United States v Apple

Taking on a tech giant in Amazon’s shadow

The decision

In April 2010, five of the largest book publishers in the United States simultaneously attained a long-sought goal. They converted the industry’s “whole- sale” e-book distribution model, where retailers set consumer prices, to an “agency” model where publishers set prices. The move immediately did away with Amazon’s “hated” (as one publisher put it) $9.99 pricing of The New York Times’ bestsellers list and new releases of other popular e-book titles. Kindle users saw many Amazon e-book prices jump overnight from $9.99 to $12.99  or $14.99 (and in some cases even higher). So did state and federal antitrust enforcement agencies.

The 30-50% consumer price increases were remarkable both for their sheer size and their uniform implementation by the publishers. But there was more to the puzzle. The higher prices coincided with the introduction of powerful new competition for the Kindle, and new competition is not typically associated with across-the-board, industry price increases. Apple had just introduced the iPad, a device that among its many functions promised a high-quality, e-book-reading experience. Coupled with its iBookstore, Apple planned to employ the iPad to challenge Amazon’s dominant share of retail e-book sales in the US. This forceful challenge to Amazon was accompanied by the ostensibly competing e-book publishers adopting identical new business models, and immediately imposing dramatically higher and largely identical price increases on consumers. Was this the stuff of pro-competitive market forces? Or was it the product of a conspiracy to limit the degree of disruption that e-books were bringing to publishers’ print book businesses, and to negate the advantages of a successful “first mover” that had established its market position with innovative technology and exceptionally low prices?

In 2013, after a three-week trial that received perhaps as much public attention as any antitrust action since the government’s case against Microsoft, a federal judge in the Southern District of New York handed down a 159 page opinion finding 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.”1 Judge Denise Cote’s painstaking recitation of the evidence, developed by the Department of Justice’s Antitrust Division and 38 states that joined with the division as co-plaintiffs, revealed a conspiracy elaborated over several months. The opinion describes publishers’ chief executives dining together at exclusive Manhattan restaurants in order to address “the Amazon problem”; explicit emails about their common goal of eliminating low prices; records of phone calls between the executives and Apple as the details of the conspiracy were being hammered out; instructions to “double delete” problematic emails; exchanges of future pricing plans; and a bold, accurate and videotaped prediction from Apple founder and chief execu- tive Steve Jobs that, once the iPad hit the market, e-book prices would increase and be “the same” at Amazon and Apple. To make that prediction in public was “incredibly stupid”, according to a publisher’s general counsel who saw it the next day. The publishers settled with the Antitrust Division and the states before trial. Apple did not.

No serious reviewer of the evidence has, to this writer’s knowledge, quarrelled with Judge Cote’s finding of a per se unlawful conspiracy among e-book publishers to fix prices. The evidence of the conspiracy was so overwhelming that a common question, in light of the detailed allegations in the government’s complaint, was whether it should have proceeded criminally against the involved companies, rather than the civil offence with which the DOJ charged them. The more interesting pre and post trial debate has been whether Apple should have been sued at all and, if so, was it rightly subject to per se liability as the government determined, and Judge Cote and two members of a Second Circuit panel ultimately agreed.2 Or was the right approach to employ a rule-of-reason analysis to the conduct, given Apple’s status as a new entrant in a market dominated by Amazon – the course for which Apple, its allies and the dissenter in the Second Circuit advocated?

Framing the lawsuit

The most debated question about the government’s lawsuit in antitrust circles – after the decision to sue in the first place – was its decision to proceed on a per se liability basis that did not require the government to prove harm or consider the potential benefits of Apple’s contracts with publishers. The parties’ briefs in the trial court and the appellate court hash and rehash the applicability of the per se rule. The government’s reliance on per se liability was also the focus of Apple’s unsuccessful certiorari petition to the Supreme Court. But suggesting that Apple should have been allowed to defend itself at trial under the rule of reason omits an important fact: the government prevailed at trial on both a per se and an alternative rule-of-reason theory. Apple, therefore, had the opportunity to, and offered, a full rule-of-reason defence at trial.

