Apple Heads Towards Throwdown Over Antitrust Court-Appointed Monitor

| Analysis

Apple in courtApple and its court-appointed monitor—attorney Michael Bromwich—appear to be headed towards a throwdown over his mandate. Details over friction between the two began emerging over the thanksgiving weekend, but an in-depth piece from Fortune shows that tensions and stakes are running even higher.

Fortune's piece was penned by Roger Parloff, the magazine's veteran senior editor for legal affairs, and it's epically long in the age of flash Internet reporting–some 3,357 words. If you are interested in this case, however, it is well worth the read, as it contains all manner of information and astute analysis I haven't seen offered elsewhere.

A Tale of Two Perspectives

My biggest takeaway is that Apple appears concerned that Mr. Bromwich is greatly expanding what it thought the court's mandate was. Mr. Bromwich has "hit the ground running," as he put it, and has demanded interviews with all of Apple's board members and most of its top executives, almost none of whom have anything to do with antitrust compliance or Apple's book selling operations.

Mr. Bromwich and his representatives have defended his actions as being in line with what Judge Denise Cote wants, and they have characterized Apple's actions as indicators that the company doesn't take the court ordered remedy "very seriously."

Apple has additionally argued that Mr. Bromwich's main job is monitoring Apple's compliance, and that he therefore doesn't even have anything to do until January 14th, when the company is scheduled to have new antitrust training policies in place. After all, if what he is monitoring isn't even due until mid-January, who does he need to speak with before then?

To demand meetings before then—let alone with executives and board members who aren't involved in antitrust compliance or Apple's book retailing business—is intrusive, disruptive, and an inappropriate expansion of his responsibilities, according to Apple.

"The unilateral investigation the Court has empowered Mr. Bromwich to undertake," Apple told the court, "is not a judicial function, and therefore cannot be delegated by the Court. The injunction, particularly as the Court proposes to amend it and in light of how Mr. Bromwich interprets his authority ... vests the monitor with wide-ranging, intrusive, and excessive inquisitorial powers of a sort reserved to prosecutors."

Those types of allegations put quibbling over how much Mr. Bromwich gets to charge in perspective. Fortune's Roger Parloff argues that Apple is structuring its complaints about Mr. Bromwich into an attack on Judge Cote herself, and may try to have the judge recuse herself from any further oversight of this trial.

Experience

There has been some Internet chat about Mr. Bromwich's lack of antitrust experience, with many questioning why he would be made Apple's monitor. Roger Parloff explained that Mr. Bromwich was chosen for his experience as a court monitor in other cases as a prime reason for him being chosen, and that's why he has hired antitrust experts to assist him with his duties.

With court monitors being rare, his experience in this area was judged to be more important than his lack of antitrust experience.

Fees

When Apple protested the fees Mr. Bromwich is charging—the court ordered Apple to pay his expenses—Mr. Bromwich reacted rather negatively. This is, in part, because he believes Apple is trying to treat him like an outside consultant rather than a court-appointed monitor.

That puts his seemingly haughty reaction in perspective, but it remains for the court to decide if the $1,100 per hour, plus a 15 percent "administrative fee," are appropriate. It's certainly not unheard of for attorneys to charge that much (the administrative fee still smells fishy to me), and Mr. Bromwich pointed out in a filing that one of Apple's own outside attorneys charged some $1,800 per hour in an unrelated case.

Thoughts

As with most things, the truth lies somewhere in the middle. Apple appears to have good reason to bristle at Mr. Bromwich's aggressive approach to his duties. At the same time, Mr. Bromwich appears to have good reason to think that an aggressive approach is precisely what the court wanted.

In the end, I still don't understand this case. I disagree with Judge Cote's verdict, and I can't imagine why a court-ordered monitor was necessary, or even appropriate. Roger Parloff does a great job of explaining just how rare outside monitors are, and the whole thing feels completely out of whack with reality.

Read the full piece for more.

