In the first words of his closing argument, Apple lead counsel Orin Snyder was emphatic: “Apple did not conspire to fix the prices of e-books.”
Over the next two and a half hours, Snyder sought to systematically dismantle the government’s case, accusing U.S. attorneys of twisting a “standard, lawful business negotiation” into an illegal conspiracy. In fact, Apple’s actions were "pro-competitive," Snyder insisted, and a finding against Apple based on the evidence presented, Snyder argued, “would set a dangerous precedent, and would have a chilling, confounding effect on content markets throughout the country.”
In his summation, Snyder broke the government’s case down into time frames for the court, beginning with the 2008-2009 time period, before the iBookstore was “a twinkle in Apple’s eye,” and in which time publishers had already acknowledged the turmoil over Amazon and its $9.99 prices, had begun to window titles, and to consider "new business models."
Judge Cote quickly interjected, asking if Apple disputed whether the publishers were involved in a conspiracy. After some back and forth, Snyder acknowledged that Apple had "no knowledge” of what the publishers were doing and took no position. But at no time, Snyder said, did Apple “think the publishers were working together,” noting the arduous negotiations with each.
The next period Snyder addressed involved the introductory meetings with publishers, on December 15, and 16, 2009, in which the publishers informed Apple of their displeasure with Amazon. The meetings showed that Apple did not come 3,000 miles to start a conspiracy with publishers, Snyder said, but because “they thought its customers might want a bookstore on the iPad.” Snyder said it would've been bizarre for publishers not to express their displeasure with Amazon’s pricing in those meetings given the press coverage that had been given to an e-book market in conflict, and he said it would be dangerous to infer that Apple’s knowledge that publishers wanted higher e-book prices was evidence of conspiracy.
Snyder then moved to the periods of Apple’s initial proposals to publishers, via phone calls to three CEOs on December 21, and e-mails to all six CEO in early January, in which Apple initially floated its “all-agency” idea. The all-agency idea was later replaced by the MFN, which Snyder said was a designed to address Apple’s concern that the company would be able to compete on price. This was critical for understanding Apple’s “state of mind,” Snyder insisted. Apple was not trying to create a conspiracy with the MFN—it was simply trying to profitably enter a market that was foreclosed by a dominant, below-cost retailer, just as any rational business would do.
Here, Snyder suggested that the crux of the government’s conspiracy was foundationally wrong. Apple’s agency proposal wasn’t about raising prices, he explained, it was about making e-books available. Publishers had already begun “windowing” bestsellers, like HarperCollins’ bestselling Sarah Palin book, Going Rogue.
“The status quo was not $9.99,” Snyder insisted. “The status quo was the withholding of new releases.” It does not matter that only 37 books were windowed in total, he added, “if it was the right 37 books.”
Snyder then addressed the period of negotiations—which he stressed were individual and contentious—and unsuccessful with Random House—hardly indicative of a conspiracy. And, the period following the negotiations, in which there were numerous “pro-competitive” developments in the e-book market.
Amazon, Snyder concluded, was not forced by publishers to move to agency, but made a rational business decision to do so. In fact, Snyder contended, once Apple struck its deals, it was Amazon that approached the publishers about agency deals, knowing that not having bestsellers would relegate them to something like a paperback only bookstore, and destroy their market share.
Chief among Snyder’s aims in his summation was to disabuse Cote of the notion that the case before her was a “per se” case of price-fixing—that is, so clear a violation that it precludes the consideration of reasons why the companies may have colluded. He stressed that the government’s evidence was “ambiguous at best” and that the law limits the inferences the court can make. Under the government’s theory, which he dubbed a “truly misguided story,” Apple’s only choices were to adopt Amazon’s loss-leading model, or stay out of the market altogether.
“This can’t be the goal of the Sherman Act,” he concluded.
