Unites States of America v. Apple, Inc. et al

Filing 297

POST TRIAL MEMORANDUM. Document filed by Unites States of America.(Fairchild, Stephen)

UNITED STATES DISTRICT COURT FOR THE SOUTHERN DISTRICT OF NEW YORK __________________________________________ ) UNITED STATES OF AMERICA, ) ) Plaintiff, ) ) v. ) ) APPLE, INC., et al., ) ) Defendants. ) __________________________________________) Civil Action No. 12-cv-2826 (DLC) __________________________________________ ) THE STATE OF TEXAS; ) THE STATE OF CONNECTICUT; et al., ) ) Plaintiffs, ) ) v. ) ) PENGUIN GROUP (USA) INC. et al., ) ) Defendants. ) __________________________________________) Civil Action No. 12-cv-03394 (DLC) UNITED STATES’ POST-TRIAL MEMORANDUM United States of America v. Apple, Inc. Summation June 20, 2013 EͲBook Prices Increased Immediately After Agency PXͲ1105 “You can do all kinds of statistics, but really, all you need to do is look at the y y diagram . . . . Their prices went up and stayed up. So it’s not rocket science. You just have to look at it.” Gilbert Testimony, TT 1653:9-13 2 Agency Publishers Priced EͲBooks at Price Caps Over 90% of new releases sold by Defendant Publishers at Apple were set at the price caps. Degree to Which Prices Were at the Applicable Price Cap Five Months Following Switch to Agency (% of units sold at a price within 1% of the maximum price specified in the publisher’s Apple Agency Agreement) p pp g y g ) Retailer Apple Amazon New York New York New New Publisher Times Times Releases Releases Bestsellers Bestsellers Hachette 96.3% 96 3% 99.7% 99 7% 89.9% 89 9% 100.0% 100 0% HarperCollins 90.0% 100.0% 84.6% 95.6% Macmillan Penguin Simon & Schuster Defendant publishers combined 81.1% 98.4% 100.0% 100.0% 76.3% 92.2% 98.7% 99.3% 91.3% 97.9% 83.7% 90.1% 92.1% 99.4% 85.7% 96.8% N/A N/A 2.5% 0.0% Random House Over 99% of New York Times bestsellers sold by Defendant y Publishers at Apple were set at the price caps. PXͲ0866 Over 85% of new releases and 96% of New York Times bestsellers sold at Amazon were set at the price caps. 3 Governing Legal Standard To establish a conspiracy in violation of Section 1, the Plaintiffs 1 must “present direct or circumstantial evidence that reasonably tends to prove that the [defendants] and others had a conscious commitment to a common scheme, designed to achieve an unlawful objective.” Monsanto Co. v. Spray-Rite Serv. Corp., 465 U.S. 752, 764 (1984) (citation omitted) 4 Horizontal Price Fixing Is Per Se Illegal “Restraints that are per se unlawful include horizontal agreements among competitors to fix p g p prices, or to divide markets.” , “Horizontal agreements among competitors to fix prices . . . have Horizontal manifestly anticompetitive effects and lack any redeeming virtue.” Leegin Creative Leather Prods., Inc. v PSKS, Inc., 551 U S 877 886 (2007) Prods Inc v. PSKS Inc U.S. 877, 5 Apple and the Publishers’ Conspiracy 1. 1 To Raise E-Book Prices 2. 2 To Restrain Retail Price Competition i il i C ii “Concerted action by dealers to protect themselves from price competition by discounters constitutes horizontal price-fixing.” h i l i fi i ” Denny’s Marina, Inc. v. Renfro Prods., Inc., 8 F.3d 1217, 1221 ( y , f , , , (7th Cir. 1993) ) 6 “A Conscious Commitment A Commitment” December 15Ͳ16, 2009 December 2009 S M T W T F S 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 December 15, 2009 ƒ Apple meets with first three publishers (PX-0050) ƒ Publishers request an Apple proposal on “new release pricing” (PX-0050) 20 21 22 23 24 27 28 29 30 31 25 26 December 16, 2009 ƒ Apple meets with second three publishers (PX-0262)) ƒ HarperCollins interested in agency model to “fix Amazon pricing” d l t “fi A i i ” (PX-0036)) 8 Publishers Wanted Apple to Fix Amazon Pricing “HarperCollins Interested in agency model to fix Amazon pricing (we said no).” “Q And the reference here to fix Q. Amazon pricing, was that HarperCollins wanted to get Amazon’s prices higher, correct? A. That was my understanding, yes.” Saul Testimony, TT 182:9-11 PXͲ0036 9 Apple Knew the Publishers Wanted Agency to Fix Industry Pricing “Q. So, sir, y were aware, were y not, by December 16, that Q , , you , you , y , at least one publisher was planning on using an agency model in order to fix industry pricing, correct? A. Yes. Again, to fix – they wanted an agency model with us. Let me be clear. I wasn’t trying to negotiate for the industry. But they wanted an agency model with us so that they would be able to set the price to fix the 9.99 price, which is what this says.” Eddy Cue Cue Testimony, TT 1697:12-19; PX 0036 C T ti 1697 12 19 PX-0036 10 Publishers Wanted Apple to Fix Amazon’s Pricing Date: Tue, 15 Dec 2009 “Clearly the biggest Clearly, issue is new release Eddy Cue pricing and they want a proposal from us.” PXͲ0050 11 Apple Embraced the Publishers’ Desire for Higher EͲBook Prices “Q. You l f your meeting with Apple on left i ih l December 16, 2009 understanding that Apple did not want Amazon’s 9.95 price to t continue in the industry, correct? ti i th i d t t? A. Clearly.” Reidy Testimony, TT 484:2-7 12 December 17Ͳ18, 2009 December 2009 S M T W T F S 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 December 17-18, 2009 ƒ Apple agrees to offer agency model 26 (Cue Testimony, TT 1699:15-1702:12) December 18, 2009 27 28 29 30 31 ƒ Mr. Cue emails three publishers requesting a call to p q g provide an update on “all my findings and thoughts.” (PX-0056, PX-0501, PX-0502) 13 Apple & Publisher Conspiracy Commences “I want to update you [on] all my findings and thoughts. I have some things I want to run by you. I only need 30 minutes.” Markus Dohle John Sargent g Carolyn Reidy PXͲ0056 PXͲ0501 PXͲ0502 14 December 21, 2009 December 2009 S M T W T F S 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 27 28 29 30 31 25 26 December 21, 2009 ƒ A l proposes agency model with Apple d l ih $12.99 price point and requirement that all resellers be moved to agency (PX-0540, Cue Testimony, TT 1713:22-1714:3) ƒ Apple tells publishers they can use threat of windowing to force Amazon to agency (PX-0336) ƒ Publishers understand “plus” of the plus Apple proposal: “solves Amazon issue” (PX-0043) 15 No Express Agreement Required • “The government . . . is not required to prove a formal, express agreement with all the terms precisely set out and clearly understood by the conspirators. It is enough that the government shows that the defendants accepted an invitation to join in a conspiracy whose object was unlawfully restraining trade. trade.” United States v. MMR Corp., 907 F.2d 489, 495 (5th Cir. 1990) (citations omitted) • “Acceptance by competitors, without previous agreement, of an invitation to participate in a plan, the necessary consequence of which, if carried out is restraint of interstate commerce, is sufficient to out, commerce establish unlawful conspiracy under the Sherman Act.” Interstate Circuit, Inc. v. United States, 306 U.S. 208, 227 (1939) 16 Apple Makes a Proposal “Q. And [Apple] told you that they feel the only way to get this is for the industry to go to the agency model; do you see that? A. Yes. Q. And by the “industry,” they meant other “It is important to Apple that there be ‘some It some level of reasonable pricing.’ They feel the only way to get this is for the industry to go to the agency model . . . .” publishers, correct? A. Yes. Q. And they meant other retailers, correct? A. Yes.” A Y ” Reidy Testimony, TT 499:25-500:24 PXͲ0540 17 Apple Makes A Proposal “He also thinks that book prices are becoming too low . . . . gg g y Therefore he suggests an ‘agency model’ . . . .” PXͲ0336 18 Apple Agreed to Solve Publishers’ Amazon Problem “They saw both the plus (solves Amazon issue) Eddy Cue and negative (little less than they would like).” like) “[T]his refers to the fact that I was [ ] allowing them, because it was an agency model, to price books at higher than 9.99 which I knew they wanted to do. They referred to that as their Amazon problem.” PXͲ0043 Cue Testimony, TT 1703:20-24 19 Consciousness of Commitment There is a consciousness of commitment to a price-fixing scheme when “[c]ircumstances [] reveal a unity of purpose or a common design and understanding, understanding or a meeting of minds in an unlawful arrangement.” Monsanto, 465 U.S. at 764 20 January 4Ͳ9, 2010 January 2010 S M January 4-5 T W T F S 1 2 3 4 5 6 7 8 11 12 13 14 15 16 (Cue Testimony, TT 1717:14-24) 9 10 ƒ Mr. Cue expressly requires that “all resellers of new titles need to be in agency model” 17 18 19 20 21 22 23 January 8 ƒ Mr. Moerer tells Ms. Reidy she has “exactly” the same view as other publishers: “pricing was too low pricing low” (PX-0537) 24 25 26 27 28 29 30 January 9 31 ƒ Mr. Moerer explains agency model as way to “move the whole market off $9.99” (PX-0174) 21 Apple Sends Publishers Identical Proposed Deal Terms “[A]ll resellers of new titles need to ll f il d be in agency model….” “…realistic pricing….” realistic pricing “We think these agency terms accomplishes all the goals we both have.” have PXͲ0021, PXͲ0473, PXͲ0476, PXͲ0041, PXͲ0040, PXͲ0306 22 January 11Ͳ14, 2010 January 2010 S M T W T F January 11 S 1 2 3 4 5 6 7 8 11 12 13 14 15 16 (DX-714 at ¶ 75) 9 10 ƒ D ft contracts sent to each “Big Six” Draft t t tt h “Bi Si ” publisher 17 18 19 20 21 22 23 24 25 26 27 28 29 January 12 ƒ Penguin and Hachette tell Apple they will go agency with “everyone else” 30 (PX-0026) (PX 0026) January 14 31 ƒ Mr. Jobs approves higher price points so long as publishers “move Amazon to the agent model too” (PX-0055) 23 Publishers and Apple Discuss Moving All Retailers to Agency “Wed, “W d 13 Jan 2010” J “The response from both Penguin and Hachette was very similar – • willing to do an agency model • go agency model for new releases with everyone else” PXͲ0026 24 Quid Pro Quo “I can live with this, as long as they move Amazon to the agent model too for new releases for the first year. If they d ’t I’ th don’t, I’m not sure we can be t b competitive… Steve Steve” “Here is the pricing I think will push them to very edge and still have a credible offering in the market. . . . --Eddy” PXͲ0055 25 January 16Ͳ19, 2010 January 2010 S M T W T F January 16 S 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 ƒ Mr Cue agrees to “significantly more tiers Mr. significantly and higher prices” 16 (PX-0059, PX-0120, PX-0511, PX-0512, PX-0513) January 19 17 18 19 20 21 22 23 24 25 26 27 28 29 30 ƒ M Macmillan and HarperCollins continue to ill dH C lli ti t understand Apple requires all retailers be moved to agency (PX-0573, (PX 0573 Murray Testimony TT 994:9-16) Testimony, 994:9 16) 31 26 Agreements on Price Are Illegal Per Se A defendant is liable for price-fixing upon a price fixing showing of “evidence sufficient to permit a preponderance finding that higher prices came about as a result of [the agreement], rather than through independent action of the defendants.” In re Publ’n Paper Antitrust Litig., 690 F.3d 51, 61 (2d Cir. 2012) (citation omitted, alteration in original) 27 Apple Agrees to Higher Price Tiers Eddy Cue “This gives you significantly more tiers and higher prices.” PXͲ0513 28 Apple and Publishers Agree to Move Industry Prices Higher “They believe that this is the best chance p g price for publishers to challenge the 9.99 p point.” PXͲ0521 “They “The decided they had to come up the p with a way that would move the whole market off 9.99 and they think an agency model is the only way to do it.” it PXͲ0174 29 “A Common Scheme A Scheme” Moving the Industry to Agency “Q. ‘As a way to enter the marketplace, Apple proposed moving the entire industry to an agency model.’ Do you see that? A. Yes. PXͲ0742 Q. That’s what happened right? “As a way to enter the market place, Apple proposed moving the entire industry to an agency model.” (PX-0742) A. That’s what happened.” David Shanks Shanks Testimony, TT 368:24-369:4 31 Apple Designed MFN Knowing It Would Ensure All Retailers Moved to Agency “Q. I don’t think we can legally force this. That’s why – that s why, sir, that’s why sir Apple moved to an MFN instead of the explicit term, correct? A. That’s correct. Q. And that’s why Apple stopped talking about the move all resellers to an agency model, correct? A. That’s correct. Again –” Cue Testimony, TT 1727:14-20 PXͲ0487 “(I don’t think we can legally force this.)” 32 Apple Designed MFN Knowing It Would Ensure All Retailers Moved to Agency “I feel like it’s a giant win to keep pushing the MFN and forcing people off the amazon model and onto ours.” “The interesting insight in the meeting was Eddy’s explanation that it doesn’t have to be that broad – any decent MFN forces the model.” PXͲ0065 33 Apple Agreement Forced Publishers to All Agency Model “The Apple agency model deal means that we will have to shift to an agency model with Amazon which with [sic] strengthen our control over pricing.” pricing (PX-0529) PXͲ0529 34 Apple Agreement Forced Publishers to All Agency Model “Q. All right. So isn’t it true that as of January 19th, 2010, you understood that doing a deal with Apple would force Amazon to move to an agency model? “A: Yeah, as the Apple deal, as it was presented at that time, yes.” Brian Murray Murray Testimony, TT 987:22-988:1 y y 35 The Apple Deal in HarperCollins’ Words • “Shortcomings from apple deal as presented . . . expected retaliation from amazon because deal forces a move to an agency model.” -- Brian Murray, Jan. 19, 2010, PX-0307 • “We would have no flexibility on pricing and would have to exclude content from anyone who was not on the same agency model for up to a year (Amazon).” -- Charlie Redmayne, Jan. 22, 2010, PX-0308 • “Implications: If Amazon, B&N, and Sony want our books as new releases, they must adopt our agency model and terms.” p g y -- Brian Murray, Jan. 27, 2010, PX-0637 • “The Apple agency model deal means that we will have to shift to an agency model pp g y g y with Amazon which with [sic] strengthen our control over pricing.” PXͲ0865 -- HarperCollins Agents Catch-Up Presentation, Feb. 16, 2010, PX-0529 36 Apple MFN Committed Publishers to All Agency Model David Shanks “The fact that there was a parity clause in the contract more or less made it a given that we would have to be at agency . . . with everybody.” Shanks Testimony, TT 352:12-353:12 Arnaud Nourry “Apple’s contract... that we commit to maintaining the same price for the same titles across the platforms. And I’m not a lawyer, but I can’t see that happening unless everyone is under agency agreement . . . .” i d t ” PX-0884 at 148:13-25 Carolyn Reidy “Q. Okay. And isn’t it true that, from y Q y , your p p perspective, the , MFN, as a practical business matter, made it so that Simon & Schuster would be moving all of its other retailers to an agency model? A. Unless we wanted to make even less money, yes.” Reidy Testimony, TT 504:10-14 37 Publishers Recognize MFN Commits Them to Agency January 20, 2010 John Sargent “Jan 20th: Russ met with John Sargent in NY. John indicated that he was working on an agency model i di d h h ki d l Meeting but his plan was to offer both an agency and reseller model.” Russ Grandinetti PXͲ0482 PXͲ0482 38 Apple Insists Macmillan Go to Agency with Everyone January 20, 2010 January 21, 2010 John Sargent “I am willing to give up on many…points…. The stumbling block is the single large issue that we clearly h d l l i d John Sargent b t ” t di John Sargent had a misunderstanding about.” Eddy Cue “I understand. I don’t believe we are asking you to do anything, you haven’t told us you are doing. doing We are just trying to get a commitment.” commitment John Sargent Meeting Dinner EͲMail Russ Grandinetti Eddy Cue Eddy Cue PXͲ0482 PXͲ0037, PXͲ0712 PXͲ0037 PXͲ0037 39 Apple MFN Requires Macmillan to Move Amazon to Agency January 20, 2010 John Sargent Meeting January 21, 2010 John Sargent John Sargent “Jan 21st: John and Russ by phone. John realized yp that the Apple contract required him to only offer Dinner EͲMail the agency model only and wanted to talk through options with Russ.” John Sargent Phone Call Russ Grandinetti Eddy Cue Eddy Cue Russ Grandinetti PXͲ0482 PXͲ0037, PXͲ0712 PXͲ0037 PXͲ0482 PXͲ0482 40 Credibility “Q And during that deposition you said that you didn t recall what Q. didn’t this stumbling block issue was but that it might relate—your best guess was that it related to pricing tiers, correct? tiers A. That’s correct. Q Q. And now y you’re saying, sir, that it actually relates to one-off y g, , y promotions relating to the MFN? A. That’s correct.” Cue Testimony, TT 1750:12-18; PX-0037 41 Credibility Eddy Cue “The