Unites States of America v. Apple, Inc. et al
OPINION AND ORDER re: #102322 88 MOTION for Entry of Judgment under Rule 54(b) and §15 U.S.C. 16(b)-(h), filed by Unites States of America. Plaintiff the United States of America (the "Government") brings this civil antitrust action against defendants Apple, Inc. (Apple); Hachette Book Group, Inc. (Hachette); HarperCollins Publishers L.L.C. (HarperCollins); Verlagsgruppe Georg Von Holtzbrinck GMBH and Holtzbrinck Publishers, LLC d/b/a MacMillan (collectively, MacMillan); The Penguin Group, a division of Pearson PLC and Penguin Group (USA), Inc. (collectively, Penguin); and Simon & Schuster, Inc. (Simon & Schuster). The Government has moved for entry of a proposed Final Judgment with respect to defendants Hachette, HarperCollins, and Simon & Schuster (the Settling Defendants), pursuant to the Antitrust Procedures and Penalties Act, 15 U.S.C. § 16(b)-(h) (the APPA or Tunney Act). For the following reasons, the motion for entry of Final Judgment is granted. The Government's August 3, 2012 motion for entry of the proposed Final Judgment is granted. (Signed by Judge Denise L. Cote on 9/5/2012) (ja) Modified on 9/6/2012 (ad). Modified on 9/11/2012 (jab).
UNITED STATES DISTRICT COURT
SOUTHERN DISTRICT OF NEW YORK
UNITED STATES OF AMERICA,
APPLE, INC., et al.,
12 Civ. 2826 (DLC)
OPINION & ORDER
For plaintiff the United States:
Mark W. Ryan
Stephanie A. Fleming
Lawrence E. Buterman
Laura B. Collins
United States Department of Justice
450 Fifth Street, N.W., Suite 4000
Washington, DC 20530
For defendants Penguin Group (USA), Inc. and The Penguin Group:
Daniel F. McInnis
David A. Donohoe
Akin Gump Strauss Hauer & Feld, LLP
1333 New Hampshire Ave., NW
Washington, DC 20036
For defendant Apple, Inc.:
Omelveny & Myers LLP
1625 Eye Street
Washington, D.C. 20006
Andrew J. Frackman
Edward N. Moss
Omelveny & Myers LLP
7 Times Square New York, NY 10036
Daniel S. Floyd
Daniel G. Swanson
Gibson Dunn & Crutcher LLP
333 South Grand Ave.
Los Angeles California
For defendant Holtzbrinck Publishers, LLC d/b/a MacMillan:
Joel M. Mitnick
John J. Lavelle
Sidley Austin LLP
787 Seventh Ave.
New York, NY 10019
For amici curiae American Booksellers Association and Barnes &
David N. Wynn
Arent Fox LLP
New York, NY 10019
Arent Fox LLP
1050 Connecticut Ave. NW
Washington, DC 20036
Stephen G. Larson
Arent Fox LLP
555 West Fifth St., 48th Floor
Los Angeles, CA
For amicus curiae The Authors Guild, Inc.:
Jan Friedman Levien
Paul D. Aiken
31 East 32nd Street, 7th Floor
New York, New York 10016-5509
For amicus curiae Bob Kohn:
140 E. 28th St.
New York, NY 10016
18400 Von Karman Ave., Suite 800
Irvine, California 92612-0514
DENISE COTE, District Judge:
Plaintiff the United States of America (the “Government”)
brings this civil antitrust action against defendants Apple,
Inc. (“Apple”); Hachette Book Group, Inc. (“Hachette”);
HarperCollins Publishers L.L.C. (“HarperCollins”); Verlagsgruppe
Georg Von Holtzbrinck GMBH and Holtzbrinck Publishers, LLC d/b/a
MacMillan (collectively, “MacMillan”); The Penguin Group, a
division of Pearson PLC and Penguin Group (USA), Inc.
(collectively, “Penguin”); and Simon & Schuster, Inc. (“Simon &
The Government has moved for entry of a proposed
Final Judgment with respect to defendants Hachette,
HarperCollins, and Simon & Schuster (the “Settling Defendants”),
pursuant to the Antitrust Procedures and Penalties Act, 15
U.S.C. § 16(b)-(h) (the “APPA” or “Tunney Act”).
following reasons, the motion for entry of Final Judgment is
Unless otherwise noted, the facts and allegations recounted
below are taken from the Government’s complaint (“Complaint”)
and Competitive Impact Statement (“CIS”).
engages in a number of businesses, but as relevant here it sells
the iPad tablet device and distributes “e-books” through its
E-books are books that are sold to consumers in
electronic form, and that can and must be read on an electronic
device such as the iPad, the Barnes & Noble, Inc. (“Barnes &
Noble”) Nook, or the Amazon.com, Inc. (“Amazon”) Kindle.
of the other five defendants (the “Publisher Defendants”)
publishes both e-books and print books.
They represent five of
the six largest publishers of “trade” books in the United
Broadly speaking, the Complaint alleges that the
defendants conspired to raise, fix, and stabilize the retail
price for newly-released and bestselling trade e-books, to end
retail price competition among trade e-books retailers, and to
limit retail price competition among the Publisher Defendants in
violation of Section 1 of the Sherman Antitrust Act.
In 2007, Amazon launched its Kindle device and quickly
became the market leader in the sale of e-books.
utilized a discount pricing strategy whereby it charged $9.99
for newly released and bestselling e-books.
Even though the
Trade books consist of general interest fiction and non-fiction
books. They are to be distinguished from “non-trade” books such
as children’s picture books, academic textbooks, reference
materials, and other texts.
$9.99 retail price point was close to the wholesale price at
which Amazon purchased many e-books, the Complaint alleges that
Amazon’s e-books business was “consistently profitable.”2
order to compete with Amazon, other e-books retailers also
adopted a $9.99 retail price for many titles.
The defendants’ conspiracy to raise, fix, and stabilize ebooks prices allegedly began no later than September 2008, when
the Publisher Defendants’ CEOs began to meet to discuss the
growth of e-books and the role of Amazon in that growth.
According to the Complaint, a central topic of discussion at
these meetings was Amazon’s discount pricing strategy, or what
the CEOs termed “the $9.99 problem.”
The Publisher Defendants feared that the $9.99 price point
would have a number of pernicious effects on their short- and
In the short-term, they believed the price
point was eating into sales of hardcover print books, which were
often priced at thirty dollars or higher.
Over the long-term,
they feared that consumers would grow accustomed to purchasing
e-books at $9.99, that Amazon and other retailers would start to
demand lower wholesale prices for e-books, that the $9.99 price
point would erode hardcover book prices, that the rapid growth
in e-books would threaten the survival of brick-and-mortar
The non-settling defendants and a number of the public comments
contend that the $9.99 price point was below the wholesale price
Amazon paid for many e-books.
bookstores (the Publisher Defendants’ preferred distributors),
and that Amazon and other e-books retailers might enter the
publishing industry and compete with the Publisher Defendants
According to the Complaint, the Publisher Defendants
determined that they needed to act collectively to force Amazon
to abandon its discount pricing model.