The DoJ Response
Closing for the Department of Justice, U.S. attorney Mark Ryan countered Snyder with an equally strong argument. The government “had overwhelmingly established that Apple was at the center of scheme to fix e-book prices,” he argued, and the case was a clear “per se” violation, which the court should condemn without regard to any claimed market difficulties. The DoJ , Ryan argued, had presented significant evidence of the defendant’s commitment to an illegal “common scheme.”
What was the conspiracy? To raise e-book prices, Ryan said, an obvious and undisputed goal of the publishers, and also to restrain retail price competition, an obvious goal of Apple, and also a pro se violation of the Sherman Act. To prove its conspiracy, the government only had to show that “the defendants’ accepted an invitation,” Ryan argued—and that invitation was “I’ll fix your Amazon problem. Join me in moving your industry to agency and we’ll negotiate your prices.”
Ryan also poked holes in Apple’s argument that the individual, contentious nature of the publisher negotiations with Apple was evidence that there was no conspiracy. It was not surprising that there would be difficult negotiations about the conspiracy, Ryan argued. The key, was that all the defendants had a clear objective in mind, and that they may have need to “hammer out the details of the conspiracy” is not a defense to conspiracy. Venezuela and Saudi Arabia often disagree about the price of a barrel of oil, he noted, but no one would argue that they have a cartel.
Ryan then took on Apple’s MFN, and its all-agency idea. He argued that Apple never had any intention of including a contract provision that would mandate the publishers to move all their accounts to agency. That, he noted would have been a “high risk” strategy, and a “red flag” to antitrust investigators. Instead, Apple floated the idea to publishers, and devised the MFN to achieve that goal. Ryan noted that Apple counsel Kevin Saul had begun work on the MFN weeks before Cue testified that he realize his all-agency idea was flawed. There was no evidence that Apple ever even attempted to draft an "all-agency" clause.
Once the MFN was accepted, Ryan argued, there was no question what was going to happen—the publishers were going to move all their retailers to agency rather than risk having not only the $9.99 price persist—but expanded with Apple matching. And worse, with Apple paying only 70% of the $9.99 price. Also telling, Ryan noted that Apple admitted it doesn’t enforce the MFN, consistent with the government’s belief that once it achieved its objective, Apple no longer cared about it, and was not going to devote resources to its enforcement.
Ryan also spent a good chunk of time urging Cote to consider the credibility of Apple’s witnesses—who frequently could not recall details, and had assertions contradicted by records.
As for Snyder’s contention that windowing was the status quo, Ryan said that was not the issue—and regardless was no reason for collusion. “Price is the central nervous system of our economy,” he argued. "We do not allow competitors to gang up on low-cost competitors and we do so at great risk to our economy.” Even if windowing was the status quo, Ryan argued, who is to say how the market would have solved the problem?
“Free markets have a way of working things out,” Ryan stressed. “And free markets have a way of serving consumers.”
Could the promise of higher prices “just been a sales pitch” Judge Cote asked. Did it really need to be read as evidence of a conspiracy? “Here’s the problem,” Ryan answered. Because of the fear of Amazon retaliation, “the only way to get [the publishers] to move was get them to move together.” If Apple had come in and negotiated higher prices individually, no problem—but they did not.
And why was Apple interested in the agency model, anyway? What was their incentive? Apple, Ryan said, believed it had a superior device. If it could eliminate Amazon's competitive advantage, its pricing power, then the e-book competition would come down to who had the better device, which Apple believed favored its platform.
After more than two years of legal maneuvering, Apple’s fate is now in the hands of federal judge Denise Cote. And with yesterday’s closing arguments, the publishing industry’s long legal nightmare over the alleged price-fixing of e-books is all but over. Whatever Cote’s verdict, and any appeals that might come, the record is closed, and it is back to business for publishers. With their settlements in place, the decision in this case means little, although Cote's view of their activity in her written opinion will certainly be of interest.
That decision could come within weeks, as Cote had said a goal of her well-managed trial, per both parties' request, was to allow her to rule as quickly as possible.