November 2, 2015

Apple generously offers government one last chance to do the right thing


Apple: "Our business is not the technology of the clothespin." (Image via Wikipedia)

Apple: “Our business is not the technology of the clothespin.” (Image via Wikipedia)

Welcome back, friends, to the case that never ends (until it does): Last week, Nate Raymond at Reuters reported that Apple has petitioned the Supreme Court to consider the case of Apple Inc. v. United States of America et al..

Apple Inc has asked the U.S. Supreme Court to overturn an appellate court decision that found the iPad maker conspired with five publishers to increase e-book prices.

Apple asked the high court on Wednesday to review a June ruling that favored the U.S. Department of Justice, and found the company liable for engaging in a conspiracy that violated federal antitrust laws.

If upheld, the decision would also force Apple to pay consumers $450 million under a 2014 settlement with 33 state attorneys general and consumers that was contingent on the company’s civil liability being upheld.

A brief recap, for the very small percentage of MobyLives readers to whom this case is brand-new information: Apple was sued by the government and accused of colluding with major publishers to raise the price of e-books. Apple was the only defendant left standing, after co-defendants HarperCollins, Hachette, pre-Random House’d Penguin, Simon & Schuster, and Macmillan all settled with the government, but Apple continued forward, unabated.

The District Court for New York’s Southern District ruled in favor of the government, and though Apple managed to avoid an anticipatedly harsh injunction, they appealed. Then, they were ruled against yet again in the 2nd Circuit Appeals Court, though the court was divided 2-1.

In this new petition, Apple’s counsel argues that the majority decision in the 2nd Circuit was based on a misreading of case law, specifically the so-called “hub-and-spoke” cases involving alleged collusion between manufacturers and distributors (vs. direct competitors in the supply chain, which are the traditional targets of anti-trust litigation)—basically claiming that the 2nd Circuit didn’t fully understand the nuance of the e-book trade, and applied a “per se” approach (where the accused’s action is ruled as inherently illegal) where they should have applied the “rule of reason” (i.e., specifically determined if Apple had unreasonably restricted trade).

Over the petition’s nearly 300 pages, Apple’s counsel argues repeatedly that the unique constraints placed by Amazon’s below-cost ebook pricing posed a greater threat to competition than Apple’s agency pricing. Amazon’s monopsony, they argue, was a fundamental barrier to entry to the ebook market for any company unwilling to take the actions Apple followed. Non-restrictive alternative approaches posed by the lower courts, they argue, were impossible to apply to the ebook market if they hoped to compete with Amazon.

As for the possibility that they could have petitioned the Department of Justice to reign in Amazon’s behavior, Apple is skeptical, to say the least:

Counsel for the United States actually proposed this at oral argument. At the same time, however, he conceded that the Department of Justice had already “noticed” Amazon’s e-book pricing and had chosen not to challenge it because the government “regarded it as good for consumers.” Any request from Apple would therefore have been futile. True, Apple could not have known that the Antitrust Division would have adopted the position that below-cost pricing is not a concern of antitrust policy: who could have guessed that the government would adopt a policy that is primitive as a matter of antitrust doctrine and illiterate as a matter of economics?

Though Apple’s argument for acknowledging the unique aspects of the e-book market is overly ambitious, Alison Frankel points out that Apple’s argument utilizes the Supreme Court’s own directive that restricts the application of per se rulings to antitrust violations among direct competitors. It remains to be seen whether Apple can get the Supreme Court, which recently ruled that Amazon could legally detain their workers without pay, to agree.

Liam O'Brien is the Sales & Marketing Manager at Melville House, and a former bookseller.