A little background is useful. Section 1 of the Sherman Act prohibits agreements that “unreasonably” restrain trade. Certain agreements are so blatantly unreasonable that they are automatically condemned without considering their actual effect on competition, or any pro-competitive justifications put forth by the defendants. It is a narrow category of agreements, almost always involving horizontal competitors’ efforts to fix prices, allocate customers, divide markets or, in limited situations, “boycott” an industry participant. Prove the agreement and you prove a violation of the Sherman Act. Rule-of-reason analysis, on the other hand, demands an examination of the history, purpose and competitive effects of the alleged agreement. This is the juicy part for antitrust lawyers and economists – defining markets, examining barriers to entry, looking for efficiencies, predicting long-term impact on prices, etc. In short, proving an agreement is just the beginning of the rule-of-reason enquiry, not the end as it is with per se analysis.

Compared to merger cases, there are relatively few per se conduct cases filed by the government. Perhaps this is because many per se civil offences are so severe and “hardcore” that they are immediately resolved by settlement, or prosecuted criminally. Or perhaps it is because per se offences are well understood and avoided by antitrust counsel. In any event, the government carefully considered the decision to proceed against Apple on a per se theory. But civil per se has long been an option for the government and it broke no new ground to include a per se theory in the complaint against Apple.

One could read many accounts of the e-books litigation, however, without seeing any reference to the other side of the government’s case: its rule-of-rea-son theory against Apple. The government might have proceeded strictly on a per se basis and focused exclusively on the existence of an unlawful agreement. Because it did not, the trial explored in depth the nature of competition in the publishing industry, the rise of e-books – and Amazon’s pivotal role in that rise how e-book technology disrupted traditional publishing and the changing role of publishers in the book world. The trial also dove into the agreements between Apple and the publishers, how the agreements were hatched, the goals of the conspirators and, especially, the effect of the conspiracy on the reading public. The government thus put itself to the test of showing that the conspiracy was actually anticompetitive. This necessarily meant that Apple executives, its publisher co-conspirators, bricks-and-mortar competitors of Amazon and other witnesses could advocate at trial for Apple.

The decision to litigate both a per se and a rule-of-reason case posed a palpable risk for the government. Apple would surely use its rule-of-reason defence to undercut the government’s per se theory. After all, if per se analysis is properly limited to obviously irredeemable agreements with no conceivable competitive justification, and Apple could demonstrate petitive benefits for its conduct, then perhaps the government had misapplied the per se doctrine. Thus, Apple  had  a rare opportunity to offer pro-competitive justifications to rebut a per se case.

The government’s willingness to accept the burden of proving actual anti-competitive effects at trial reflected the strength of its evidence, along with the public interest in a trial that explored the full, anticompetitive ramifications of the conspiracy, and which did not begin and end with merely proving the fact of the agreements.

The decision to proceed alternatively on a rule-of-reason theory was also a tactical one. Not long before the Apple complaint was filed, in an opinion by Judge Richard Posner, the Seventh Circuit affirmed dismissal of a private, civil per se lawsuit involving a new entrant into the sulphuric acid industry in the US.3 In his opinion, Judge Posner observed that there might have been a meritorious rule-of-reason claim but, since plaintiffs had not advanced a rule-of-rea- son alternative theory, the case was over. The division lawyers who drafted the e-books complaint were well aware of both the strength of a rule-of-reason case against Apple and Judge Posner’s opinion.

Prior to filing its complaint, the government had the benefit of several months of investigation. We interviewed potential witnesses, collected and reviewed documents from the publishers, Apple and third parties, and gathered views from its staff of PhD economists. Many of the fruits of that investigation appeared in the complaint – email excerpts, public statements, restaurant tabs and so on. The government’s future trial strategy was clear: Prove the case using the words the publishers and Apple uttered and wrote as the conspiracy took shape. Pay attention to timelines, phone records and other compelling circumstantial evidence. Keep it simple wherever possible, and leave long explana- tions and complexities to the defence. When debating arcane points of antitrust law, never lose sight of the fact that the law’s fundamental purpose is to protect consumers and that consumers had taken a very real hit. And, wherever possible, make it interesting.

The pretrial conference

In May 2013, Judge Cote met with counsel for the parties in her Manhattan courtroom to discuss the mechanics, expected duration and other aspects of  the June trial. Because the Antitrust Division could, by law, seek only injunctive relief against Apple, there would be no jury. Judge Cote would decide the case. The parties had already submitted detailed summaries of the evidence to be introduced at trial and extensive discussions of relevant law. Consistent with her reputation, Judge Cote was thoroughly familiar with the parties’ submissions.

