The Second US Circuit Court of Appeals handed Apple a minor defeat on Thursday in its fight to both get rid of the antitrust “watchdog” a biased lower court had appointed for it, as well as overturn the earlier court ruling entirely. In a decision on the fate of Michael Bromwich, a personal friend of the original trial judge Denise Cote who Apple has argued is not qualified in antitrust and who has attempted to conduct investigations outside his remit, the court decided that while there was evidence of abuse, Bromwich can stay in place until the court decides on Apple’s overall appeal.
The court did take note of the evidence of overreach by Bromwich, noting that his actions have given the court “pause” and appearing to agree with a number of outside observers which have complained about both his qualifications and exorbitant fees, but said that Apple lacked sufficient reasons to throw out Cote’s original appointment — leaving some to wonder what exactly it would take to replace a monitor.
During the hearings over the matter, Apple pointed out that Bromwich himself has no experience in antitrust law, requiring an assistant with the requisite background, which costs Apple nearly as much (some $1,100 per hour) as Bromwich’s own fee (which start at $1,250 an hour, plus a 15 percent “administrative fee” to Bromwich’s law firm). Apple has already scored minor victories against Bromwich and Cote, with the Appeals court ordering that the judge’s original order be watered down considerably, and altered to prohibit the original proposed secret, off-the-record meetings with Cote late last year.
It also reduced Bromwich’s previous billings to Apple, though by how much has not been made public. Bromwich was supposed to help Apple develop stronger guidelines to avoid future antitrust issues after the company was found guilty of colluding with publishers in a 2012 bench trial that was widely criticized for its legal errors.
Many outside observers have criticized the entire concept of the original antitrust case brought by the US Department of Justice, which focused on opposition to the so-called “agency” model of pricing Apple used to win deals with publishers, versus the “wholesale” pricing model Amazon was using (and has since returned to) at the time. In a nutshell, Apple’s model allowed publishers to set the price of e-books, whereas the “wholesale” model allowed Amazon to sell e-books at a loss, which was proving ruinous to publishers and authors while giving Amazon monopoly marketshare in e-books, freezing out competition.
Despite clear evidence in the original trial that the publishers had colluded to try and force Amazon to switch to the “agency” model before Apple even began negotiations for the forthcoming (at the time) iBookstore, Judge Cote somehow concluded that Apple had in fact been the ringleader of a publisher conspiracy designed to stop Amazon’s monopoly abuses, and found the iPhone maker guilty of price-fixing by way of encouraging publishers to set e-book prices at sustainable levels. She appointed her friend as an antitrust monitor, even though it is extremely unusual for a company with no previous antitrust issues to have one.
Most legal scholars, economists, and outside observers believe Apple has a strong case for overturning or at least amending the original court ruling. Apple appears to have been confident enough that the original ruling would be modified or set aside entirely that it negotiated a deal with states and consumer groups (who sued to recover “overpayments” made by consumers following the first trial) that it would owe little or nothing if the decision was reversed or remanded on appeal.
Judges’ comments during the appeal thus far have indicated that the court has serious issues with the entire basis of the original case, as well as Judge Cote’s reasoning in the guilty finding, but the new ruling on the monitor issue may hint that the appeal may not result in a complete reversal of the judgement and instead be handed back to Judge Cote for reconsideration — a move that would still save Apple up to $450 million and partially vindicate its defense, but would be unlikely to completely throw out the flawed rationale for the DOJ prosecution in the first place.
Authors and publishers, who were vociferous in their defense of Apple, have complained since the first trial that Amazon has returned to an abusive relationship with the print industry that devalues e-books and makes it all but impossible for most authors and smaller publishers to make any profit, a charge that Amazon has responded to by offering to doing the printing and publishing of books and e-books directly, and to use blockades of publishers’ books on the retail site as leverage to negotiate ever-lower prices.
The bullying tactics against publishers and authors by Amazon has been assisted by the DOJ’s bewildering obsession with unsustainable low prices as an end-all in place of encouraging new entrants and a more diverse marketplace. A number of physical and virtual bookstores and publishers have exited the business as a direct or indirect result of Amazon’s predatory pricing.
Bromwich has recently complained that his relationship with Apple has worsened in recent months, following an improvement after the appeals court initially restricted some of his more extra-legal activities and fees. Apple has pushed for a complete removal of any antitrust oversight monitor at all, arguing that it did not engage in any anti-competitive behavior in the first place. During the appeal, however, it indicated that it would accept a simple replacement of Bromwich with another, more qualified watchdog — but the court has turned down the request, possibly because a ruling on Apple’s appeal may be imminent and it would not make sense to replace a monitor that may possibly be on his way out anyway.
