Apple is seeking to kill the pending states and consumer class action against it—and a potential multi-million dollar damages award—using an argument that failed in its federal price-fixing trial: that its entry into the e-book market was “pro-competitive” and beneficial to consumers.
In motions filed last week, Apple detailed its argument against class certification, asserting that recent Supreme Court decisions, including a landmark ruling in Wal-Mart Stores, Inc. v. Dukes et al., precludes the kind of “trial-by-formula” pressed by the plaintiff states and the consumer class. “Instead, class certification in this case turns on, among other things, whether Plaintiffs can establish through common proof, not only injury to competition in the market generally, but also injury to each individual plaintiff and his or her damages.”
In the 2011 Wal-Mart decision, the Supreme Court ruled that a large class of female Walmart employees was too broad to support the 1.5 million underlying, individual fact-based claims of employment discrimination. Similarly, Apple argues that the class proposed in this case—some 24 million consumer accounts that registered an e-book purchase between April 2010 and May 2012—is also too broad to be certified.
“Plaintiffs place great emphasis on this Court’s previous order finding that Apple violated Section 1 of the Sherman Act,” Apple’s brief states. “But Plaintiffs overplay their hand—the mere fact of a Section 1 violation is insufficient to meet [Class Action] Rule 23’s strict requirements.”
In its filings, Apple argues that the class proposed by the plaintiff states is based on a “fictional composite” that masks the true effect of Apple’s entry into the e-book market. Specifically, Apple takes aim at Stanford economist Roger Noll’s recent damages estimate that put total e-book damages arising from the so-called conspiracy at over $307 million. In a separate motion, Apple attorneys also asked the court to exclude Noll’s report, calling his methods into question.
Using a “before-after” model, Noll compared the prices from the “collusion period” with a control group, thus calculating the total damages for the publisher defendants at $307,808,414, on total combined revenue of $1,548,223,900—an average added margin due to “the effect of collusion” of about 19.9%.
Apple attorneys, however, ripped Noll and his methods, arguing that he incorrectly bases his model on Judge Denise Cote's findings at trial, rather than undertaking an independent economic analysis of the e-book market. Noll's report “assumes away important individual variances," the brief states, rests on "baseless and untested assumptions," ignores "key facts and economic realities", and "in many cases results in a finding of harm where none exists.”
For example, Apple attorneys argue, Noll assumes that in his “but-for world,” Amazon would have maintained its pricing; that “each of the 33 million real-world purchases on the iBookstore would have been made regardless of whether Apple entered the market;” and that “Barnes & Noble would have remained in the market (despite Barnes & Noble’s testimony it would not have).”
In short, Noll's methodology “assumes what needs to be proved,” Apple attorneys argue, using the kind of “formula” expressly rejected by the Supreme Court in the Walmart Case. And the reality, they state, is that Apple’s entry into the book market had positive effects for consumers.
“Each of the millions of e-books has its own unique history,” the brief states. “Indeed, many e-book purchasers affirmatively benefitted from the Publisher Defendants’ shift to the agency model because, for example, they paid less than they otherwise would have if the retailer had set the price or they had access to e-books that otherwise would have been unavailable.”
To assemble a class that meets the law's strict "commonality" requirements, Apple argues, "all of a putative class member’s e-book downloads must be considered," with "gains offset against anticompetitive losses, to determine whether, on balance, a class member suffered any antitrust impact” and, if so, the amount of that “net” injury. In other words, a damage award would require “a transaction-by-transaction investigation for each purchaser,” an untenable prospect that runs afoul of the class action law's "manageability requirements."
It remains to be seen how Judge Cote views the argument, but it is unlikely she will kill the class action based on Apple's concerns over the class. In her July 10 ruling, and in approving the publishers' settlements, she decisively found that consumers were harmed.
In arguing for class certification, the plaintiff states cautioned against Apple's attempt to construct an alternate "but-for" world, and called the matter a "textbook case for certifying a class," with Apple's liability already proved. A damages trial is currently set for May, 2014.
Update: In an order issued on November 18, Judge Denise Cote has set a schedule for briefings on Apple's motions. The states and consumer class have until December 6, 2013 to file their opposition, and Apple is to reply by December 13.