first time Apple had definitive knowledge that a publisher was negotiating with another retailer was through press reports and an e-mail from John Sargent, Macmillan’s CEO, on January 31, 2010, after we had signed our agreement. agreement.” DX-714, ¶ 100 John Sargent g Jan. 24, 2010: “As for Friday, hope t b i b t J 24 2010 “A f F id I h to be in, but suspect I will be in Seattle or traveling back.” PX-0881 PXͲ0881 42 Credibility Moerer Testimony, TT 1251: 9-12 Moerer Testimony, TT 1252: 2-6 43 Credibility “Q. The publishers who gained control of “Q. And the reason it didn’t surprise you that the eBook retail pricing did, in fact, price the publishers were pricing at the caps was for the very great majority of their new release and same reason, because you know they wanted bestselling eBooks at the maximum higher prices, correct? A. That’s correct. allowed price, correct? Q. In fact, this wasn’t something that only you A. I do not know that to be the case. were aware of? This was something that Mr. Jobs Q. Q That was what you expected them to do, do was aware of as well, correct? wasn’t it? A. Yes. They had expressed they wanted higher A. I did not know how they would price prices from us. Q And that was consistent throughout the Q. their books. These were price caps. I did negotiations, correct? not know.” A. Yes, it was.” Eddy Cue Keith Moerer Moerer Testimony, TT 1294:23-1295:4 Cue Testimony, TT 1691:7-16 44 Credibility • “[W]e hadn’t come up with the pricing MFN idea” by January 4. -Eddy Cue January 25, 2011 • Kevin Saul had developed an idea for a price-matching “Most Favored Nation (“MFN”) clause “[a] few weeks before January 4 Nation” ( MFN ) clause, [a] before” 4. -Eddy Cue April 26, 2013 • Kevin Saul was in the process of “developing” MFN on January 4 but it wasn’t “completed.” -Eddy Cue June 13, 2013 “Q. … Mr. Cue, could you please tell me which of these three statements is the correct one? A. A All of them ” them. Cue Testimony, TT 1981:5-15, 21-23 PXͲ0895 45 Apple Wrongly Claims Amazon Wanted Agency “Amazon quickly made the rational business decision to move to an agency model for the five publishers that signed deals with Apple . . . .” Apple Inc.’s Pre-Trial Memorandum of Law at 3 46 Amazon Resisted Move to Agency Russ Grandinetti “[W]e disagreed with the publishers’ decision to move [ ] g p to agency and wanted to forestall it.” PX-0835 at ¶ 47 David Naggar “We strongly resisted moving to agency and would not have done so but for these publishers insisting on it simultaneously.” PX-0837 at ¶ 35 Laura Porco An agency agreement with the publishers was “not what we would have ever wanted.” Porco Testimony, TT 827:21 25 827:21-25 47 Amazon Resisted Move to Agency “Q. Would you say that Amazon welcomed your proposal to move to agency? A. No. Q. How would you describe their reaction? A. They yelled and screamed and threatened. It was a very unpleasant meeting. . . . Q. Q And do you recall testifying that Amazon told you they would do anything to stop you from moving to agency? A. I probably said that.” David Shanks Shanks Testimony, TT 362:25-363:11 “Q. And Amazon was not pleased by the fact that Simon & Schuster wanted to move to an agency model, correct? A. Correct. Q Q. In fact, Amazon made clear to y that they wanted to stay on you y y Carolyn Reidy wholesale, correct? A. Yes.” Reidy Testimony, TT 535:16-535:21 48 Direct Evidence of Conspiracy “[S]ubstantial direct evidence of agreements to maintain prices [S]ubstantial . . . . testimony from a Monsanto district manager . . . that Monsanto on at least two occasions . . . approached pricecutting distributors and advised that if they did not maintain the suggested resale price, they would not receive adequate supplies of Monsanto’s new corn herbicide.” Monsanto, 465 U.S. at 765 49 Apple Recognized that Withholding of EͲBooks Was Harmful to an EͲBookstore Eddy Cue “[W]e believe that withholding books is a disaster for a bookstore.” Cue Testimony, TT 1871:15 16 1871:15-16 Keith Moerer “[W]indowing was completely unacceptable to Apple . . . .” p pp Moerer Testimony, TT 1236:23-24 50 Apple Coordinated Publisher Withholding or Agency Threat “We cannot agree to your language. There are possible unilateral ways you can comply with our provision, such as get others on an agency model, or g y , withhold content.” (PX-0738) “I also indicated that Amazon would not accept a distributor model. [Eddy Cue] answered that windowing could be used to establish a distributor model on print pub date for ebooks (coming back to simultaneous publication).” (PX-0336) Kevin Saul Markus Dohle 51 The Conspiracy with Apple Fundamentally Changed the Windowing Conversation Before Apple, Publisher Defendants windowed only 37 titles. Klein Testimony, TT 2066:11-14 After conspiring with Apple, the p p g pp , publishers were able to present Amazon with an entirely different choice: accept agency or don’t sell any of the thousands of new e-books we p publish each y year. PX-0837 at ¶¶ 28, 30 52 Publishers Needed to Move Amazon to Agency Before iBookstore Launched Russ Grandinetti “Q. What deadlines, if any, did the publishers give Amazon to complete those agency deals? A. I don't remember each specific case, but my recollection is they all told us we had to be on new terms by roughly the end of March.” G d e Grandinetti Testimony, TT 760: es o y, 760:12-16 6 Carolyn Reidy Eddy Cue DX 313 DX-313 Carolyn Reidy “Q. And, therefore, you felt that Simon & Schuster needed to change Amazon to an agency model before the iBookstore went live, correct? A. Correct.” Reidy Testimony, TT 533:18-21 53 Apple Monitored Publisher Movement to Agency Eddy Cue PXͲ0058 “We have reviewed all the books on Amazon and they have switched to agency with the publishers.” 