In March 2016, the Supreme Court turned away Apple’s attempt to avoid liability for orchestrating a conspiracy with five of the largest U.S. book publishers to raise e-book prices. The denial of Apple’s cert. petition triggered Apple’s obligation to pay $400 million to harmed consumers under settlements reached with 33 state attorneys general and private plaintiffs, bringing to nearly $570 million the total damages obtained for e-book purchasers as a result of the Division’s investigation and enforcement action. That money will be distributed to e-book purchasers in the form of credits worth more than $6 for each bestselling e-book purchase affected by this unlawful scheme.
The Supreme Court’s denial of Apple’s cert. petition follows the Government’s victory in the Second Circuit in June 2015. The Second Circuit upheld the district court’s finding that Apple had conspired with five major book publishers—Hachette, HarperCollins, Simon & Schuster, Macmillan, and Penguin—to suppress price competition on e-books. The Second Circuit found that Apple’s contention that it had unwittingly facilitated the publishers’ conspiracy “founders—and dramatically so—on the factual findings of the district court.” The court also rejected Apple’s argument that its involvement in the conspiracy had to be evaluated under the rule of reason, finding that the relevant agreement in restraint of trade in this case is “the horizontal agreement that Apple organized among the Publisher Defendants to raise e-book prices” and such a horizontal conspiracy is the “archetypal example of per se unlawful restraint of trade.”
In the summer of 2013, after a three-week trial, the Southern District of New York found that Apple violated section 1 of the Sherman Act. As previously described, the district court found that Apple had “knowingly and intentionally” participated in a horizontal conspiracy with book publishers to eliminate price competition for new e-books, a per se violation of section 1. The district court also found, in the alternative, that Apple’s conspiracy should be condemned under the rule of reason, concluding that the procompetitive justifications Apple had offered did not outweigh the conspiracy’s likely anticompetitive effects.
Below are some highlights shared by the lawyers and economists who worked on the case.
What was the most compelling evidence that the publishers had reached an agreement and that Apple was a part of it?
Nate Sutton (Trial Attorney): We had a lot of evidence against the publishers, but our opening statement included two charts that summed it up well. One chart showed the number of telephone calls among the publishers. It looked like a spider web.
A second chart showed the frequency of calls among the publishers.
The charts made it obvious that calls among the publishers spiked around key dates during the negotiations. They also showed that there was little contact between the publishers when the negotiations were not occurring.
Dan McCuaig (Trial Attorney): It was obvious from testimony and documents introduced at trial that Apple knew that the publishers intended to raise e-book prices and had played a critical role in orchestrating those plans. But Apple’s former CEO, Steve Jobs, also acknowledged Apple’s role publicly. As the district court put it, in his comments to his biographer, he was “pretty explicit about how the scheme should work.” And when he was asked about e-book pricing shortly after the iPad launched, Mr. Jobs said that he knew that e-book prices would no longer be $9.99, and thereafter offered what the court described as a “knowing nod.”
What was the most compelling economic evidence of the conspiracy’s effect on e-book pricing?
Tom Whalen (Economist): The most compelling economic evidence may have been a chart from the expert report Apple submitted. It is not very often that both the Division’s expert and the defense’s expert rely on the same charts in their reports and testimony, but here our expert was able to use the one Apple provided.
This chart shows that publisher prices for e-books move more or less in unison, right as the agreement intended. And the chart was projected on the wall for large parts of the trial so that people in the courtroom could see the very clear impact the agreement had on prices.
What were some challenges associated with the litigation?
David Kully (Section Chief): This was a hard-fought case at every level with tough, tenacious lawyers representing the defendant. One of the biggest challenges we faced was the schedule the district court set. Six weeks before trial—only one month after discovery ended—both parties had to submit pretrial briefs, proposed findings of fact and conclusions of law, written direct testimony, and all their proposed exhibits. It was a monumental effort. Several team members slept in their offices. We were lucky to have a great team of lawyers (including some who are no longer at the Division), economists, and paralegals working on the case.
What do you think were some of the biggest misconceptions about the case?
McCuaig: This was a case about horizontal agreements, not vertical agreements. People have suggested that this case is about a series of vertical arrangements that happened to have horizontal effects. But that is not what the evidence showed. It is not what the district court found. And it is not what the Second Circuit affirmed on appeal.
Bill Jones (Trial Attorney): The Second Circuit’s opinion made clear that you cannot engage in antitrust’s version of vigilante justice. The publishers and Apple tried to justify their agreement by pointing out that other companies had large market shares and were powerful negotiators. But that is not how the antitrust laws work. You cannot enter into anticompetitive agreements to fix perceived violations of the antitrust laws.