In late 2009, the Publisher Defendants began discussions
with Apple about the upcoming launch of Apple’s iPad tablet
device, scheduled to occur in January 2010, and whether Apple
would sell e-books that could be read on the new device.
the course of these discussions, the Publisher Defendants
allegedly communicated competitively sensitive information to
each other, and Apple allegedly helped transmit messages among
According to the Government, the defendants soon realized
that they shared an interest in limiting retail price
competition for e-books.
Apple did not want to compete with
Amazon’s $9.99 price point and the associated low margins on ebook sales; the Publisher Defendants did not want low e-books
prices for the reasons addressed above.
allegedly agreed, together, to switch to a new sales model for
e-books known as the “agency model.”
In fact, Amazon announced in January 2010 that it would be
entering the publishing industry.
Previously, the Publisher Defendants sold e-books using the
“wholesale model,” meaning they sold titles to retailers at a
wholesale price or discount off the price listed on the physical
edition of the book or “list price.”
Retailers were then free
to sell titles to consumers at retail prices of their choosing.
Under the agency model, by contrast, retailers never purchase
titles from publishers; rather, publishers sell titles to
consumers directly at prices set by the publishers with
retailers serving as the publishers’ “agents” and receiving a
percentage of each sale as commission.
The Publisher Defendants signed functionally-identical
agreements with Apple from January 24–26, 2010 (the “Agency
Agreements”), just in time for Apple’s January 27 media event
announcing the iPad.
The Agency Agreements shared three main
1. Established that the Publisher Defendant would sell e-books
through Apple’s iBookstore using the agency model, with
Apple receiving a thirty percent commission on each sale;
2. Included a price-based “most-favored nation” (“MFN”)
clause, according to which the price for any e-book sold in
Apple’s iBookstore would be no higher than the price for
that e-book at any other e-book retail store; if an e-book
was sold for less at a competing store, the price at the
iBookstore would drop automatically to match it; and
3. Established pricing tiers -- ostensibly price maximums but
in reality actual prices -- that tied the price of newly
released and bestselling e-books to the price of their
corresponding hardcover print editions; these pricing tiers
resulted in prices of $12.99 or $14.99 for most newly
released and bestselling e-books.
According to the Complaint, the above features were intended to
operate in tandem.
Together, they ensured that the Publisher
Defendants would sell their e-books exclusively through the
agency model and that prices for their newly released and
bestselling e-books would rise to the levels specified by the
The Complaint further alleges that the Agency
Agreements did not result from separate negotiations between
Apple and each Publisher Defendant.
Rather, the defendants
agreed that each Publisher Defendant would sign an Agency
Agreement with Apple only if a critical mass of other publishers
By April 2010, when the iPad hit stores, the Publisher
Defendants had reached agreements with all major e-books
retailers to sell exclusively through the agency model.
According to the Government, this effectively ended retail
competition for the Publisher Defendants’ e-books and resulted
in higher prices: the average price for Publisher Defendants’ ebooks became fixed at the inflated levels specified in the
Agency Agreements, and increased by over ten percent between the
summer of 2009 and the summer of 2010.
The Government contends that the defendants’ conspiracy and
agreement constituted a per se violation of Section 1 of the
Critics of the proposed Final Judgment contend that prices for
many e-books actually went down under the agency model.
Sherman Act, 15 U.S.C. § 1, and that no allegations with respect
to the relevant product market, geographic market, or market
power are required.
To the extent such allegations are
necessary, however, the Complaint alleges that the relevant
product market is trade e-books, the relevant geographic market
is the United States, and the Publisher Defendants possess
market power in the market for trade e-books.
The Proposed Final Judgment
The proposed Final Judgment imposes the following
obligations on the Settling Defendants:
1. They must terminate their Agency Agreements with Apple
within seven days after entry of the proposed Final
Judgment. See Proposed Final Judgment § IV.A.
2. They must terminate those contracts with e-book retailers
that contain either a) a restriction on the e-book
retailer’s ability to set the retail price of any e-book,
or b) a “Price MFN,” as defined in the proposed Final
Judgment,5 as soon as each contract permits starting thirty
days after entry of the proposed Final Judgment. See id.
at § IV.B.
3. For at least two years, they may not agree to any new
contract with an e-book retailer that restricts the
retailer’s discretion over e-book pricing. See id. at §
4. For at least five years, they may not enter into an
agreement with an e-book retailer that includes a Price
MFN. See id. at § V.C.
The proposed Final Judgment defines this term broadly so as to
include not only MFNs related to retail price, as found in the
Agency Agreements, but also MFNs related to wholesale prices and
revenue shares or commissions. See id. at § II.M.
In addition, the proposed Final Judgment imposes prohibitions on
retaliating against e-book retailers based on the retailer’s ebook prices, see id. at § V.D., agreeing to raise or set e-book
retail prices, see id. at § V.E, and conveying confidential or
competitively sensitive information to other e-book publishers.
See id. at § V.F.
It also establishes notification and
reporting requirements: each Settling Defendant must notify DOJ
before forming or modifying a joint venture between it and
another publisher related to e-books, see id. at § IV.C, must
provide to DOJ each e-book agreement entered into with any ebook retailer on or after January 1, 2012, and must continue to
provide those agreements to DOJ on a quarterly basis.
at § IV.D.
The proposed Final Judgment expressly permits certain
The Settling Defendants may compensate retailers
for promotional services that they provide to publishers or
consumers, see id. at § VI.A, and may enter into contracts with
e-book retailers that prevent the retailer from selling a
Settling Defendant’s e-books at a cumulative loss over the
course of one year.
See id. at § VI.B.
Finally, the proposed
Final Judgment requires each Settling Defendant to appoint an
Antitrust Compliance Officer who will engage in certain
antitrust awareness, training, certification, auditing,
remedial, and reporting functions.
See id. at § VII.
III. Procedural History
The procedure governing acceptance of the proposed Final
Judgment is set forth in Section 2(b) of the Tunney Act.
U.S.C. § 16(b)-(h).
The Government and the Settling Defendants
stipulated that the proposed Final Judgment may be entered after
compliance with these Tunney Act requirements.
Pursuant to this
procedure, the Government filed the Complaint on April 11, 2012
and submitted the proposed Final Judgment and CIS, which invited
public comment on the proposed Final Judgment, that same day.
The Government published summaries of these documents and
directions for submitting written comments in The New York Post
and The Washington Post for seven days beginning on April 20.
The Government also published these documents in the Federal
Register on April 24, see United States v. Apple, et al., 77 Fed
Reg. 24518, and on the Department of Justice Antitrust Division
website, and furnished them to all persons requesting them.