54 Publishers Apprised Apple of Their Amazon Negotiations David Shanks “I wanted to tell you before you read it I on line that we have finally reached an agreement with Amazon on our new terms of sale….The playing field is now sale The level.” * * * “Please keep this to yourself until the announcement.” Eddy Cue “Great news and congratulations!!!” PXͲ0284 55 “An Unlawful Objective”: Raise EͲBook Prices Price Fixing Is Illegal Per Se “Under the Sherman Act a combination formed for the purpose and with the effect of raising . . . fixing, pegging, or stabilizing the price of a commodity in interstate or foreign commerce is illegal per se . . . . The anticompetitive potential inherent in all pricefixing agreements justifies their facial invalidation even if procompetitive justifications are offered for some. some.” Arizona v. Maricopa Cnty. Med. Soc., 457 U.S. 332, 346-51 (1982) 57 Fixed EͲBook Prices PXͲ0004 58 Price Caps Functioned as Fixed EͲBook Prices Charlie Redmayne “[P]rice would be standard across the industry.” PX-0308 Arnaud Nourry “…the concept of agency agreement is that people all have …t e co cept o age cy ag ee e t s t at peop e a ave the same prices…” PX-0884 at 164:3-17 Tim McCall “Agency is anti-price war territory. We don’t need to compete with other publishers on the price of our books.” books. PX-0317 Robert McDonald “Q. And so in other words, sir, after Apple signed its agency agreements with its MFN and its iBookstore went live, with respect to g , p the publisher defendants’ titles, isn’t it true that the prices were the same? A. Yes.” McDonald Testimony, TT 2361:17-21 59 Apple and Publishers Agreed on Retail Prices for Industry “Mossberg wondered why someone ‘should buy a [b]book for $14 99 when Mossberg should $14.99 you can buy one from Amazon for $9.99 on the Kindle or Barnes & Noble?’ A confident Jobs replies, ‘That won’t be the case.... The prices will be the same.’” “I cannot believe that Jobs made the statement below. Incredibly stupid.” PXͲ0607 60 Publishers Made Clear Their Intent to Price EͲBooks at the Top of the Pricing Tiers “So I left each of those conversations with the clear impression and assumption that that’s the price we Russ Grandinetti could expect…I believe in all cases publishers introduced price points like 12.99 or 14.99.” Grandinetti Testimony, TT 767:12-768:19 “Q. Had they told you what they planned to do with pricing? Laura Porco Laura Porco A. Well, during the negotiations, it was pretty clear with the pricing tiers that they intended to raise prices, yes.” Porco Testimony, TT 844:19-25 61 Apple Expected that Publishers Would Price at the Top of the Price Tiers “Q. And you did give them price tiers that allowed them to price -- to raise their prices above the 9.99 price point that prevailed in the market for New York Times bestsellers and new releases at that time; is that correct, sir? A. That’s correct. * * * Q. And it didn’t surprise you either that the publishers were pricing at the caps, did it? A. No, it did not. Q Q. And the reason it didn’t surprise y that the p p you publishers were p pricing at the caps was g p for the very same reason, because you know they wanted higher prices, correct? A. That’s correct. Q. In fact, this wasn't something that only you were aware of? This was something that Mr. Jobs was aware of as well, correct? A. Yes. They had expressed they wanted higher prices from us.” Eddy Cue Cue Testimony, TT 1690:16-20, Testimony 1690:16-20 1691:4-13 62 Apple Knew That Retail Prices Would Increase Under Agency “Q Mr Cue on April 1, 2010 you recognized that the prices for New Q. Mr. Cue, 1 York Times bestsellers and new releases went up, correct? A. That’s correct. Q. And that wasn’t a surprise to you, was it? A. It was not. Q. And the reason it wasn’t a surprise to you was because all of the publishers had told you during the course of your negotiations that they had a problem with Amazon’s pricing of New York Times bestsellers and new releases correct? releases, A. That’s correct.” Eddy Cue Cue Testimony, TT 1689:25-1690:10 63 Apple Knew that Retail Prices Would Increase Under Agency “Q. At this point in time Mr. Jobs knew that the publishers were going to be raising prices, correct? A. That’s correct.” Cue Testimony, TT 1692:25-1693:2 PXͲ0869 64 Apple Was Indifferent to Consumers Paying Higher Prices “Q. You were indifferent as to whether your consumers paid $9.99 for New York Times b t sellers and new releases as opposed to f N Y k Ti best ll d l dt $14.99, correct? A. For the books that – In the deal that I cut, that’s correct.” “Q. Isn’t it true, sir, that Apple had made the determination that it was fine with its consumers paying $14.99 for books that had $14 99 previously been available for $9.99, as long as no consumer in the United States could find that book for less than $14.99? A. You can – it’s an accurate statement. It’s not the way that I would have said it, but it’s an accurate statement.” Eddy Cue Cue Testimony, TT 1724:15, 9-16 , 65 “Reasonable Pricing” to Apple Means Higher Prices to Consumers “It is important to Apple that there be ‘some level of reasonable pricing.’ They feel th f l the only way to get this is for the industry to go to the agency model….” l t t thi i f th i d t t t th d l ” (Dec. 21, 2009; PX-0540) “There are several things we have to accomplish in h l hi h li h i order to sell ebooks at realistic prices…” (Eddy Cue, Jan. 4, 2010; PX-0021) “Our top objective is to build a book store that sells books not displays them. We think our customers will pay a reasonable price (not more than physical or 50-100+% more than existing ebooks) if given the elegant and easy solutions we are known for.” Eddy Cue (Eddy Cue, Jan. 24, 2010; PX-0569) 66 Publishers Planned to Raise Prices Across the Board Carolyn Reidy “Our eBook prices will be rising – we are planning, for instance, to sell NY Times bestsellers for $12.99 at all outlets.” (PX-0726) Brian Murray David Young “If we just do what Apple suggests – our ebook prices will go to $14.99 for most books and consumers could scream if they are no longer available from Amazon and B&N at $9.99.” (PX-0307) “Q. You also knew that the prices of some of Hachette’s books would be going up if Hachette signed the agency agreement, correct? A. That’s i ht ” A Th t’ right.” Young Testimony, TT 1422:2-1425:5 67 “An Unlawful Objective”: Restrain Retail Price Competition Apple Did Not Want to Compete on Price with Amazon “The upshot is that Apple would control p p pp price and that price would be standard across the industry meaning that they would be clear to compete in the areas that they are strong: Hardware, Reach, y g , , Experience etc.” Charlie Redmayne PXͲ0308 69 Governing Legal Standard “The critical question here is whether . . . The there was a horizontal agreement among the toy manufacturers, with TRU in the center as the ringmaster, to boycott the wholesale clubs.” clubs Toys “R” Us v. FTC, 221 F.3d 928, 934 (7th Cir. 2000) 70 Governing Legal Standard The critical question here is whether there was a horizontal agreement among the publishers, with Apple in the center as the ringmaster, to raise e-book prices. 71 A Horizontal Agreement Among the Publishers Horizontal Price Fixing Is Per Se Illegal “Restraints that are per se unlawful include horizontal agreements among competitors to fix p g p prices, or to divide markets.” , Horizontal agreements among competitors to fix prices “have have manifestly anticompetitive effects and lack any redeeming virtue.” Leegin Creative Leather Prods., Inc. v PSKS, Inc., 551 U S 877 886 (2007) Prods Inc v. PSKS Inc U.S. 877, (2007). 73 “Strong Evidence” of Horizontal Agreement 1. Evidence of communication between competitors; id f i i b i 2. Abrupt shift in business p p practices; ; 3. Condition that horizontal competitors also agree to go along with agreement. agreement PepsiCo, Inc. v. Coca-Cola Co., 315 F.3d 101, 110 (2d Cir. 2002) (citing Toys “R” Us, 221 F.3d 932 33, 936 37) F 3d at 932-33 936-37) 74 Publishers Admitted Conversations About Apple Deal Carolyn Reidy David Shanks Carolyn Reidy “Q. And in your phone call with Mr. Young he told you that he was much happier because of that meeting, correct? pp g, A. Yes . . . . Q. And by that he meant that he wasn’t going to tell you too many specifics so as to not spoil the surprise for you, correct? A. Correct.” Reidy Testimony, TT 479:25-480:8 “I think the only thing that I remember was saying to [Ms. Reidy] that we’re probably out. We’re not going to go in.” Shanks Testimony, TT 380:14-22 y, “Q. Ms. Reidy, was the individual who you had . . . that conversation with regarding revised terms being sent to Amazon Brian Murray of HarperCollins? A. Yes.” Reidy Testimony, TT 538:11-15 75 Publishers Admitted Conversations About Apple Deal Brian Murray Mr. Murray called Mr. Sargent and Mr. Young to find y g g out if they had signed agency deals. Murray Testimony, TT 1006:9-19 John Sargent “Q. And Mr. Murray said, these words or words to this effect, HarperCollins is out, right? A. A That's correct ” correct.” Sargent Testimony, TT 1165:3-13 David Young “I certainly had a conversation, I remember, with Brian Murray when I told him that we had signed the agreement, but that was the only conversation I recall having with Brian about that.” Young Testimony, TT 1433:21-1434:2 76 Calls Between Publisher Defendant CEOs from December 1, 2009 to January 31, 2010 Jan. 4Ͳ5, Jan 4Ͳ5 2010 Apple sends identical eͲmails to publishers proposing key terms Dec. 8 Dec 8, 2009 Apple begins reaching out to publishers (PXͲ0314) Dec. 15, 2009 Apple holds initial meeting with Big Six publishers Jan. 21Ͳ22, 2010 , Apple’s deadlines for publishers to commit to the deal (PXͲ0021; PXͲ0473, PXͲ0476, PXͲ 0041; PXͲ0040; PXͲ0306) (PXͲ0707; PXͲ0042) Number of Calls r (PXͲ0262) Jan. 11, 2010 Apple sends draft contracts to each publisher (PXͲ0248; PXͲ0249; PXͲ 0285; PXͲ0322; PXͲ 0286) Jan. 26, 2010 All fi publisher five bli h defendants have signed the agreement (PXͲ0005) December 2009 PXͲ0858 January 2010 77 Example of Direct Evidence Statements by company officers referring to an “understanding within the industry” on price, and that “‘our competitors are our friends,’” are evidence of an “explicit agreement to fix prices.” In re High Fructose Corn Syrup Antitrust Litig., 295 F 3d 651 662 (7th Cir. 2002) Litig F.3d 651, Cir 78 Publisher Communications Led to a Shared Objective “You are probably asking why we have objected to the $9.99 p price if we are not losing g money on the sales, and that’s because we feel it will ultimately be destructive to our industry.” Carolyn Reidy (PX-0726) 79 Publishers Sought Deal to “Change the Industry” John Sargent Rupert Murdoch “In the last three weeks, from a standing start we have moved to a new business model. We will