said. “We were asked to sign something that says we did do something, and we're not going to sign something that says we did something we didn’t do."
Arguments about the procompetitive nature of Apple’s entrance into the e-book market may play no role in the trial, said Jay Levine, partner in Bradley Arant’s D.C. litigation group. The Department of Justice can try to argue “that Apple was the ringleader” of the publishers, he said. If Cote decides that DOJ is correct that Apple led the group of publishers in horizontal price fixing, the coordination is a “hub and spoke conspiracy” and automatically illegal, regardless of the effect the companies’ actions had on the markets or consumers. “If this is a hub and spoke ... then it’s per se illegal and you never get to any of the procompetitive justifications,” he said.
The preliminary hearing was not uncommon, though it “was a little bit more high-profile and a little bit more explicit than usual,” Levine said, calling Cote “eminently intelligent and eminently fair.” Levine called preliminary hearings like that one a common “tactic by judges ... to point out the deficiencies in a party’s case” and encourage the parties to settle. Despite Cote’s statements of confidence in the DOJ’s case at the hearing, “it seems like Apple is in for the fight,” Levine said. “I think Apple believes it can prove its case in trial."
Apple should prepare to appeal the case based on Cote’s statements at the preliminary hearing, said Bob Kohn, a technology lawyer familiar with antitrust and intellectual property issues. In the past, Kohn has filed comments with DOJ opposing the case against and settlements with the publishers. “From what she said at the recent hearing, Judge Cote seems to feel that a trial would be a complete waste of her time,” he said. “She either really believes this is a straight-forward price fixing case -- which it is not, because of Amazon’s undisputed below marginal cost pricing of e-books -- or she has since realized her mistake and is trying desperately to get Apple to settle, so as to avoid any appeal of her rulings."
The case will be good for consumers “if it’s a case Justice can win, and I think it can,” said Mark Cooper, director of research at the Consumer Federation of America. Cooper compared Cote’s preliminary hearing to the actions of U.S. District Judge Harold Greene in the District of Columbia that led to the consent decree between AT&T and Justice in 1982. Greene “sent a very strong signal, and they settled,” he said. AT&T decision in that case is an example where “rational people make the litigation risk calculation,” he said. “What the benefit is in litigating it, I just don’t see."
Cooper called the trial starting Monday symbolic but important. Because the five publishers have already settled with Justice over the price-fixing claims, “the consumer benefit has been achieved.” Whether Justice wins this case will “really define the terrain of antitrust policy ... and the scope and nature of permissible behavior” in the digital age, he said. “We're figuring out whether the old law applied in the digital age.”