The government had an early tactical decision to make. Judge Cote, as is her standard practice in bench trials, had offered months before to share her preliminary view of the evidence at a May 2013 pretrial conference, if both sides made that request. Neither side had done so as of the morning of the conference. The government trial team had debated whether to ask Judge Cote for her views. A negative reaction to the government’s case would risk distracting and discouraging the team as it geared up for trial. Reporting of her preliminary views (this was all part of a public proceeding) might also be overstated in press reports.

The division’s senior management left the decision to the trial team, and we ultimately decided it was better to have Judge Cote’s views, even if discouraging,  so that we could better address her concerns at trial. We also knew that Apple could not easily refuse to join in our request. The company had made a series of confident public statements, dating from the filing of the government’s lawsuit. With scores of reporters in the audience, the company’s lawyers were unlikely to decline to hear the court’s thoughts. And indeed, Apple joined in the government’s request.

Judge Cote’s response was not reassuring for Apple. Stressing that her analysis was far from final and subject to the government’s fulfilling its evidentiary promises, the court explained it was plausible that Apple had engaged in an ille- gal price-fixing conspiracy. For the government, the message generated optimism – and a sobering assessment of its job at trial: ensure critical evidence is admitted, ignore the daily press reports and maintain the momentum of its compelling case.

The trial

Amazon executives testified at trial that over the course of a few days after Apple introduced its iPad, each of the publishers approached Amazon and threatened to withhold e-books if it did not switch to a so-called “agency model” of e-book pricing. If there was any doubt this was a coordinated effort, the government introduced an email, sent by the head of book publisher Macmillan in response to congratulations for standing up to Amazon, in which the executive said: “The optics made it look like I stood alone, but in the end I had no doubt the others would eventually follow.

The Macmillan executive’s statement in that same email that each publisher “did the Apple deal with no contact with other publishers” is impossible to square with the evidence, which is set out in detail in the district court opin- ion.4 One highlight of that evidence was the government’s depiction of a web of phone calls between publisher chief executives as their agreements with Apple were being finalised (see Figure 1).

Figure 1
Phone calls between Apple’s Eddy Cure and publisher defendant CEOs in December 2009 and January 2010

Source: Plaintiff’s exhibit US v Apple 12-cv-02826, PX-0867

At trial, Apple was notably agnostic on the question of whether the evidence established a conspiracy among the publishers. Its defence was that, whatever the publishers were up to in their secret meetings, phone calls and emails, Apple acted merely as a new entrant that struck a series of individually negotiated distribution agreements with each of the publishers. The evidence, however, did not support this “hear no evil, see no evil” defence.

There was noise in the antitrust bar after the complaint was filed that the government’s true quarrel was somehow with the use of “most favoured nation” clauses (MFNs) in the Apple-publisher agreements or with “agency” distribution models, in which suppliers set their distributors’ retail prices. That was always malarkey. The Antitrust Division has repeatedly acknowledged that MFN clauses may be pro-competitive and they are, indeed, lawfully employed in many industries. Antitrust law is indifferent to firms’ selection of different distribution or pricing models – unless those decisions are the product of collusion. The issue in the Apple litigation was always how the publishers pulled off a simultaneous conversion to an agency model, what role Apple truly played in that conversion, and why MFNs replaced an earlier provision in Apple’s draft agreement with the publishers that explicitly required the publishers to convert all retailers to an agency model. As Judge Cote put it: “The issue is not whether an entity executed an agency agreement or used an MFN, but whether it conspired to raise prices.” Judge Cote described it best: in late 2009, senior Apple executives met with individual publishers, immediately understood their deep antipathy for Amazon and its $9.99 pricing, and recognised that, absent a solution to the low-price problem, the iBookstore might have a very difficult time operating profitably.At first, Apple rejected the agency model suggested by the conspiring publishers. Apple feared that its fellow conspirators might not be satisfied with 30-50% price increases. Instead, it insisted on identical and specific retail pricing “caps” in its agreements with the publishers – caps to which the publishers immediately and uniformly moved their prices in 2010.

Apple and the publishers left a trail of evidence that the government used  to depict Apple’s role as ringmaster of the conspiracy. Much of the evidence came from Apple’s iconic founder and chief executive, Steve Jobs. In an email to HarperCollins chief executive James Murdoch, sent days before the release of the iPad and the launch of the iBookstore, Jobs pressed the publisher to “[t]hrow in with Apple and see if we can all make a go of this to create a real mainstream e-books market at $12.99 and $14.99.” Shortly after, HarperCollins became the fifth publisher to accept Apple’s offer.