The 60-day public comment period ended on June 25.
comments from the public were timely submitted.
filed its Response to the public comments (the “Response”) on
July 23, and moved for entry of the proposed Final Judgment on
By Memorandum Opinion & Order of August 6, the Court
permitted non-parties Barnes & Noble and the American
Booksellers Association, Inc. (“ABA”) to file a reply to the
Government’s Response as amici curiae.
The motion for entry of
the proposed Final Judgment was fully submitted on August 22.
By Order of August 28, the Court permitted non-parties the
Authors Guild, Inc. (the “Authors Guild”) and Bob Kohn (“Kohn”)
to file amicus briefs.
The Authors Guild’s submission was
accepted on August 28; Kohn’s submission was received on
On September 5, the Court docketed and filed a
supplemental letter from Simon Lipskar (“Lipskar”), which had
been received on August 14.
Pursuant to a June 25 Scheduling
Order, a trial as to the non-settling defendants is to begin on
June 3, 2013.
On August 29, 49 states and five territories submitted a
motion for preliminary approval of settlements as to the
Settling Defendants in a related parens patriae action for
damages and injunctive relief on behalf of e-books consumers.
The settlement in this related action would provide $70.28
million in compensation to consumers who purchased e-books from
the Settling Defendants.
Standard of Review Under the Tunney Act
Prior to entry of a proposed final judgment brought by the
Government in an antitrust case, the Tunney Act requires a court
to determine that entry is “in the public interest.”
§ 16(e)(1); see also United States v. Int’l Bus. Mach. Corp.,
163 F.3d 737, 740 (2d Cir. 1998).
Although the statute does not
define the phrase “in the public interest,” it directs courts to
consider the following factors in making their public interest
(A) the competitive impact of such judgment, including
termination of alleged violations, provisions for
enforcement and modification, duration of relief
sought, anticipated effects of alternative remedies
actually considered, whether its terms are ambiguous,
and any other competitive considerations bearing upon
the adequacy of such judgment that the court deems
necessary to a determination of whether the consent
judgment is in the public interest; and
(B) the impact of entry of such judgment upon
competition in the relevant market or markets, upon
the public generally and individuals alleging specific
injury from the violations set forth in the complaint
including consideration of the public benefit, if any,
to be derived from a determination of the issues at
15 U.S.C. § 16(e)(1).
The Tunney Act allows, but does not
require, the court to conduct an evidentiary hearing and to
permit third parties to intervene.
See 15 U.S.C. § 16(e)(2),
Congress intended the Tunney Act to “prevent judicial
rubber stamping of proposed Government consent decrees,” but
“the court’s role in making the public interest determination is
United States v. Keyspan Corp., 763 F.
Supp. 2d 633, 637 (S.D.N.Y. 2011) (citation omitted); see also
United States v. Microsoft Corp., 56 F.3d 1448, 1458, 1460 (D.C.
When assessing a consent decree, a court should
consider the relationship between the complaint and the remedy
secured, the decree’s clarity, whether there are any foreseeable
difficulties in implementation, and whether the decree might
positively injure third parties.
See Microsoft, 56 F.3d at
The role of the court is not to determine
whether the decree results in the array of rights and
liabilities “that will best serve society, but only to ensure
that the resulting settlement is within the reaches of the
Keyspan, 763 F. Supp. 2d at 637 (citation
In making this determination, the court “is not
permitted to reject the proposed remedies merely because the
court believes other remedies are preferable.”
court should be “deferential to the government’s predictions as
to the effect of the proposed remedies.”
Microsoft, 56 F.3d at
As such, the relevant inquiry is whether the Government
has established an ample “factual foundation for [its] decisions
such that its conclusions regarding the proposed settlement are
Keyspan, 763 F. Supp. 2d at 637-38 (citation
In most cases, the court is not permitted to “reach beyond
the complaint to evaluate claims that the government did not
make and to inquire as to why they were not made.”
56 F.3d at 1459; see also United States v. BNS Inc., 858 F.2d
456, 462-63 (9th Cir. 1988) (“[T]he APPA does not authorize a
district court to base its public interest determination on
antitrust concerns in markets other than those alleged in the
Pursuant to certain amendments to
the Tunney Act enacted in 2004, however, a court may reject a
decree due to antitrust matters outside the scope of the
complaint if, and only if, the complaint underlying the decree
is drafted so narrowly such that its entry would appear “to make
a mockery of judicial power.”
United States v. SBC Commc’ns,
Inc., 489 F. Supp. 2d 1, 14 (D.D.C. 2007); see also Microsoft,
56 F. 3d at 1462.6
Regardless, the court must “give due respect
to the government’s perception of its case.”
Keyspan, 763 F.
Supp. 2d at 638 (citation omitted); cf. BNS, 858 F.2d at 466
The 2004 amendments to the Tunney Act substituted the word
“shall” for “may” in instructing courts to consider the
enumerated factors in making their public interest
determinations, added and amended certain of these factors, and
included a set of Congressional findings. See Antitrust
Criminal Penalty Enhancement and Reform Act of 2004, Pub. L. No.
108–237, § 221(b)(2) (codified at 15 U.S.C. § 16). In its
findings, Congress stated as follows:
[T]he purpose of the Tunney Act was to ensure that the
entry of antitrust consent judgments is in the public
interest; and  it would misconstrue the meaning and
Congressional intent in enacting the Tunney Act to
limit the discretion of district courts to review
antitrust consent judgments solely to determining
whether entry of those consent judgments would make a
“mockery of the judicial function”.  The purpose of
this section is to effectuate the original
Congressional intent in enacting the Tunney Act and to
ensure that United States settlements of civil
antitrust suits are in the public interest.
Id. § 221(a)(1).
(“[P]rosecutorial functions vested solely in the executive
branch could be undermined by the improper use of the APPA as an
antitrust oversight provision.”).
Entry of the proposed Final Judgment is appropriate
pursuant to the standard outlined above.
The proposed judgment
secures a remedy that is closely related to the violations
alleged in the Complaint.
Whereas the Complaint alleges
unlawful communications and industry collusion that gave rise to
a series of agreements designed to ensure defendants’ use of
agency pricing for e-books, the proposed Final Judgment
disallows such communications and unravels both the Agency
Agreements and agreements with other e-book retailers
implementing the broader shift to agency pricing.
effectively disallowing the Settling Defendants from using the
agency model for at least two years,7 subject to limited
exceptions, and from using Price MFNs for at least five, the
proposed Final Judgment appears reasonably calculated to restore
retail price competition to the market for trade e-books, to
return prices to their competitive level, and to benefit e-books
The Government and critics of the settlement dispute whether
the decree effectively disallows agency pricing and therefore
dictates a particular business model. The Court states no
opinion on this issue as it is largely semantic and irrelevant
to the disposition of this matter. The terms of the decree
speak for themselves: they disallow restrictions on retail
discounting for two years subject to certain limited exceptions.
consumers and the public generally, at least as to the
competitive harms alleged in the Complaint.
