I’m certainly not immune to the appeal of reading more about subjects that fascinate me, and as our extensive coverage of it over the last few years has shown, the Apple e-book antitrust case is certainly such a fascinating subject. So Truth on the Market’s publication of a “Blog Symposium” on the case, featuring eight articles (so far) from various legal thinkers and experts on the matter, interests me greatly.
The eight articles thus far show an interesting breadth of thought on the topic. A number of them focused on the legal question Apple is trying to bring to SCOTUS’s attention: that its conduct should not have been deemed per se illegal—that is, automatically illegal with no further consideration warranted—but should have been interpreted under a “rule of reason” where the court examines the context of the matter.Several of them invoke the late Justice Antonin Scalia, reemphasizing that his loss could have an important effect upon how the case is decided. Here’s a look at each, ranging from Apple’s supporters to its opponents.
William Kolasky thinks that, in trying to decide whether the pertinent price agreement is horizontal (among the publishers) or vertical (between each publisher and Apple), the courts missed the point and they should have focused on whether Apple’s conduct constituted “a naked [restraint] of trade with no purpose except stifling competition,” or whether it was “ancillary to the legitimate and competitive purposes” of Apple’s own e-book store needs. Kolasky believes Apple’s price caps and most favored nation clauses fall under the latter category, and the rule of reason should have been applied. “All that is needed to avoid per se condemnation is that there be a plausible argument that they were [necessary to Apple’s successful entry into the e-book market], and that, again, should be something that no one could dispute.”
Alden Abbot believes the Second Circuit erred in evaluating Apple’s vertical contracts as per se illegal in their role in facilitating the horizontal price-fixing conspiracy among the publishers because vertical restraints feature certain special efficiencies that can be important in emerging markets. He thinks the court failed to consider the added costs and inefficiencies its decision would impose on future innovators. He cites the late Justice Scalia in calling false condemnations “especially costly, because they chill the very conduct the antitrust laws are designed to protect.”
Geoffrey Manne argues that “the Second Circuit’s decision has no support in the law and/or economics.” As do many of Apple’s supporters, he emphasizes the way Apple’s conduct made it easier for other firms who couldn’t hope to compete with Amazon on price to be able to compete with it on other distinguishing factors. He also points out that higher prices aren’t necessarily bad for the consumer if they allow suppliers to be able to provide better products. Not only does he feel there should have been a rule of reason analysis, but he thinks Apple would stand a good chance of winning it on the merits.
Keith Hylton also invokes the late Justice Scalia, in suggesting the Supreme Court should look at a lesser-known case, Business Electronics v. Sharp Electronics, and apply its precedent in dealing with the Apple affair. It involved the Court declining to apply the per se test to manufacturer-retail contracts in cases where a manufacturer terminated its agreement with a retailer for failing to honor suggested minimum pricing unless it could be proved the manufacturer had agreed with another retailer to set resale prices. Scalia wrote the opinion in that case, and Hylton feels that he would have been most likely to notice the similarity.
David Balto also focuses on another case, but this is one that’s also seeking certiorari with the Supreme Court—an FTC complaint against a ductile iron pipe fitting company called McWane. Balto feels the Supreme Court does need to update its jurisprudence concerning hub-and-spoke conspiracies to deal with exclusive dealing and loyalty discounts—but that the Apple case would not be as good a case for the Supreme Court to use for that purpose as McWane would. Balto also quotes a passage by Justice Scalia, who points out that monopolies aren’t necessarily unlawful unless they were arrived at anticompetitively—which Amazon’s wasn’t.
Richard Epstein was at first dubious about the Second Circuit’s decision. He finds no reason to doubt Apple would have been “in fine shape” if it had simply approached each publisher separately with its contract terms. The problem came in Apple’s putative action as a go-between, which means the case represents an intersection between per se illegal horizontal conspiracies and rule-of-reason vertical conspiracies. The biggest problem Epstein sees is that, even if the Court agrees that Apple’s conduct should be evaluated under the rule of reason, there is no clear standard of measurement for evaluating it. Amazon’s own conduct wasn’t illegal, which makes it harder to countenance a conspiracy to rein it in. He also cites another case, Fashion Originators’ Guild of America, Inc. v. FTC, in which the FOGA had “a respectable case on the merits” for restraining trade (attempting to fight retailers who sold knock-off designs) but its restraint was still ruled illegal as an example for why Apple’s own justifications might fall short.
Jonathan Jacobson has a fairly short piece noting that, for all the window dressing Apple and its amici try to pile on, the Apple affair is effectively an open-and-shut horizontal price-fixing case. He cites Steve Jobs’s famous remark to Walter Mossberg that “the prices [on iBooks and Kindle] will be the same,” notes the 30% jump in e-book prices, and concludes, “If that’s not an antitrust violation, we’re all in trouble.”
Finally, Publishers Weekly Senior Writer Andrew Albanese notes that, whether Apple wins or loses at this point is largely academic—it can no longer have any major effect on the e-book market, because in the intervening years, the major publishers have largely managed to obtain the same results via contract renegotiations. There might be $400 million in consumer refunds at stake, but what’s not at stake is the future of innovation. The case hasn’t ever actually been about innovation, but rather about the publishers seizing control over retail pricing of their product and raising the prices—which they have successfully done. While admitting he is himself no lawyer, Albanese wonders, “[I]sn’t the greater concern that, if vindicated, Apple’s scheme would essentially serve as a blueprint for large vertical players to work with major suppliers to eliminate retail price competition from nascent markets?”
At this point, it’s still too early to tell whether Apple will gain certiorari or be rejected—though we’ll find out by the end of the week, as the decision will be announced on February 19. But these eight articles represent a pretty good summary of the different schools of legal thought on the matter. If nothing else, it’s proof that interpretation of the laws is to a large extent subjective, and a remainder of how important a decision appointing a new Supreme Court Justice really is.