Jobs introduced the iPad and the iBookstore on 27 January 2010, and immediately telegraphed the new Apple-led pricing model for the e-book industry. When asked by a reporter why people would pay $14.99 in the iBookstore for an e-book that was selling on Amazon for $9.99, Jobs replied that “[t]he prices will be the same,” explaining that “publishers are actually withholding their books from Amazon because they are not happy.” Notably, this remark came before the publishers made that explicit threat to Amazon. The general counsel of Simon & Schuster called Jobs’ statement “[i]ncredibly stupid” in an email to her CEO. She did not say the statement was inaccurate.

The next day, Jobs was even more explicit about the scheme with his biographer Walter Isaacson, in a passage later published in Steve Jobs:

So we told the publishers: ‘We’ll go to the agency model, where you set the price, and we get our 30%, and yes, the customer pays a little more, but that’s what you want anyway.’  But we also asked for a guarantee that if anybody else is selling the books cheaper than we are, then we can sell them at the lower price too. So, they went to Amazon and said, ‘You’re going to sign an agency contract or we’re not going to give you the books.’

The publishing executives were no more careful than Jobs to disguise what was really going on. After meeting with Apple, Macmillan CEO John Sargent sent an email marked “URGENT!!” to a senior Apple executive. Sargent explained that he was “gonna need to figure out our final agency terms of sale with Amazon tonight. Can you call me please?” Phone records confirmed that the executive and Sargent spoke that evening and, with help from Apple, Macmillan negotiated the first agency agreement with Amazon that week. At trial, the executive implausibly denied that he and Sargent had spoken about Macmillan’s negotiations with Amazon. In fact, throughout the trial, Apple’s key witnesses and other participants in the conspiracy sought to obscure the full extent of their collusion, but the court repeatedly found those denials not credible because they contradicted a “contemporaneous documentary record” that was “replete with admissions about [the] scheme”.

Amazon as first mover

E-reader devices in one form or another have been around since the 1990s. But there were no affordable, easy-to-use, high-resolution devices that might attract the reading public away from print books. Amazon altered that landscape forever with the introduction of the Kindle in 2007. As with its retail print book business, Amazon promised customers low prices. Indeed, the $9.99 e-book prices it offered for The New York Times’ bestsellers and popular new releases were below the prices it paid publishers for those e-books. Some called this pricing “predatory”, while Amazon defended it as a “loss leader” strategy aimed at building an e-books business that, in its entirety, was profitable. Whatever its intent, Amazon came to dominate the retail e-book business with as much as   a 90% share of the market. As it attracted more and more readers away from print books, it tore at publishers’ traditional print businesses and the businesses of retail bookstores. Amazon and its low prices therefore became increasingly detested by publishers and bricks-and-mortar stores. As the district court described the rift:

In the short term, the publishers believed the low price point was eating into sales of their more profitable hardcover books, which were often priced at $30 or more, and threatening the viability of the bricks-and-mortar stores in which hardcover books were displayed and sold. Over the long-term, they feared that consumers would grow accustomed to e-books priced at $9.99, and that the $9.99 price point would erode prices for all books, thereby threatening the business model for the publishing industry. They believed that this low price failed to reflect the true value of many books, and also failed to distinguish among books in terms of the effort entailed to create and produce them and in terms of their quality, however one might measure quality.

The publishers individually failed to move Amazon away from its loss-leader prices by raising wholesale prices (which Amazon continued to pay) or threatening to “window” (or temporarily withhold) popular books from Amazon. But those efforts failed completely because no single publisher could risk Amazon refusing to offer its e-books for sale. Amazon’s position in the retail market was simply too strong.

Let’s depart from the story for a moment and ask antitrust lawyers, economists and just plain Sherman Act aficionados what they think of the following scenario. Frustrated by their individual inability to persuade Amazon to raise prices, the publishers band together and collectively agree to withhold e-books from Amazon unless Amazon agrees to surrender pricing authority to the publishers. Amazon, not willing to lose its ability to sell e-books, capitulates and consumer prices rise substantially. Who among us does not see an antitrust violation there? And a per se one at that.