The two year limitation on retail price restraints and the
five year limitation on Price MFNs appear wholly appropriate
given the Settling Defendants’ alleged abuse of such provisions
in the Agency Agreements, the Government’s recognition that such
terms are not intrinsically unlawful, and the nascent state of
competition in the e-books industry.
The Government reasonably
describes these time-limited provisions as providing a “coolingoff period” for the e-books industry that will allow it to
return to a competitive state free from the impact of
defendants’ collusive behavior.
The time limits on these
provisions suggest that they will not unduly dictate the
ultimate contours of competition within the e-books industry as
it develops over time.
The decree clearly outlines the parties’ rights and
obligations, and none of its terms are overly ambiguous or
suggest any foreseeable difficulties in implementation.
decree contains appropriate enforcement provisions; it also
directs the Court to retain jurisdiction over this action such
that the parties may apply for modification of the decree if
necessary or appropriate.
Although the Government reports that
it considered alternative remedies such as proceeding to trial
or implementing proposals that would have provided less relief
than is contained in the proposed Final Judgment, the Government
concluded, reasonably, that entry of the proposed Final Judgment
would more quickly restore retail price competition to consumers
than a trial.
The Complaint and CIS provide a sufficient factual
foundation as to the existence of a conspiracy to raise, fix,
and stabilize the retail price for newly-released and
bestselling trade e-books, to end retail price competition among
trade e-books retailers, and to limit retail price competition
among the Publisher Defendants.
Although the Government did not
submit any economic studies to support its allegations, such
studies are unnecessary.
The Complaint alleges a
straightforward, horizontal price-fixing conspiracy, which is
per se unlawful under the Sherman Act.
See Leegin Creative
Leather Prods., Inc. v. PSKS, Inc., 551 U.S. 877, 893 (2007).
The Complaint also details the defendants’ public statements,
conversations, and meetings as evidence of the existence of the
The decree is directed narrowly towards undoing the
price-fixing conspiracy, ensuring that price-fixing does not
immediately reemerge, and ensuring compliance.
Based on the
factual allegations in the Complaint and CIS, it is reasonable
to conclude that these remedies will result in a return to the
pre-conspiracy status quo.
In this straightforward price-fixing
case, no further showing is required.
It is not necessary to hold an evidentiary hearing before
approving the decree.
Given the voluminous submissions from the
public and the non-settling parties, which describe and debate
the nature of the alleged collusion and the wisdom and likely
impact of settlement terms in great detail, as well as the
detailed factual allegations in the Complaint, the Court is
well-equipped to rule on these matters.
A hearing would serve
only to delay the proceedings unnecessarily.
The Public Comments and Opposition Briefs
The Public Comments on the proposed Final Judgment were
both voluminous and overwhelmingly negative.
More than 90
percent of the 868 comments opposed entry of the proposed Final
Some comments were filled with extreme statements,
blaming every evil to befall publishing on Amazon’s $9.99 price
for newly released and bestselling e-books, and crediting every
positive event -- including entry of new competitors in the
market for e-readers -- on the advent of agency pricing.
comments were very thoughtful.
They do not condone collusive
price-fixing but seek to predict whether the consumer will be
harmed or benefited from a suspension of the agency model for a
two year period.
Many comments were submitted by third parties alleging that
they would suffer significant harm if the judgment is entered.
Other comments caution that the decree will positively harm e19
books consumers, or damage the marketplace of ideas and
Comments were received from a variety of
interested individuals, companies, and industry groups,
including booksellers, authors, literary agents, publishing
consultants, a consumer activist group, and consumers
In addition, defendants Penguin, MacMillan, and
Apple, as well as non-parties Barnes & Noble, the ABA, the
Authors Guild, and RoyaltyShare, Inc. Chairman and CEO Bob Kohn
(“Kohn”) submitted briefs in opposition to entry of the proposed
Final Judgment after the close of the 60-day comment period.
In cases where third parties allege that they will suffer
harm, at least one circuit has cautioned that a court “might
well hesitate before assuming that the decree is appropriate.”
Microsoft, 56 F.3d at 1462.
Given the sheer volume of comments
opposing entry of the proposed Final Judgment and the
significant harm that these comments fear may result, hesitation
is clearly appropriate in this case.
And there can be no
denying the importance of books and authors in the quest for
human knowledge and creative expression, and in supporting a
free and prosperous society.
To quote Emily Dickinson:
There is no Frigate like a Book
To take us Lands away,
Nor any Coursers like a Page
Of prancing Poetry -This Traverse may the poorest take
Without oppress of Toll -How frugal is the Chariot
That bears a Human soul.
Emily Dickinson, “There is no Frigate like a Book (1263),” The
Complete Poems of Emily Dickinson (Thomas H. Johnson ed., 1976),
available at http://www.poets.org/viewmedia.php/prmMID/19730.
Clearly, this is no ordinary Tunney Act proceeding.
purpose in enacting the Tunney Act to “prevent judicial rubber
stamping of proposed Government consent decrees” seems
particularly apropos in these circumstances.
Keyspan, 763 F.
Supp. 2d at 637 (citation omitted).
It is not practical, however, to address every argument
raised in the public comments and opposition briefs.
speaking, the comments in favor of the decree mirrored arguments
presented by the Government.
They argued that the proposed
Final Judgment will promote retail competition and benefit
consumers by allowing for lower, competitive e-books prices.
number of comments further argued that the decree will benefit
industry stakeholders, like authors, by increasing their royalty
payments and facilitating self-publishing.
claimed that the decree would be more effective if its timelimited provisions lasted longer, but nonetheless supported its
Overall, the negative comments leveled four categories of
criticism at the proposed Final Judgment.
First, they expressed
concern that the proposed Final Judgment would actively harm
third-party industry stakeholders, such as brick-and-mortar
bookstores, e-book retailers, independent publishing houses, and
Second, they argued that the decree itself is
unworkable, goes too far in disallowing practices held to be
legal under the antitrust laws, and involves DOJ in “regulation”
of the e-books market.
Third, they questioned whether the
Government has established a sufficient factual basis for its
conclusions regarding the competitive impact of the decree.
Fourth, they alleged that defendants’ collusive behavior had
substantial pro-competitive effects through, among other things,
limiting the negative impact of Amazon’s monopoly; these
comments contend that the decree is not in the public interest
because it will facilitate retrenchment of Amazon’s monopoly
These four categories of criticism will be addressed
Harm to Third Parties
Many comments suggest that the proposed Final Judgment will
enact substantial and irreversible harm on third-party industry
For example, Barnes & Noble claims that the
decree will declare “null and void” its agency contracts with
the Settling Defendants and reduce its margins on e-books sales.
The ABA similarly claims that the decree will harm ABA member
booksellers by abrogating their e-books agency contracts,
including those with Google, Inc. (“Google”), which were
negotiated after April 2012.
Barnes & Noble, Books-a-Million,
and the ABA, among others, fear that the decree will decimate
brick-and-mortar and specialty bookstores by permitting Amazon
to return to its discount pricing strategy.
