As expected, Apple on Wednesday officially asked the Supreme Court to overturn an appeals court decision affirming Judge Denise Cote’s 2013 verdict finding the company liable for its role in a conspiracy to fix e-books prices. The government now has 30 days to file a brief in opposition, if it so chooses.
In its 35-page petition for a writ of certiorari, Apple attorneys pressed their (thus far unsuccessful) argument that Judge Cote erred in finding Apple liable for a "per se" case of price-fixing (that is, a case where the restraint imposed on competition is condemned without examination of other market factors). Apple claims that case law dictates that its "vertical" publisher agreements must instead be considered under the more stringent “rule of reason” framework, even if those contracts formed the basis of a horizontal conspiracy among the publishers.
“The question presented is: Whether vertical conduct by a disruptive market entrant, aimed at securing suppliers for a new retail platform, should be condemned as per se illegal under Section 1 of the Sherman Act, rather than analyzed under the rule of reason,” the brief states, with Apple asking the court to “confirm that vertical activity, undertaken for bona fide, potentially pro-competitive purposes, is not transformed into per se illegal conduct merely because it also has been found to facilitate horizontal collusion.”
In June, the Second Circuit Court of Appeals upheld Cote’s application of the per se rule, calling the decision “amply supported and well reasoned.” But Apple’s Supreme Court bid relies heavily on a headline-grabbing dissent by one member of the appeals panel, Judge Dennis Jacobs, who suggested that Cote's per se finding created a “circuit split” that warrants a Supreme Court review.
In their petition, Apple suggested a negative effect on the economy if the decision was left to stand.
“If the Second Circuit’s decision stands and the per se rule is applied to vertical conduct whenever it can be said to have spilled over into ‘orchestration’ of others’ alleged horizontal collusion, the antitrust laws will be transformed from a tool for promoting new entry and competition into a means for retarding them,” the brief states. “Entrants and disruptors will err on the side of staying out of new markets and will forgo the types of vertical contracting that are so often necessary for entry, thus leaving dominant players protected from the disruptive challenges that drive innovation.”
The question now, is whether the Supreme Court will take the case. In her majority opinion, Second Circuit judge Debra Ann Livingston sharply rebutted Jacobs' dissent, and stressed that there is in fact no circuit split. The per se condemnation in Apple’s case is correct, she noted, because it does not concern Apple's vertical contracts with the publishers, but rather Apple’s central role in organizing the publishers’ conspiracy to raise e-book prices.
Livingston also disputed Apple’s contention that the agency switch was “a necessary precondition” to entering the e-book market. “Plainly, competition is not served by permitting a market entrant to eliminate price competition as a condition of entry,” she wrote. “And it is cold comfort to consumers that they gained a new e-book retailer at the expense of passing control over all e-books to a cartel of book publishers.”
If the Supreme Court rejects Apple’s appeal, Apple’s liability finding would be considered final under a 2014 settlement with 33 states and a consumer class, triggering $400 million in consumer rebates.