To say that the publishers were frustrated by their individual failures to bring Amazon around to their point of view about “sensible” pricing is an understatement. In a series of phone calls and meetings, the publisher executives coalesced around the belief that they were facing an industry problem that demanded an industry solution. That common solution – forcing Amazon to accept agency model contracts with the publishers – took place in April 2010. One trial exhibit charted the effect on e-book consumers: while the price for e-books published by non-majors who were not party to the conspiracy remained relatively stable at around $6 throughout 2010, four of the five majors’ weighted average prices at Amazon spiked in the week beginning 4 April. They rose by $2 more on average. The four publishers whose prices shot up on 4 April 2010 (Hachette, HarperCollins, Macmillan and Simon & Schuster) were four of the five publisher conspirators. The fifth (Penguin) was under pre-existing contractual restrictions that expired in June. It then made good on its commitment to the conspiracy, according to the exhibit.

Horizontal versus vertical

In modern antitrust law, per se treatment is confined to discreet categories of horizontal agreements, while vertical agreements typically require a rule-of-reason analysis. Apple, not surprisingly, persistently characterised its conduct as “vertical in nature”, and, in doing so, relied heavily on the Supreme Court’s Leegin decision.6 By focusing solely on its vertical contracts with publishers – agency agreements, MFNs and price caps – Apple sought to avoid per se condemnation for orchestrating the publishers’ conspiracy. But the district court was unequivocal on this point, concluding that “[t]his price-fixing conspiracy would not have succeeded without the active facilitation and encouragement of Apple.” In other words, Apple acted as the “hub”, enabling the publishers to collude in a way that they could not have on their own.

There was not much new here. The Supreme Court and several circuit courts have held that a vertically-related firm that joins a per se horizontal conspiracy is liable to the same extent as its co-conspirators. In Klor’s Inc v Broadway-Hale Stores Inc,7 the court held it per se illegal for a retailer to orchestrate a manufacturer group boycott of a rival retailer. Similarly, in United States v General Motors Corp, the court held General Motors per se liable for coordinating a conspiracy by its auto dealers to cut out discount suppliers.8 More recently, the Seventh Circuit held Toys “R” Us  per se liable for “orchestrat[ing]  a horizontal agreement among its key suppliers” to keep popular toys out of competing, low price retailers.9 Apple could not meaningfully distinguish its conduct from these cases.

Apple also maintained in its petition for certiorari to the Supreme Court that the per se rule was inappropriate because the case involved “novel circumstances” that “plainly raise issues new to the federal courts”.10 This argument also fell flat – and rightfully so. It goes without saying that every antitrust case comes with its own unique facts, markets and particular circumstances; what matters when determining whether per se liability applies is whether the court is familiar with the type of restraint at issue. Horizontal price fixing, far from being an innovative and novel tactic, is perhaps the most basic and familiar type of anti-competitive conduct. Apple’s position that “[n]o court had ever considered the constellation of contract terms at issue here, let alone conclusively determined their effects on competition in this market” was an argument to limit per se analysis only to precise replicas of past cases, a position that would freeze anti- trust law in 20th century ice.

Among the amicus support that Apple lined up in its unsuccessful Supreme Court appeal was a brief on behalf of four well-known antitrust economists, who described themselves as “members of the faculties of some of the nation’s leading academic institutions and economists who have served as deputy assistant attorney general for economic analysis in the US Department of Justice.”11 Their principal advice to the Supreme Court appeared to be that antitrust economics are exceptionally hard to get right and innumerable facts have to be determined just-so. As a result, while per se analysis may have had limited utility at one time with respect to smokestack industries, it doesn’t work in the digital economy.

That might be a worthy debate to have in the right forum or on the right trial record, but how did these esteemed economists arrive here:

The important point is that both the wholesale and agency models can lead to low consumer prices. So there is no basis to presume that Apple’s decision to advocate for the agency model, and the publishers’ willingness to adopt that model, necessarily harmed consumers. That is what a full rule-of-reason analysis needs to determine.

It would strike many as fundamental to antitrust law and free markets that, when a cartel imposes 30-50% price increases on the reading public, consumers are harmed. And what part of a “full rule-of-reason analysis” was absent from the extensive expert and other evidence at trial, or denied to Apple’s defence?  In fact, Judge Cote concluded that Apple “d[id] not demonstrate any pro-competitive effects flowing from the agreements,” while the government “show[ed] that the agreements did not promote competition, but destroyed it.” It is curious what, exactly, “consumer harm” means to these economists. Is “rule of reason” inevitably too complex for lawyers and judges to get right, or does Judge Posner have it right in observing that rule of reason does not require anything “radically different” from a per se analysis?12

The appeal

Apple’s appeal to the Second Circuit generated a new set of headlines. The government’s advocate was “on loan” from the solicitor general’s office, where he had argued several antitrust cases before the Supreme Court. In front of yet another packed courtroom, he faced what, at a minimum, could be described as “energetic” questioning from the senior judge on the panel, Dennis Jacobs. Without question, Judge Jacobs is one of the most respected judges in the country and, in his own way, an exceptionally forceful advocate.

