Late last week, attorneys for Apple filed a strongly-worded response to the government’s proposed final order for relief. In its filing, Apple attorneys labeled the government’s proposal for injunctive relief “a draconian and punitive intrusion into Apple’s business, wildly out of proportion to any adjudicated wrongdoing or potential harm.”
The filing is also defiant—Apple attorneys restate their contention that the company has not broken any laws; that the publishers’ settlements have already remedied any alleged antitrust violations; that the e-book market benefited from the agency deals they engineered; and that they have “strong arguments” for reversing Judge Cote’s July 10 ruling on appeal.
“Apple does not believe it violated the antitrust laws, and, in any event, the conduct for which the Court found it liable has ended and cannot recur as a result of the publishers’ consent decrees,” the brief concludes. “In light of these facts, no further injunction is warranted." If, however, an injunction is to be ordered, Apple attorneys argue, it should be narrow, “tracking closely” with the terms imposed in the settlements with the publishers.
Instead, the government’s “overreaching” proposal, Apple claims, is excessive, unconstitutional, and could be used to “regulate Apple’s businesses and potentially affect Apple’s business relationships with thousands of partners across several markets.”
If adopted by the court, the proposed injunction would require that Apple terminate its current e-book agreements with publishers and for five years Apple would be prohibited from signing e-book distribution deals that “restrict, limit, or impede Apple’s ability to set, alter, or reduce the Retail Price of any E-book.” That five-year period is three years longer than the publisher settlement terms, and, Apple officials claim it would “effectively end” Apple’s ability to enter into agency agreements.
Apple attorneys say that provision is unduly burdensome—Apple has already signed new deals following the publisher settlements, deals which also exclude the use of retail price MFNs for a five-year period.
“As a result of the publishers’ consent decrees, there is no threat of recurrence of the conduct underlying the Court’s finding of a Sherman Act violation,” Apple argues, noting that Cote herself had deemed those settlements “reasonably calculated” to redress the harm of the alleged conspiracy.
In its filing, however, DoJ attorneys now say that two-year provision may not have been so reasonably calculated after all.
Citing the “non-credible” testimony of “multiple Publisher Defendant CEOs” at Apple’s June trial, DoJ attorneys suggest that “the Publisher Defendants may be positioning themselves to pick things back up where they left off as soon as their two-year clocks run,” noting that the new e-book contracts publishers have signed with retailers are “disappointingly similar” to one another.
By barring Apple from entering straight-up agency deals with publishers for five years, DoJ attorneys are seeking to go beyond a rap on the knuckles, and are trying to push the e-book market back toward retail price competition.
“Ensuring that Apple can discount e-books and compete on retail price will make it more difficult for the Publisher Defendants to prohibit other retailers from doing so,” the DoJ argues, “and will help to ensure that the ongoing effective relief consumers are currently enjoying under the Publisher Defendant consent decrees does not prove entirely ephemeral.”
Certainly, ensuring that Apple can discount e-books for five years will put pressure on any new negotiations with Amazon, Barnes & Noble and other e-book retailers.
Apple attorneys also attacked the DoJ proposal that rival e-book apps in the app store be allowed to link directly to their own bookstores without paying Apple a commission on sales for a period of two years. Here, Apple officials raise the outcome they feared most—that its loss at trial will enable the DoJ to poke around in Apple’s other content businesses, such as the App Store.
“Plaintiffs’ proposal would dictate terms for e-book retailer apps available through the App Store and regulate Apple’s dealings with app providers, as well as in several other content markets,” Apple officials claim. “But there is no justification for this invasion into any of Apple’s businesses that were not directly at issue in this lawsuit.”
DoJ officials counter this provision is designed to “reset competition” to pre-2011 market conditions, as well as to “deny Apple the benefits of its conspiracy.” It also has practical benefits for consumers, they claim, now that e-book prices can be discounted.
“As a result of Apple’s collusive agreements, prices for the most popular e-books tended to be the same across retailers, and many consumers likely determined that shopping around for a better e-book price was a waste of time,” the DoJ argues. “With the Publisher Defendant consent decrees now operative, price competition has returned to the marketplace, and consumers using Apple’s devices should have an easy means to determine whether price shopping has become worth their while.”
Apple’s strongest objections, however, come in response to the 10-year compliance program laid out by the DoJ (as opposed to the publishers’ two year programs), which Apple attorneys also say could potentially regulate “Apple’s relationships with providers of content” other than e-books.
“Plaintiffs’ overreaching proposal would establish a vague new compliance regime—applicable only to Apple—with intrusive oversight lasting for ten years going far beyond the legal issues in this case, injuring competition and consumers, and violating basic principles of fairness and due process.”
Among the compliance terms, Apple would be required to hire at their own expense a full-time internal Antitrust Compliance Officer, who would report “directly and exclusively to the Audit Committee of Apple’s Board of Directors.” Like the publisher settlements, there will also be a court-appointed monitor, as well as training and “reasonable access” to company “documents, information, and personnel” throughout the duration of the order.
In asserting that the broadly written 10-year compliance program was excessive, Apple attorneys cited Judge Cote’s own words. In her written decision, Cote praised Apple’s innovation, stressed that the case before her arose from “specific events that unfolded in the trade e-book market as 2009 became 2010” and said that her verdict did not “seek to paint with a broader brush.”
But that broader brush is now in play, say Apple attorneys—in plain violation of the law. They argue that the “sole function” of an injunction “is to forestall future violations,” and that “the unique circumstances of the e-books market in 2009 and 2010,” along with the publisher sanctions means that future violations are “unlikely to repeat,” making a 10-year program “wholly unjustified by law or fact.”
The DoJ’s 10-year term will “stifle competition, not enhance it,” Apple attorneys insist. “A vague, ten-year restriction on Apple’s ability to enter into certain agreements with digital content suppliers will undoubtedly have a chilling effect on the types of agreements that Apple enters into across its business.”
And the pace of change in the e-book market will exacerbate matters, they add. “The technology at issue in this case will likely be obsolete before the ten-year term expires,” the brief states, making the “chilling effect of injunctive relief all the more alarming.”
Apple, however, may have an uphill battle in narrowing the proposed injunction. In her decisive July 10 opinion, Judge Cote was clearly convinced that Apple was the “ringmaster” of the alleged conspiracy to fix e-book prices. And, the judge also stated her belief that both the publishers and Apple executives were less than truthful in their testimony, adding a whiff of obstruction to the weight of the evidence.
In their supporting brief, DoJ attorneys leaned heavily on the idea that Apple executives were less than candid with the court and thus needed oversight. They noted how Cote's decision concluded that key Apple executives were “noteworthy for their lack of credibility,” and argued that Apple executives have demonstrated “resistance and intransigence” throughout the process—including Senior VP Eddy Cue, who negotiates Apple’s content deals, and in-house counsel Kevin Saul.
Apple’s “illegal conduct,” the DoJ argues, was “orchestrated by the highest levels of management,” and was “aided and abetted by an Apple in-house lawyer.”
Thus, while the actions of the conspirators may have been addressed in the publisher settlements, the actors that facilitated the conspiracy remain. And, they remain defiant. The strength of Cote’s decision and lack of credible testimony from Apple executives could threfore augur the DoJ’s case for a broader injunction.
“Unlike the prior Publisher Defendant settlements, the relief proposed here is based on a full, adjudicated record, where the Court has made detailed findings about the nature and extent of Apple’s misconduct,” the DoJ brief argues. “For that reason, Plaintiffs are entitled to bolstered relief that ensures Apple cannot evade its antitrust compliance obligations going forward.”
A hearing is set for August 9th before Judge Cote.