updated 04:39 pm EST, Sat February 1, 2014
Prosecutors claim triple damages under antitrust law based on non-jury trial
Following a bench trial in which US District Judge Denise Cote found Apple guilty of conspiring with publishers to "fix" prices of e-books, a collection of state attorneys general and consumer groups bringing three other, similar cases seeking a total of $280 million in damages have asked the judge to triple the amount, claiming that since the Department of Justice has already "conclusively proven" Apple's guilt, they are entitled to the antitrust penalty.
Apple is expected to ask the court to delay any trial with the states and affiliated groups until its appeal has been heard. The iPhone maker has complained that Judge Cote erred in a number of key areas, including a clear pre-judging of the case that instilled bias in her ruling, ignoring exculpatory evidence, and relying on testimony from Amazon employees and other rivals that contradicted the record of events. Apple is seeking an appeal before a different court.
Judge Cote, however, has said she will hold a hearing in May on the damages sought by the states. The groups rely heavily on Cote's opinion in their justification, echoing her claims that e-book prices rose "50 percent or more in some cases" following the publisher's shift to the "agency model," which let them set prices rather than allowing Amazon (the leading e-book seller at the time) to discount e-books at a loss, which the publishers felt diminished the value of their product and feared would inevitably lead to most publishers going out of business.
"The three cases pending before this court allege the same conspiracy, by the same conspirators, with the same goals, methods, and effects," Steven Berman, a lawyer for the plaintiffs, wrote. In their filing with Judge Cote, the states and consumer groups have claimed that the "conspiracy" Apple engaged in with publishers "caused widespread antitrust injury to e-book consumers," despite the fact that overall selling prices of e-books (and even best-sellers specificially) have actually gone down since the agency model was adopted by publishers, undermining the allegations of consumer harm.
Apple is anxious to get the appeal heard before another court, believing that Judge Cote's pre-determined bias against the company influenced her judgement. It has already won a temporary reprieve from the Cote-ordered antitrust monitor (itself an unusual move for a first-time antitrust offender), where the judge appointed a personal friend with no experience in antitrust compliance. In the original ruling (later dropped), Judge Cote had arranged for the monitor, Michael Bromwich, who was also a former DOJ inspector general obviously inclined to believe the DOJ's version of events, to hold secret off-the-record meetings with her -- despite the fact that she was still going to be ruling on motions related to the ongoing case and the states' case.
The judge's behavior both during and after the trial has brought strong criticism from outside Apple -- the Wall Street Journal wrote a withering attack on Judge Cote's "extra-judicial" overreach and "unconstitutional" actions by her monitor. Cote eventually agreed to drop the ex-parte meetings, but refused to drop or replace her choice of monitor. An appeals court granted Apple a stay, agreeing at least temporarily with Apple's charges that Bromwich was going outside his mandate, making demands that exceeded his duties, and overbilling the company for his services (which include a $1,250 per hour fee, a separate $1,100 per hour fee for an assistant attorney with actual antitrust law knowledge, and a 15 percent "administrative fee" to Bromwich's law firm).
In its appeal, Apple has said that "the monitorship the district court imposed on Apple is unprecedented, impermissible, and unconstitutional," and will explain its case further in a hearing scheduled for February 4 in which it hopes the appeals court will grant a permanent injunction against an antitrust monitor, or at least command Judge Cote to appoint another candidate who is less obviously conflicted.
"The court authorized the monitor to exercise authority that is not 'judicial'; to engage in ex parte discussions with the plaintiffs, even while the state plaintiffs are seeking hundreds of millions of dollars from Apple in another proceeding; to incur significant and unrecoverable fees that Apple is supposed to pay; and to interview anyone at Apple and demand any Apple documents," the company said.
Judge Cote, during the original trial, ignored testimony from publishers that showed Amazon had planned to eventually bypass publishers outright, negotiating directly with top-selling authors for exclusive rights that would have driven the publishing houses out of business; testimony from Sony that it had encouraged publishers to switch to the agency model to fight back against Amazon's abuses months before Apple had even opened negotiations; and even shredded antitrust law itself by finding Apple (a "vertical" reseller) in charge of a "horizontal" pre-existing conspiracy among publishers.
The DOJ sued Apple following settlements with the big five (at the time) publishers. The publishers did testify at the trial, and tried to explain to the judge that the DOJ's conclusions were reached out of a fundamental misunderstanding of how the e-book and print markets intertwined, that lower prices on things were not always to the consumer's long-term benefit, and that Apple's entry into the e-book market had actually made it possible for smaller competitors to enter, encouraging more publisher diversity. They also complained that the ruling in the trial hurt them more than Apple. She nevertheless concluded that "the publisher defendants conspired with each other to eliminate retail price competition in order to raise e-book prices, and that Apple played a central role in facilitating and executing that conspiracy."
The booksellers were concerned that the previous "wholesale" model was allowing Amazon so much leeway to discount e-books at steep losses that it would prevent competitors from entering the market, eventually establishing a monopoly where it could dictate prices. Prior to Apple's entry, Amazon had 90 percent of the e-book market, had a record of abusing publishers that didn't submit to its demands, and was undercutting print prices of best-sellers so significantly that many physical bookstores, including the popular Borders chain, saw demand for print drop to the point where they could not sustain their businesses.
Judge Cote has a reputation (far preceding her involvement in the Apple e-book trial) for pre-judging the cases before her and tailoring her ruling to fit the predetermined conclusion, regardless of evidence introduced during the trial. On repeated occasions when issuing judgements during and after the trial, Cote ignored or refused to address large portions of Apple's evidence and appeared to completely discount the testimony of Apple executives.