Comments

Lee Dronick

Never a dull moment.

daemon

Yes, tell the your parole officer he has no business searching your house cause you’re not even suppose to report to him until next month.

Apple clearly doesn’t take this seriously.

daemon

“In the end, I still don’t understand this case. I disagree with Judge Cote’s verdict,”

Bryan, how can you not understand the case and also disagree with Judge Cote’s verdict?

I called this after the iPad announcement. Steve Jobs got up on stage and announced to the world he had colluded with the major publishers to fix ebook pricing at $14.99 a book! That’s illegal. You can’t do that. How can you not understand this?

It’s like your looking at the speed limit sign and claiming they can’t possibly ticket you for doing 50 over when you were only doing 75 miles an hour in this school zone….

Bryan Chaffin

daemon, I followed the evidence presented in court as closely as I could, and my interpretation of that evidence is that Apple was pursuing SOP (for Apple) negotiations with publishers, not leading or even organizing a cabal of collusion. I thought that even some of the DOJ’s own evidence regarding the time line didn’t support its allegations. I also thought that Apple’s evidence refuted the DOJ’s case (the judge disagreed, saying that Apple’s witnesses weren’t credible).

In addition, the agency model isn’t illegal. Horizontal pricing agreements aren’t necessarily illegal, either. Barnes & Noble was pursuing agency with these publishers before Apple. Putting those things together, it’s hard to see how Apple was leading a cabal of publishers when the publishers already wanted agency, as did other retailers.

Lastly, before Apple launched iBooks, the ebook market was controlled by a retailer with monopoly power (90%), a retailer that was dumping product below cost to boost its share of ebooks, limit competition in ebooks, and drive brick and mortar stores out of business.

In short, Apple brought competition to the ebook market. because of agency, Nook, iBooks, and even Kobo gained share. Direct sales from publishers started happening, too.  That sort of competition is just as valid as competing on price, which appears to be the only competition the DOJ was focused on.

I’ve written on this topic many times, but that’s the short version of why I think the verdict was wrong, and why I think Apple will win on appeal. Apple will definitely win with this Supreme Court, should it make it that far, but that won’t necessarily mean as much to me unless it’s a solid majority or a unanimous decision.

daemon

“Apple was pursuing SOP (for Apple) negotiations with publishers”

I just want you to reflect on the possibility that Apple’s Standard Operating Procedure is actually illegal.

Bryan Chaffin

daemon, I have put considerable thought into this. I have a long history of criticizing Apple when I disagree with its actions. Sherlock/Watson, going after journalist sources, and pulling Wiley books out of the Apple Store in retaliation for iCon are three instances where I have publicly heaped criticism on Apple.

In any event, the agency model is not illegal. That’s Apple’s SOP for selling virtual goods. Neither is open to interpretation.

daemon

Bryan,

I’m not saying the agency model is illegal, the court didn’t say it was illegal, no one said the agency model is illegal. What is illegal is how Apple went about doing it. Apple proposed setting a minimum price for the entire industry, that is what is illegal.

Bryan Chaffin

Hey daemon, I don’t believe that’s correct. Eddy Cue argued that Apple negotiated the (legal) MFN clause, and at that point no longer cared what prices were. Apple did ask for maximum pricing (in the form of tiers), and argued in court that it did so to prevent publishers from charging too much.

As noted earlier, Judge Cote specified that she didn’t find Apple’s witnesses (i.e. Cue) credible.

This summation of the verdict (from a broader study of the case) puts it succinctly: “Judge Cote found that because the Plaintiffs proved a horizontal price-fixing conspiracy between the Book Publishers, Appleā€™s vertical participation in that horizontal conspiracy amounted to a per se violation of Section 1 of the Sherman Act.”

Be that as it may, if the appeals court/Supreme Court upholds Apple’s conviction, I’ll accept that I’m wrong and that there’s something I don’t understand about the case.

Out of curiosity, if that conviction is overturned, will you accept that Apple didn’t do anything illegal?

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