Judge Denise Cote got it right. That's the argument made in a joint brief filed this week at the Second Circuit Court of Appeals from the Department of Justice and state attorneys, who urged the court to affirm Cote's July 10 verdict in Apple's e-book price-fixing case, and her final injunction signed last fall.
In the 117 page filing, U.S attorneys argued that evidence of a price-fixing agreement was "overwhelming," and that Apple has identified "no sound reason" to reject Cote's finding.
The brief comes after Apple, in its filing with the Second Circuit in February, argued that Judge Cote simply blew the case. "The evidence from which the district court inferred a conspiracy was all, at best, highly ambiguous, and cannot support a finding of a conspiracy," Apple argued in its brief. In addition, "the court repeatedly applied the wrong legal standards, which led it to jump to the false conclusions of a price-fixing conspiracy from Apple's lawful, unilateral, and pro-competitive business activities."
In their filing this week, U.S. attorneys hit back at Apple. The district court "articulated the proper standard and correctly applied it," DoJ attorneys argued, noting that Apple "does not challenge the district court's findings as clearly erroneous," but rather "attacks the court's interpretation of isolated pieces of evidence." Those arguments, the brief states, are "unavailing."
Specifically, Apple attorneys had pointed out four areas for review by the Second Circuit: whether the district court erred in finding that Apple's entry constituted a price-fixing conspiracy; whether the district court erred in finding Apple "per se" liable for price-fixing; whether the court erred in its exclusion of "expert evidence of the pro-competitive effects" of Apple's conduct; and whether judge Cote's final order exceeds the court's authority.
In their brief, the DoJ basically recapped their case, and argued that the prosecution did not need to meet a higher legal standard, as Apple has asserted.
"A plaintiff need only show 'sufficient evidence to allow a reasonable fact finder to infer that the conspiratorial explanation is more likely than not," the DoJ argued. "Here, the charged conspiracy was more than merely plausible; it made perfect economic sense because Apple and the Publisher-Defendants all had a rational economic motive."
That motive: Apple wanted an e-book retail platform along with the iPad, but did not want to compete with Amazon on price, DoJ attorneys noted. And the publishers hated Amazon's low prices and were eager to “work together” to raise e-book retail prices.
“Achieving that goal required the coordinated effort and conscious commitment of the Publisher Defendants and Apple to change the business model for the distribution of e-books,” the DoJ argued, and to “impose that new model on Amazon against its will, and effect a significant increase in the retail prices of e-books.”
The DoJ also blithely dispatched with Apple’s argument that its scheme with the five major publishers was in fact pro-competitive, in that it sought to break Amazon’s hold on the e-book business. "Complaints about ruinous price-cutting,” the DoJ stated, "have never justified price fixing."
The DoJ brief certainly comes at an interesting time, with Amazon's hardball negotiating tactics against Hachette generating headlines. And, perhaps the most interesting filings could arrive in the coming months. That’s because two publishers, Macmillan and Simon & Schuster, have appealed Cote’s final order against Apple, and are scheduled to deliver their briefs shortly to the Second Circuit.
The publishers argue that Cote’s injunction against Apple essentially rewrites their settlement agreements by extending Apple’s discounting beyond the two years they’d agreed to, and by staggering publisher negotiations into exclusive six month windows. Certainly, the order is a complicating factor in Hachette’s negotiations, which DoJ attorneys tacitly acknowledged. "By its nature, a restriction on one party’s ability to contract will have spillover effects on potential counter-parties," the brief stated.
In their brief, DoJ attorneys briefly address Cote's final order, calling the publisher arguments flawed, and explaining why the final order was crafted by Cote in such a fashion.
“The court was concerned about Apple renegotiating with all of the publisher defendants at once,” once the consent decrees expired, the DoJ explained, and sought to avoid creating “one point in time” when Apple could once again “coordinate the Publisher-Defendants.” This “sensible precaution was within the court's discretion,” DoJ attorneys argue.
However, with the tough tactics Amazon is using in its negotiations with Hachette, the publishers could certainly use this episode to demonstrate how the order has unfairly aided Amazon.
Meanwhile, the states' class action case against Apple is temporarily stayed, while the Second Circuit hears a separate emergency appeal from Apple.