A central thesis of Apple’s argument on appeal was that it acted justifiably  in order to overcome the Amazon retail monopoly of sales of e-books. Judge Jacobs picked up on this theme, observing that “Amazon’s 90% market share constituted a monopoly under antitrust law,” and that Amazon’s practice of selling certain e-books below what the publishers charged Amazon was “predatory”.13 Appellate experience mattered at that point. Specifically, the experience to ground the argument in the pro-consumer rationale of the antitrust laws and focus on the consumer harm that was at the heart of this particular case. The other two members of the appellate panel were more reserved at argument, and so the atmosphere in the courtroom was decidedly one of hostility (from one judge) to the government’s case. Stiff upper lips notwithstanding, members of the trial team left the argument that day realising that there was almost certainly one appellate vote against the government, and so one more would doom the case. Smiles on the faces of Apple’s lawyers and at least one publisher CEO who attended the argument suggested that they saw it the same way.

Nonetheless, in a 2-1 decision the Second Circuit affirmed Judge Cote’s decision in all respects. Judge Livingston’s 139-page majority decision takes the reader through the evidence of conspiracy, the harm caused to consumers and explains how the government’s per se theory of liability was consistent with decades of judicial interpretations of the Sherman Act. Solid, pro-consumer principles of antitrust enforcement are sometimes overlooked in the heat of litigation. Not so in Judge Livingston’s opinion.

Judge Jacobs’s dissenting opinion was as energetic as his questioning at oral argument. It reflects a belief that the “bad guy” here was Amazon and its low prices, and that Apple and the publishers were therefore justified in joining together to bring Amazon to heel. That is a remarkable understanding of what antitrust law is about. But the dissent stands in good company with the editorial pages of a certain leading business newspaper (which happened to be owned by the same parent as one of the publisher defendants) in fundamentally missing what was at stake in the e-books litigation.

To begin with, critics of the case never seemed to reflect on how Amazon came to dominate the retail e-book market. Surely the invention of the Kindle and extensive marketing efforts to introduce the public to the most disruptive publishing technology since movable type – reflects healthy capitalism of the sort the antitrust laws applaud, not condemn. A first mover with a superior, innovative technology and low prices may very well capture a large market share. That success may disrupt the business models of industry incumbents. It may make competition tougher. It may cause consumers to try new ways of doing things (eg, reading e-books rather than printed books). Punishing suc- cess rooted in innovation, investment and low prices in creating choices for consumers echoes a Paleolithic era of antitrust law when the focus all too often was on protecting favoured sets of competitors over less favoured competitors, and regardless of consumer welfare.

Even more antiquated is a belief that Amazon’s “loss leader” strategy was an anticompetitive “barrier to entry” into retail e-book sales. To be sure, low prices can be a barrier to entry because consumers value low prices. But consumer welfare is precisely what the antitrust laws promote. The interests of well-heeled firms with considerable resources that do not wish to compete on price – and so want to rig the game against those that do – are not consistent with the goals of antitrust law. As for “predatory pricing”, since the Supreme Court decision in Brown and Williamson, below-cost pricing has not been a concern of antitrust law absent evidence that the discounter may realistically drive out all competition and then have the ability to recoup its losses by charging supracompetitive prices.14 There was no evidence or argument at trial that Amazon could eliminate all competition in e-books technology, or that it planned to raise e-book prices to monopoly levels in order to recoup losses on its $9.99 offerings. Apple’s (and the publishers’) theory was just the opposite: that Amazon showed no incli- nation of ever backing off its $9.99 prices, and so only concerted action by Apple and the publishers could make that happen.

The dissent’s shrill criticism of the government’s case as “primitive as a matter of antitrust doctrine and illiterate as a matter of economics” is unexplained and hard to fathom, especially as the dissent found no error in Judge Cote’s findings of fact at trial. And what about the consumer? As the majority opinion explains: “Combined with the unmistakable purpose of the contracts that Apple proposed to the publishers, and with the collective move against Amazon that inevitably followed the signing of those contracts, the emails and phone records demonstrate that Apple agreed with the publisher defendants, within the meaning of the Sherman Act, to raise consumer-facing e-book prices by eliminating retail price competition.”