The broader fear is
that a loss in diversity of physical bookstores will damage the
entire “literary ecosystem,” as the Authors Guild terms it, and
decrease the diversity of titles and authors to which consumers
Many comments further note that brick-and-mortar bookstores
effectively provide free advertising or promotional services to
online retailers like Amazon by serving as physical showrooms
for books, and that Amazon often avoids paying state sales tax.
The implication is that agency pricing provided brick-and-mortar
bookstores with much-needed compensation for these services and
is therefore justified.
To the extent harm to industry stakeholders like bookstores
will result from the elimination of anticompetitive, collusive
practices and a return to competition in the e-books retail
market, this is not the type of harm that the Sherman Act is
designed to prevent.
“The purpose of the Sherman Act is not to
protect businesses from the working of the market; it is to
protect the public from the failure of the market.”
Machines, 163 F.3d at 741-42.
If unfettered e-books retail
competition will add substantially to the competitive pressures
on physical bookstores, or if smaller e-book retailers are
unable to compete with Amazon on price, these are not reasons to
decline to enter the proposed Final Judgment.
The text of the
Tunney Act directs courts to consider the impact of a consent
decree “upon competition in the relevant market or markets, upon
the public generally and individuals alleging specific injury
from the violations set forth in the complaint”; it does not
require the Court to protect special interests from the impact
of the decree.
15 U.S.C. § 16(e)(1).
In this case, the
“individuals alleging specific injury from the violations set
forth in the complaint” are e-books consumers, not third-party
stakeholders like brick-and-mortar bookstores.
And although the
birth of a new industry is always unsettling, there is a limited
ability for anyone to foresee how the market will evolve.
is clear, however, is the need for industry players to play by
the antitrust rules when confronted with new market forces.
is not the place of the Court to protect these bookstores and
other stakeholders from the vicissitudes of a competitive
Moreover, the consent decree does not declare “void” the
Settling Defendants’ contracts with Barnes & Noble, or ABA
member booksellers’ contracts with Google or anyone else.
Rather, the decree requires the Setting Defendants to terminate
contracts with e-book retailers that contain retail price
restrictions and Price MFNs according to the termination
provisions of the relevant contracts themselves.
Final Judgment § IV.B.
In short, the decree merely enjoins the
Settling Defendants to act in accordance with their bargainedfor contractual rights.8
And the decree in no way impacts
contracts between publishers and other e-book retailers besides
the Settling Defendants, such as Google.
As to Amazon’s alleged free-riding, the decree expressly
permits the Settling Defendants to compensate brick-and-mortar
bookstores directly for promotional services that they provide
to publishers or consumers.
See id. at § VI.A.
Defendants should be willing to pay for these services if they
truly value them.
Regardless, Amazon’s alleged free-riding in
no way justifies subsidizing brick-and-mortar bookstores by
virtue of an e-books price-fixing conspiracy.
See United States
v. Socony-Vacuum Oil Co., 310 U.S. 150, 221-22 (1940)
(“[Congress] has no more allowed genuine or fancied competitive
abuses as a legal justification for [price-fixing] schemes than
it has the good intentions of the members of the combination.”).
If such subsidies are critical to publishers, then it is up to
them to provide the subsidies in a lawful manner.
meantime, under the Sherman Act all industries are subject to “a
This is not the case as to the Settling Defendants’ Agency
Agreements with Apple. Apple’s contractual rights are discussed
in detail below.
legislative judgment that ultimately competition will produce
not only lower prices, but also better goods and services.”
Nat'l Soc. of Prof'l Engineers v. U. S., 435 U.S. 679, 695
Breadth and Functionality of the Decree
Many comments suggest that the consent decree is overbroad
and cannot be implemented effectively.
The central objection is
that the decree seeks not merely to redress the violations
alleged in the Complaint, but to reshape the e-books market as a
whole by restricting certain practices that are wholly legal and
proper, and by improperly involving DOJ in the “regulation” of a
new and growing industry.
Barnes & Noble, for example, notes
that a number of elements in the consent decree go beyond the
remedies sought in the Complaint, and suggests that the decree
should simply enjoin collusion and punish the alleged colluders
rather than compelling the Settling Defendants to terminate
their contracts with third-party retailers.
Apple argues that
the decree should do no more than preclude the Settling
Defendants from coercing retailers to adopt the agency model,
since this is what the Complaint alleges that the defendants did
Moreover, none of the public comments explain why the evils of
Amazon’s alleged free-riding are limited to e-books. It appears
that consumers can just as easily find a title through browsing
in a bookstore and then buy a physical book online from Amazon
as they can browse in a bookstore and then purchase an e-book
from the Kindle Store. The same is true for the allegations as
to sales tax avoidance.
as to Amazon.
A variety of comments note that neither agency
agreements nor vertical price restraints are necessarily
disallowed under the antitrust laws.
On this latter point of law, at least, these comments are
See Leegin, 551 U.S. at 882 (holding
vertical price restraints subject to the rule of reason); United
States v. Gen. Elec. Co., 272 U.S. 476, 488 (1926) (genuine
contracts of agency are not antitrust violations).
beside the point.
But this is
The Complaint alleges not merely that the
defendants signed contracts of agency and utilized Price MFNs,
but that they used these tools together in furtherance of a
horizontal price-fixing conspiracy.
Moreover, the Tunney Act does not require a one-to-one
correspondence between the relief requested in the Complaint and
the elements of a decree.
A court “may not require that the
remedies perfectly match the alleged violations.”
489 F. Supp. 2d at 17.
Although elements of a Sherman Act
decree may “involve the judiciary so deeply in the daily
operation of [a] nation-wide business and promise such dubious
benefits that [they] should not be undertaken,” United States v.
Paramount Pictures, 334 U.S. 131, 162 (1948), a decree may
nonetheless prohibit acts that are “entirely proper when viewed
United States v. U.S. Gypsum Co., 340 U.S. 76, 89
Relief “may range broadly through practices connected
with acts actually found to be illegal.”
Id.; see also Nat'l
Soc. of Prof'l Engineers, 435 U.S. at 697 (“Having found the
[defendant] guilty of a violation of the Sherman Act, the
District Court was empowered to fashion appropriate restraints
on the [defendant’s] future activities both to avoid a
recurrence of the violation and to eliminate its
consequences.”); Paramount Pictures, 334 U.S. at 149 (upholding
dissolution of agreements used in collusion and injunction
against future arrangements “of that character”).10
Here, the Complaint makes out a conspiracy claim based on
the combination of the defendants’ collusive behavior, the use
of Price MFNs, and the coordinated switch to the agency model.
It does not attack any one of these elements in isolation.
consent decree therefore properly restricts defendants’
activities with respect to each of these elements of the
conspiracy, with an eye to ending the price-fixing and
preventing its recurrence.
