I’ve been taking the time to read and think about the Department of Justice’s proposed penalties for Apple in the recent anti-trust trial, and Apple’s response complaining that the penalties were too harsh and unsupported by law. There’s plenty of interesting stuff here, to be sure.
For starters, look at the DoJ’s proposed penalties. It’s possible I might just owe the Motley Fool an apology, as despite Judge Cote saying she didn’t intend to paint with a broader brush, the DoJ nonetheless does seek at least in some respects to use the results of the trial to extend its reach into other aspects of Apple’s business after all. One of the tenets of the proposed penalties would disallow Apple from entering into a contract with suppliers of any media that would be likely to “increase, fix, or set” prices.
Another penalty would, for two years, force Apple to allow rival e-book sellers to provide links to their bookstore so they could make in-app purchases without the 30% fee Apple has been charging for the last couple of years. The DoJ says the idea is to turn back the clock to how things were before agency pricing, and make it easier for consumers to compare prices between bookstores now that price competition will be possible again.
For five years, Apple will not be allowed to enter e-book agreements with the Big Five publishers “that limit Apple’s ability to discount books.” The DoJ notes here that “there is reason to believe the Publisher Defendants may be positioning themselves to pick things back up where they left off as soon as their two-year clocks run” and feels that “ensuring that Apple can discount e-books and compete on retail price will make it more difficult for the Publisher Defendants to prohibit other retailers from doing so, and will help to ensure that the ongoing effective relief consumers are currently enjoying under the Publisher Defendant consent decrees does not prove entirely ephemeral.”
And another provision would require Apple to appoint and pay the salary of an anti-trust compliance monitor for ten years. The DoJ notes that Apple’s brazen refusal to admit that it did anything wrong, its recounting of using similar practices in negotiations with suppliers for other media, and the fact that even its counsel was “’noteworthy for [his] lack of credibility” suggest that such an officer is definitely needed.
The DoJ keeps coming back to some of Judge Cote’s juicier remarks in her decision, particularly when it comes to finding Apple and publisher witnesses’ testimony not credible. (Seriously, read through the decision and word-search on “credible”. As I was saying to Nate Hoffelder when I met him today, you could practically make a drinking game out of every time Judge Cote uses the word “credible” (as in, saying that a witness was not) in her decision.)
And the DoJ holds that Apple’s brazenness means that it needs to impose these penalties that are broader than one might expect because there is a very real possibility Apple will engage in the same kind of anti-competitive behavior in other markets. The purpose of anti-trust penalties, they point out, is not just to reset things back to how they were, but to remedy the harm that the anti-trust violation caused, negate any ill-gotten gains, and keep it from happening again.
For its part, Apple tries to insist that the settlement terms with the publisher plaintiffs are redressing the anti-trust wrongs, if any. It also claims that the penalties, such as the ten year anti-trust monitoring, are harsh out of all proportion to any harm that was done. It also claims the DoJ doesn’t have the right to poke its nose into fields unrelated to e-book sales, as it would do by requiring Apple stop charging its 30% in-app purchase vig to tablet app users. It also objects that ten years of external compliance monitoring “would be unprecedented and unwarranted.”
Apple’s arguments do manage to appeal to some observers, such as this Forbes columnist who appears to have bought them completely. Why not just stick with monetary damages, the columnist wonders? The Passive Guy has a great rebuttal: Apple’s got so much money already they would hardly notice any reasonable monetary amount you could hit them for.
When you get right down to it, both the DoJ and Apple are able to cite numerous precedents in their briefs. It’s like how the Bible says that the Devil can quote scripture if he wants to. Most laypeople just aren’t equipped to tell whether such a citation is specious. It’s going to be up to Judge Cote to make sense of it—at least, when the trial gets to that point. The penalty phase may be held off pending Apple’s appeal of the decision itself; we’ll just have to see.
There are a lot of pro-Apple blog posts. because in this case being pro-Apple is being anti-Amazon, and most people who like publishers find it fashionable to hate Amazon because Amazon is beating up on the poor publishers. Some of these posts are more than a little ridiculous. Case in point: Rush Limbaugh claims that Apple corresponds to Republicans in today’s blogging scene, while Google is the Democrats. (Why does anyone even still listen to him anymore?)
But when you get right down to it, Judge Cote really turned out a remarkable piece of jurisprudence in her decision in the Apple case (PDF). Of special note are the footnotes in which she indicated various witnesses’ testimony lacked credibility. For example, footnote 66 from page 143:
This Opinion has already described several instances in which testimony given by Cue and Sargent was unreliable. Other witnesses who were noteworthy for their lack of credibility included Moerer, Saul, and Reidy. Their demeanor changed dramatically depending on whether Apple or the Plaintiffs were questioning them; they were adamant in denials until confronted with documents or their prior deposition testimony; instead of answering questions in a straightforward manner, they would pick apart the question and answer it narrowly or avoid answering it altogether. Thus, the findings in this Opinion are informed by the documentary record, the circumstantial evidence, including an understanding of the competitive landscape in which these events were unfolding, and that portion of each witness’ testimony that appeared reliable and credible.
In other words: these witnesses apparently wouldn’t know the truth if it bit them in the butt, so Cote had to make her decision based on everything else plus the few times they appeared to tell the truth. Just think about how badly your defense team has done its job if you see the judge come right out and say that sh
e had to disregard witness testimony because it was so transparently false.
If I were Apple, I would seriously be thinking about settling at this point. The defense witnesses’ lackluster performance in the courtroom makes it pretty likely they’re not going to get the outcome they desire. Their brief protesting the validity of the Department of Justice’s proposed penalties seems like a forlorn hope to me. If they haven’t been able to convince the judge of their arguments so far, it seems unlikely they’re going to start now.
But by the same token, if they haven’t seen reason yet, it seems hard to imagine that will happen now either.