make less money on the sale of e books, but we will have a stable and rational market.” February 4, 2010, PX-0470 “Yeah we don’t like the Amazon model . . . . I think it really devalues books and it hurts all the retailers of the hard cover books. . . . [A]pple in its agreement with us . . . does allow for a variety of slight of higher prices. There will be, prices very much less than the printed copy of books. But still it will not be fixed in a way that Amazon has been doing it.” February 2 2010 PX-0491 2, 2010, PX 0491 Carolyn Reidy “Q. And, Miss Reidy, you believe that doing a deal with Apple was going to change the industry, correct? pp g g g y, A. Yes.” Reidy Testimony, TT 526:10-12 80 The Publishers Sought to “Change the Industry” John Sargent David Young “Q. …Changing the business model for the industry, is something you were very proud of at the time, correct, sir? A. Yes. A Y Q. And you’re proud of it today? A. Yes.” Sargent Testimony, TT 1141:4-9 “Q. And Mr. Nourry strongly believed that Amazon's pricing policy was a threat not just to Hachette but to the entire U.S. p publishing industry, correct? g y, A. The entire U.S. publishing and book selling industry, yes.” Young Testimony, TT 1399:4-7 David Shanks “Q. But you [held back new releases], in part, because you wanted to see the publishing industry move to agency and you wanted to support that move, correct? A. It was one of the reasons that we did that.” Shanks Testimony, TT 365:12-14 81 The Move to Agency Was a Dramatic Business Change “The new policies represented a p p “Q And would you agree Q. radical shift from the industry’s with me that the move from prior business practices, and the wholesale to agency was a g y Court rejected as beyond the very dramatic change for the range of probability that such eBook publishing in the unanimity of action was United States? explainable only by chance.” A. Yes.” Toys “R” US, 221 F.3d at 935 David Shanks Shanks Testimon Testimony, TT 361:7-16 82 The Move to Agency Was a Dramatic Business Change “They keep chickening out . . . . They In the end, they want us and see the th opportunity we give them but t it i th b t they’re scared to commit! It [sic] less to do with the terms and more about the dramatic business change for them.” PXͲ0042 Eddy Cue 83 Apple in the Center as the Ringmaster Example of Direct Evidence • “[A]n admission by an employee of one of the [A]n conspirators.” In Text Messaging Antitrust Litig., 630 F 3d 622 628 (7th Cir. 2010) I re T M i A i Li i F.3d 622, (7 h Ci 85 Quid Pro Quo “So we told the publishers, ‘We’ll go to the agency model, where you set the price, and we get our price 30%, and yes, the customer pays a littl more, but that’s what you little b t th t’ h t want anyway.’” “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’” PXͲ0514 86 Apple Knowingly Participated in a Horizontal PriceͲFixing Conspiracy “[T]he only condition on which each toy [ ] y y manufacturer would agree to TRU’s demands was if it could be sure its competitors were doing the same p g thing. That is a horizontal agreement.” Toys T “R” U I v. F T C 221 F 3d 928 936 (7 h Ci 2000) Us, Inc. F.T.C., F.3d 928, (7th Cir. 87 Apple Facilitated a Horizontal Publisher Conspiracy Keith Moerer “We did communicate to publishers that the MFN was important to the agreement that we were negotiating with that individual publisher, but also that every materially publisher significant term would be similar. So things like the 30 percent commission, the MFN, the price caps.” Moerer Testimony, TT 1308:24 1309:3 Testimony 1308:24-1309:3 Brian Murray “Q. And just so we’re clear, all of the assurances that you mentioned or that we talked about here, regarding the type of deal, deal the MFN, the price cap, and the commission, all of the MFN cap commission assurances came from Apple, correct? A. That’s my recollection.” Murray Testimony, TT 1005:4-8 Carolyn Reidy “Q. And then you say, ‘We were the last to meet with him (we planned the meeting for after our meeting with you) and he told us that what we said to him was exactly what all the other publishers had said.’ So during that conversation, Mr. Moerer informed you of said. what the other publishers were saying with respect to the Apple contract, correct? Reidy Testimony, TT 512:6-13 A. Yes.” 88 Assurances as Proof of Agreement “In both [Interstate Circuit and Toys “R” Us] the evidence clearly indicated that the defendants would not have undertaken their common action without reasonable assurances that all would act in concert.” In re Ins. Brokerage Antitrust Litig., 618 F.3d 300, 332 (3d Cir. 2010) 89 Apple Provided Publishers Assurances That They Would Not Be Alone “I just wanted to assure them that they weren’t going to be alone, so that I would g g , take the fear away of the Amazon retribution that they were all afraid of.” Eddy Cue Cue Testimony, TT 1758:6-12 90 Apple Assured Each Publisher That It Was Not Alone John Sargent J h S t “Hey, do you have any more in, or still at 3?” Eddy Cue “give me a call on my cell ( g y (408-309-9215).” ) PXͲ0020 91 Apple Assured Each Publisher That It Was Not Alone David Sh k D id Shanks Eddy Cue PXͲ0029 “My orders from London. You must have the My London fourth major or we can’t be in the announcement.” “Hopefully this is not an issue but if it is I will call you at 4pm. It would be a huge mistake to miss this if we have 3.” 