See Gypsum, 340 U.S. at 89 (“The
conspirators should, so far as practicable, be denied future
Although U.S. Gypsum Co., Nat'l Soc. of Prof'l Engineers, and
Paramount Pictures involve decrees entered after trial, a court
generally has broader discretion to approve a proposed Final
Judgment resulting from a settlement among the parties than it
has in fashioning a remedy on its own. See United States v. Am.
Tel. & Tel. Co., 552 F. Supp. 131, 151 (D.D.C. 1982) (“[A]
proposed decree must be approved even if it falls short of the
remedy the court would impose on its own, as long as it falls
within the range of acceptability or is within the reaches of
public interest.” (citation omitted)).
benefits from their forbidden conduct.”).
The decree is
strictly limited in time (to two or five years for bans on
retail discounting restrictions and Price MFNs, respectively)
and by party (to the Settling Defendants).11
It cannot be fairly
characterized as either overbroad or over-“regulatory.”12
A number of comments, such as Barnes & Nobles’, Apple’s,
and the Independent Book Publishers’, claim that section VI.B of
the proposed Final Judgment is unenforceable.
above, this provision permits the Settling Defendants to enter
into contracts with e-book retailers that prevent the retailer
from selling a Settling Defendant’s e-books at a cumulative loss
Despite the limited nature of the Government’s requested
relief, there can be no denying the true passion reflected in
many of the public comments opposing the decree’s two-year ban
on retail discounting restrictions. It may be that unspoken by
all parties, including the Government, is an acknowledgment that
no single publisher will likely have either the will or the
ability to maintain agency pricing absent a critical mass of
other publishers doing the same. See In re Elec. Books
Antitrust Litig., 11 MD 2293 DLC, 2012 WL 1946759, at *12
(S.D.N.Y. May 15, 2012) (“[F]rom the publishers' perspective,
the switch to the agency model had the hallmarks of a classic
collective action problem.”). In other words, even through the
relief in the decree is both well-tethered to the Complaint and
narrow, it may nonetheless effectively end agency pricing for ebooks.
The National Association of College Stores (“NACS”) expressed
concern that, even though the Complaint defines the relevant
market as “trade e-books,” the decree does not limit its
remedies to this subset of the e-books market. NACS postulates
that the decree could therefore impact the market for “etextbooks,” and harm textbook publishers and retailers. As the
Government points out, however, none of the Settling Defendants
sell e-textbooks, and the Complaint itself makes it clear that
the term “e-books” in the context of this case encompasses trade
over the course of one year.
See Proposed Final Judgment, at
Apple further argues that the provision will unfairly
benefit Amazon, because Amazon’s larger annual sales means that
it can engage in more discounting.
Apple suggests that the
decree should instead limit discounting on a per unit basis.
The Government notes that it included this section in the
proposed Final Judgment at the behest of the Settling
Defendants, who were concerned about Amazon’s discounting
The provision is entirely voluntary.
if any Settling Defendant wishes to take advantage of the
provision it can do so by negotiating the requisite contractual
terms with e-books retailers, including provisions for
monitoring and enforcement.
As such, this section provides no
reason to deny entry of the decree.
Factual Basis for the Government’s Conclusions
Many of the comments and briefs contend that the Government
has not established a sufficient factual basis for its
conclusions regarding the decree.
Specifically, they note that
the Government has not presented any data showing that the
defendants’ alleged conspiracy actually resulted in higher ebooks prices.
Some suggest that the Complaint and CIS obfuscate
the distinction between prices for newly-released and
bestselling e-books, and average prices for e-books as a whole.
While the former may have increased due to adoption of the
agency model, so the argument goes, the latter might have stayed
the same or decreased because Amazon charged more than $9.99 for
many e-books under the wholesale model.
Barnes & Noble submits data that it claims show a decrease
in its average e-books prices since adoption of the agency
Lipskar, the President of Writers House LLC, a literary
agency, tries to make a similar showing with respect to Amazon’s
average e-books using publicly available data.
The ABA avers
that independent booksellers reported a two- to five-dollar
decrease in the average prices they paid per e-book unit
following adoption of the agency model.
Penguin submits data
showing that Amazon priced many new release Penguin e-books well
above $9.99 under the wholesale model, and the price ceilings in
the Agency Agreements resulted in lower prices for many titles.13
And a number of other booksellers, such Books-a-Million and the
Harvard Bookstore, claim that their e-books prices have
decreased since the advent of agency pricing.
The Government argues that the data from Barnes & Noble and
others is incomplete and, in any case, suggests either a decline
in a broader trend towards decreasing prices since the
introduction of agency pricing, or price increases. The
Government also presents an analysis of Amazon’s average retail
price for all Penguin e-books and new release Penguin e-books in
the months immediately before and after introduction of the
agency model, weighted by units sold. The Government contends
that this data shows an increase in Amazon’s average price for
The above critiques misconstrue both what the Government
has stated and what it is required to state.
The Tunney Act
requires that the Government provide the court with a CIS and
proposed consent judgment, as well as “any other materials and
documents which the United States considered determinative in
formulating” the proposed decree.
15 U.S.C. § 16(b).
Second Circuit has clarified that this provision requires
submission of only a “fairly narrow” subset of the documents
considered by the Government:
The use of the word “determinative” in Section 16(b)
rules out the claim to all the investigation and
settlement material, and confines § 16(b) at the most
to documents that are either “smoking guns” or the
exculpatory opposite. Indeed, were the law otherwise,
“determinative” would come to mean “relevant.”
United States v. Bleznak, 153 F.3d 16, 20 (2d Cir. 1998)
In evaluating the sufficiency of the
Government’s submissions, it is necessary only that the
submissions provide an ample “factual foundation for the
government’s decisions such that its conclusions regarding the
proposed settlement are reasonable.”
Keyspan, 763 F. Supp. 2d
at 637-38 (citation omitted).
The Government has more than met this minimal standard.
First, the Government has put forward detailed allegations as to
the existence of a conspiracy to counter Amazon’s discount
pricing strategy, or “the $9.99 problem.”
Second, it has
described the contents of the Agency Agreements, which are not
in dispute, explained how the pricing tiers in these agreements
determined actual prices for many newly-released and bestselling
e-books, and demonstrated how the agreements’ pricing tiers and
MFN provisions forced a broader switch to agency pricing.
Third, regardless of what happened to average e-books prices, it
is undisputed that the Agency Agreements disallowed retail price
After defendants’ coordinated switch to agency
pricing, a consumer could not find Publisher Defendants’ newlyreleased and bestselling e-books for $9.99 at any retailer.
Fourth and finally, the Government has further explained how the
proposed Final Judgment will end price-fixing and prevent its
recurrence by limiting the Settling Defendants’ ability to
collude, share information, and use retail price restrictions
and Price MFNs in contracts with e-books retailers.
these detailed allegations and explanations provide ample
factual foundation for the Government’s decisions regarding the
proposed Final Judgment.