Ultimately, Amazon served as a convenient “bad guy” for Apple and the publishers; indeed, it is perhaps the only company that could play Goliath to the publishers’ David. And Amazon was a thorn in the side of the book publishers and rival e-books sellers. But Apple could not articulate the harm that Amazon’s low prices caused consumers, rather than competitors.

This is especially true given the immediate and substantial price increase that accompanied the fall of Amazon’s e-book monopoly. What good is increased competition if it serves only to raise prices? In fact, the “increased competition” that Apple boasted of came about by shifting retail pricing power to the publishers. It seems far-fetched (to say the least) to imagine that a pricing scheme developed for the purpose of raising prices would somehow benefit consumers. That certainly was not the goal of the publishers or Apple, who “shared one overarching interest”, according to the district court, “that there be no price competition at the retail level.”

There’s always something different

Any trial lawyer will tell you that there are always surprises. No case ever goes exactly as expected and no two trials are identical. And that is part of the fun.

The e-books litigation drew lots of interest from lots of directions. Why not? People love books and admire great writers. And people love their Kindles and iPads. The seeming demise of bricks-and-mortar stores is unsettling to many.

Apple and Amazon are both beloved and, at times, controversial. E-books technology has revolutionised the publishing, sale, ease of transportation and storage of books, and the technology keeps improving. So, when the government is at odds with publishers or Apple or other e-book industry participants, people care. That is a very good thing.

Figure 2

When the government settled its antitrust case against the publishers, the public had the right to submit comments to Judge Cote before she accepted or rejected the settlements. One commentator, an attorney with extensive intellectual property expertise in the publishing industry, submitted a different kind  of brief. He was not a fan of the government’s case but, whatever his antitrust chops, he did have a sense of humour. His submission to Judge Cote came as a five-page comic strip (Figure 2) and, though the brief criticised the government, it did provide light relief among the government trial team – especially when trying to figure out who exactly the lawyer pointing at Judge Cote resembled.


The e-books decision benefited consumers in clear and meaningful ways. Most directly, the settlement with publishers helped state attorneys general and private plaintiffs secure over $400 million in direct refunds from the publishers  to those who were wrongfully forced to pay higher prices. These refunds did not require filling out any forms or jumping through hoops; they were directly credited to consumers’ accounts with Amazon, Barnes & Noble and Apple. But the underlying principles reflected in the government’s decision to challenge the publishers and Apple, and the reinforcement of those principles by winning the litigation, are at least as important as the publisher refunds. The Antitrust Division demonstrated once again that it will take on the largest, most powerful corporate interests when the consumer welfare objectives of the antitrust laws demand it. It demonstrated that the 125-year-old Sherman Act remains, as the Supreme Court once described it, the Magna Carta of the free enterprise system. The Sherman Act is a charter of economic liberty that applies in the digital age as it did in the industrial age, and it continues to guarantee the benefits of competition in our modern economy.


  1. United States v. Apple, Inc., 952 F.Supp. 2d 638, 647 (S.D.N.Y. 2013).
United States v. Apple, Inc., 791 F.3d 290 (2d Cir. 2015).
  2. In re Sulfuric Acid Antitrust Litig., 703 F.3d 1004 (7th Cir. 2012).
  3. See Apple, 952 F.Supp. 2d at 657.
  4. Id. at 655-58.
  5. Leegin Creative Leather Prods., Inc. v. PSKS, Inc., 551 U.S. 877, 885 (2007).
  6. 359 U.S. 207, 212-213 (1959).
  7. 384 U.S. 127, 145 (1966).
  8. Toys “R” Us, Inc. v. FTC, 221 F.3d 928, 932 (2000).
  9. Apple cert. petition at 19.
  10. Brief of Economists as Amici Curiae in Support of Petitioner, at 14.
  11. In re Sulfuric Acid, 703 F.3d at 1007.
  12. United States v. Apple, Inc., 791 F.3d 290, 340 (2d Cir. 2015) (Jacob, J. dissenting).
  13. Brooke Group Ltd. v. Brown & Williamson Tobacco Corp., 509 U.S. 209 (1993).

Unlock unlimited access to all Global Competition Review content