Competitive Effects of Defendants’ Alleged Collusion
Perhaps the most forceful species of criticism leveled at
the decree is that it will have manifestly anticompetitive
The comments make a variety of arguments along these
lines; the gist of their critique, however, is that Amazon was a
monopolist engaged in predatory pricing and other
anticompetitive practices, defendants’ use of the agency model
reduced Amazon’s market share and capacity to engage in these
practices, and the consent decree will encourage a return to the
anticompetitive status quo.
The comments claim that Amazon was pricing e-books below
cost in order to cement its monopoly, and would eventually seek
to reap the rewards of this monopoly by inflating prices and
MacMillan, for one, claims that Amazon’s
below-cost pricing foreclosed any practical challenge to its 90
percent monopoly, and constituted the “willful maintenance” of a
monopoly in violation of the Sherman Act.
See United States v.
Grinnell Corp., 384 U.S. 563, 570-71 (1966) (“The offense of
monopoly under § 2 of the Sherman Act has two elements: (1) the
possession of monopoly power in the relevant market and (2) the
willful acquisition or maintenance of that power as
distinguished from growth or development as a consequence of a
superior product, business acumen, or historic accident.”).
Apple further claims that Amazon retaliates against publishers
that try to take advantage of Apple’s more advanced e-books
And the Authors Guild contends that Amazon often
removes the online “buy” buttons for titles from publishers that
do not agree to Amazon’s preconceived contract terms.
of comments complain about Amazon’s exclusive distribution
agreements with authors and broad contractual MFN clauses.
The comments further contend that agency pricing in the ebooks industry is pro-competitive.
Because the publishing
industry is less concentrated than the e-books retail industry,
situating price-setting authority with the publishers supposedly
Nothing in the Agency Agreements
prevents the Publisher Defendants from competing with each other
on price and, according to a number of comments, the evidence
suggests that the Publisher Defendants did in fact engage in
rigorous price competition after switching to the agency model.
Moreover, it is undisputed that Amazon’s market share in ebooks decreased from 90 to 60 percent in the two years following
the introduction of agency pricing.
The comments variously
argue that during this period the availability and quality of ebooks increased, retail and wholesale e-books prices decreased,
and a number of new competitors, including industry giants like
Apple, Google, and Barnes & Noble, as well as hundreds of
independent bookstores, either entered the e-books market or
were able to compete more effectively.
The CEO of e-books
start-up Zola Books, for example, argues that the adoption of
agency pricing allowed him to create his new company.
retailers could no longer lose money on every single e-book sold
in order to gain market share,” he writes, “we believed a new
retailer could get a foothold in the market based on the quality
of its product.”
Many comments contend that the past two years
have seen unprecedented innovation in the market for e-readers
and tablets, resulting in rapidly improving devices and rapidly
In short, the comments contend that
competition in the e-books industry is alive and well, in no
small part due to the defendants’ allegedly illegal cartel.
Even if such a cartel existed, its main accomplishment was to
allow industry participants to compete on a level playing field.
In one of the more detailed public comments, Kohn offers
some economic theory in support of the above arguments and
Kohn contends that the Government has defined the
relevant market improperly.
Unlike physical books, e-books
cannot be utilized absent additional components like an e-reader
and an internet-based platform for purchasing and downloading
It therefore makes no sense to define the market as
simply “trade e-books.”
E-books are inextricably linked to e-
readers and internet-based distribution platforms; the market
must therefore encompass the entire “e-books system.”
According to Kohn, the “e-books system” market, like the
markets for many emerging technologies, is characterized by
This means to him that each additional
user of a given e-books system confers benefits on existing
users of that system.
The more users of a system, the more each
user can be assured that the system will continue to support a
large number of programs or “apps” and a large variety of e-book
Markets characterized by network externalities tend to
tip towards a single, dominant firm, resulting in monopoly.
once a monopolist establishes itself in such a market, such as
Microsoft in the computer operating systems market and Apple in
the digital music market, the result is inflated prices and
Kohn further argues that because it is costly to switch
from one e-books system to another, consumers expectations about
the future of a given e-books system will tend to drive
For example, the owner of a Kindle is
unable simply to purchase e-books through the iBookstore if
prices at the iBookstore are lower; to do so she must first
purchase an iPad.
Before investing in a given e-books system,
then, consumers will try to anticipate the likely future success
of the system vis-à-vis its competitors.
This dynamic means
that it may be difficult to displace a dominant firm in the ebooks system market once it establishes a monopoly.
The upshot of all of this is that Kohn’s theory suggests
Amazon had enormous incentives to try to achieve a monopoly as
the e-books market emerged in the late 2000s; below cost,
predatory pricing was supposedly one of its more effective
The Agency Agreements prevented Amazon from taking
Kohn also argues that Amazon exercised “monopsony” power as
the dominant wholesale purchaser of e-books, and did or would
advantage of this critical anticompetitive tool, and returning
discounting authority to Amazon will help it to reestablish its
Kohn cites Broadcast Music, Inc. v. Columbia
Broadcasting, 441 U.S. 1 (1979), for the proposition that
horizontal price-fixing is lawful if it has a “redeeming
Id. at 9.
In response to these arguments by Kohn and others, DOJ
describes as “speculative” the fear that Amazon might use its
monopoly power to raise prices in the future.
DOJ claims that
it closely examined allegations that Amazon engaged in predatory
pricing, and found persuasive evidence lacking.
notes that Barnes & Noble and Google had either entered or
planned to enter the e-books market well before the Agency
Agreements were signed.
Similarly, Barnes & Noble was able to
attract a $300 million investment from Microsoft in order to
compete with Amazon even after the filing of the proposed Final
Judgment shed doubt on the future of e-books agency pricing, and
Google recently announced a new investment in a tablet computer
intended to promote its e-book sales.
The core of the Government’s claim is that it is impossible
to draw a causal connection between investments by technology
giants like Apple, Microsoft, Google, and Sony in the e-books
have used this power to demand below-market prices, and that
supply and demand do not function normally in the e-books market
because of illegal downloading.
and e-reader markets and the introduction of the agency model.
These investments, which are the true cause of the decline in
Amazon’s market share, would almost certainly have happened
What cannot be disputed is that the Agency
Agreements ended retail price discounting and eliminated
potential pricing innovations, such as “all-you-can-read”
subscription services, book club pricing specials, and rewards
The comments from Kohn and others are insufficient to
compel denial of entry of the proposed Final Judgment.
Broadcast Music merely held that the issuance of certain
“blanket licenses” of copyrighted material in the recorded music
industry did not constitute “price fixing” under the Sherman
Act, and was therefore not per se unlawful, in part due to the
“unique market conditions for performance rights to recorded
Broadcast Music, 441 U.S. at 15 (citation omitted).
did not provide a blanket exception to the per se rule against
horizontal price fixing.
See id. at 8 (noting that “certain
agreements or practices are so plainly anticompetitive and so
often lack any redeeming virtue that they are conclusively
presumed illegal” (citation omitted)).
Second, the Complaint asserts that Amazon’s e-books
business was “consistently profitable.”
Moreover, to hold a
competitor liable for predatory pricing under the Sherman Act,
one must prove more than simply pricing “below an appropriate
measure of . . . costs.”
Brooke Group Ltd. v. Brown &
Williamson Tobacco Corp., 509 U.S. 209, 222 (1993).
also be a “dangerous probability” that the alleged predator will
“recoup its investment in below-cost prices” in the future.
Id. at 224.
None of the comments demonstrate that either
condition for predatory pricing by Amazon existed or will likely
Indeed, while the comments complain that Amazon’s $9.99
price for newly-released and bestselling e-books was
“predatory,” none of them attempts to show that Amazon’s e-book
prices as a whole were below its marginal costs.
See Ne. Tel.
Co. v. Am. Tel. & Tel. Co., 651 F.2d 76, 88 (2d Cir. 1981)
(“[P]rices below reasonably anticipated marginal cost will be
Third, even if Amazon was engaged in predatory pricing,
this is no excuse for unlawful price-fixing.
Congress “has not
permitted the age-old cry of ruinous competition and competitive
evils to be a defense to price-fixing conspiracies.”
Vacuum Oil Co., 310 U.S. at 221.
The familiar mantra regarding
“two wrongs” would seem to offer guidance in these
Fourth, the Government chose to address its Complaint to
the trade e-books market, not the e-reader market or the “ebooks system” market.
In light of the enormous economic
complexities involved, this choice appears eminently reasonable.
As Writers House President Lipskar points out, “Ultimately . . .
we can’t possibly know what would have happened had agency not
We can conjecture.
We can disagree.”
Although Lipskar argues that this lack of certainty disfavors
entry of the decree, in fact it indicates the soundness of DOJ’s
decision to target a more comprehensible market.
Lastly, the Complaint is not drafted so narrowly such that
entry of the decree would appear “to make a mockery of judicial
SBC Commc’ns, Inc., 489 F. Supp. 2d at 14.
will therefore limit itself to addressing antitrust matters
within the scope of the Complaint, which in this case means an
inquiry into the impact of the proposed Final Judgment on the
market for trade e-books only.
The additional antitrust
concerns raised in the comments are simply not susceptible to
judicial review under the Tunney Act.
And within this more
limited market, the Government has more than established a
“factual basis” for its decisions and judgment that the decree
will enhance competition.
III. Apple’s Submissions
Apple makes two unique arguments that merit additional
First, Apple claims that the decree unfairly singles
out Apple by requiring termination of the Settling Defendants’
Agency Agreements within seven days.
Apple notes that the
Settling Defendants’ agency contracts with other e-book
retailers must only be terminated as soon as each contract
permits, starting thirty days after entry of the proposed Final
See Proposed Final Judgment, at § IV.B.
out that it has admitted no wrongdoing, and contends that due
process requires it to be treated the same as its competitors.
Apple cites to Local No. 93, Int'l Ass'n of Firefighters, AFLCIO C.L.C. v. City of Cleveland, 478 U.S. 501 (1986), for the
familiar proposition that “a court may not enter a consent
decree that imposes obligations on a party that did not consent
to the decree.”
Id. at 529.
This argument is without merit.
The Government “need not
prove its underlying allegations in a Tunney Act proceeding.”
SBC Commc’ns, 489 F. Supp. 2d at 20.
obligations on Apple.
And the decree imposes no
Rather, the decree compels the Settling
Defendants to terminate their Agency Agreements with Apple.
Local No. 93, Int'l Ass'n of Firefighters, 478 U.S. at 529-30
(intervenor may not prevent entry of decree that “does not bind
[it] to do or not to do anything”).
In addition, it is commonsensical that the decree would
single out the Agency Agreements for early termination.
Complaint alleges that these agreements with Apple were critical
to initiating the Publisher Defendants’ broader switch to agency
The Government’s theory is that the Agency Agreements
ensured that the Publisher Defendants’ subsequent contracts with
all e-books retailers would embrace the agency model.
prior termination of the Agency Agreements, then, renegotiation
of these subsequent contracts would be fruitless.
Lastly, Apple does not dispute that the relevant Agency
Agreements allow for termination by the Settling Defendants
after thirty days notice.
Accordingly, the sum total of Apple’s
complaint is that it bargained for twenty-three days more notice
of termination than what is provided by the decree.
meantime, the consent decree was first filed with the Court on
April 11, 2012, and the Government’s motion for entry of the
proposed Final Judgment was brought on August 3.
therefore already had roughly five months’ or more than one
months’ notice of the Settling Defendants’ intention to
terminate the Agency Agreements.
Accordingly, any imposition on
Apple’s contractual rights is de minimis and provides no reason
to deny entry of the decree.
Cf. United States v. Graftech
Int’l Ltd., No. 1: 10-cv-02039, 2011 WL 1566781, at *1 (D.D.C.
Mar. 24, 2011) (entering consent decree that requires
modification of contract with a non-party to the decree).
Apple’s second argument, which is echoed by MacMillan, is
that the Court should wait to enter the decree until after the
June 2013 trial resolves the relevant factual issues.
notes that it agreed to an accelerated discovery schedule and
early trial date, and argues that this delay would therefore not
represent a significant imposition on the Settling Defendant or
Because the decree does not apply to all the defendants,
the proposed Final Judgment may be entered before trial “only if
the court expressly determines that there is no just reason for
delay” pursuant to Fed. R. Civ. P. 54(b).
This determination is
left “to the sound discretion of the district court,” taking
into account “judicial administrative interests as well as the
U.S. 1, 8 (1980).
Curtiss-Wright Corp. v. Gen. Elec. Co., 446
The Court should act to assure that
application of the rule “preserves the historic federal policy
against piecemeal appeals.”
Id. (citation omitted).
Apple claims that it will appeal any opinion entering the
decree, and that entry would therefore result in unwarranted
Apple further claims that it will have
standing to appeal because it will suffer “formal legal
prejudice” as a result of entry of the decree.
See Zupnick v.
Fogel, 989 F.2d 93, 98 (2d Cir. 1993) (citation omitted).
Even if Apple has standing to pursue an appeal, an issue
which this Opinion does not decide, the interests of judicial
administration and the equities involved weigh heavily in favor
of immediate entry of judgment.
The Settling Defendants have
elected to settle this dispute and save themselves the expense
of engaging in discovery.
They are entitled to the benefits of
that choice and the certainty of a final judgment.
the orderly, efficient management of discovery requires that the
Settling Defendants have a defined role in the ongoing
Apple's proposal would leave them in a state of
legal limbo, forced to participate in discovery and defend this
action at trial for fear that their settlement may be thrown
Most importantly, the Government alleges substantial
ongoing harm as a result of the Settling Defendants' illegal
E books consumers should not be forced to wait until
after the June 2013 trial to experience the significant
anticipated benefits of the decree.
The Government's August 3, 2012 motion for entry of the
proposed Final Judgment is granted.
New York, New York
September 5, 2012