92 Apple Assured Each Publisher That It Was Not Alone “Penguin No change here, he is waiting for the sign. have executables others to sign We ha e e ec tables ready to sign but he wants an assurance that he is 1 of 4 before signing (not in the contract) ” contract). PXͲ0718 93 Negotiations Do Not Disprove a Conspiracy “A co conspirator who used his power to guide or direct A co-conspirator other conspirators qualifies as an organizer even though his control was not absolute. The need to negotiate some details of the conspiracy with the cartel members also does not strip a defendant of the organizer role . . . .” United States v. Andreas, 216 F.3d 645, 679-80 (7th Cir. 2000) 94 Apple Had a Motive to Conspire with the Publishers •A Amazon’s l ’ large market share k t h (Cue Testimony, TT 1827:8-23) • Apple didn’t want to lose money on new releases and best-sellers (Moerer T ti (M Testimony, TT 1331 25 1332 18) 1331:25-1332:18) • Eliminate price competition with Amazon p p (PX-0540) 95 Concerted Action Required to Move Amazon to Agency John Sargent “Q. Right. And when you and four of the other large Big Six publishers entered into Apple agency agreements, that was the point in time when you were able to force Amazon's hand, correct? A. That was the point in time, correct.” Sargent Testimony TT 1106:2-14 Testimony, 1106:2 14 David Shanks Carolyn Reidy “THE COURT: And were you concerned at all about retaliation from Amazon if you signed an agency agreement with Apple and were the only one to do it? THE WITNESS: Yes. I was concerned.” Shanks Testimony, TT 436:5-8 “Q. And the reason that you didn't want to be left out there alone was because you believed that if Amazon had to deal with all of the publishers at once, that made it less likely that Simon & p , y Schuster would be singled out for retribution, correct? A. Correct.” Reidy Testimony, TT 542:19-23 96 Concerted Action Required to Move Amazon to Agency Russ Grandinetti “[I]t “[I] was highly likely that we would lose ebooks hi hl lik l h ld l b k from those publishers unless we moved to agency with all of them. If it had only been Macmillan demanding agency we would not have negotiated agency, an agency contract with them.” PX-0835 at ¶ 46 David Naggar “[I]t had become clear by then that all five of the publishers were making this move at the same bli h ki hi h time and there was no way we could fight them all together.” PX-0837 at ¶ 30 97 Apple Is Liable Under the Rule of Reason A Quick Look Is Appropriate Quick-look analysis is appropriate where “an observer with even a rudimentary understanding of economics could conclude that the arrangements i question would have an anticompetitive h in i ld h i ii effect on customers and markets.” Cal. Cal Dental Ass’n v FTC, 526 U S 756 770 (1999) Ass n v. FTC U.S. 756, 99 “It’s Not Rocket Science” “You can do all kinds of statistics, but really, all y need to do is look at the , y, you diagram . . . . Their prices went up and stayed up. So it's not rocket science. You just have to look at it.” Gilbert Testimony, TT 1653:9-13100 PXͲ1105 Apple Is Liable Under the Rule of Reason Apple’s conduct has had a “substantially harmful effect on competition.” Capital Imaging Assocs., P.C. v. Mohawk Valley Med. Assocs., 996 F.2d 537, 546 (2d Cir. 1993) Apple lacks creditable procompetitive justifications. pp p p j United States v. Phila. Nat’l Bank, 374 U.S. 321, 370 (1963) Any procompetitive benefits could have been achieved through alternative means. United States v. Visa U.S.A., Inc., 344 F.3d 229, 238 (2d Cir. 2003) 101 Apple Is Liable Under the Rule of Reason “The use of anticompetitive effects to demonstrate market power The . . . is not limited to ‘quick look’ . . . cases.” Todd v. Exxon Corp., 275 F.3d 191, 207 (2d Cir. 2001) Proof of actual detrimental effects “can obviate the need for an inquiry into market power, which is but a surrogate for detrimental effects.” FTC v. Ind. F d’ of Dentists, 476 U.S. 447 460 61 (1986) I d Fed’n f D ti t U S 447, 460-61 102 Because of the Conspiracy Prices Increased and Output Decreased • Professor Ashenfelter ran his primary analysis regression on data from six months before and six months after the implementation of agency. (PX-1097 at ¶ 7) • He controlled for many factors, including retailer, title, month, backlist status, and the Macmillan “buy button” incident. (PX-1097 at ¶ 8) • Relative to Random House, Publisher Defendants’: • Prices increased 16.8% • Unit sales decreased 14.5% PXͲ1097 103 Agency Publishers’ Prices Remained Elevated E-book E book Price Increases for Agency Publishers, by Publishers Retailer February 2010 to February 2011 Book Category Amazon Barnes & Noble NYT Bestsellers ll New releases Backlist Overall 40.4% 24.2% 27.5% 23.9% 48.6% 18.1% 19.2% 19.3% PX-1105, Table 6 104 The Price Increase Was Market Wide DXͲ449 105 The Price Increase Was Market Wide: The Math Is Simple • Publisher Defendants accounted for approximately half of the trade e-book market in the first quarter of 2010. (PX-1105, Table 1) • Publisher Defendants’ prices increased over 18% for all e-books. (PX-1105, Table 5) • Random House’s prices were flat. (PX-1105, Table 5) • Non-agency publishers prices barely moved (PX-1105 Table 5) Non agency publishers’ moved. (PX 1105, • Half of 18% is 9%. There was a 9% price increase in the overall trade e-book market. 106 There Is No Requirement of MarketͲWide Price Effects “[T]he fact that sales on the spot markets were still governed by some competition is of no consequence. For it is indisputable that that competition was restricted through the removal by respondents of a part of the supply which but for the buying programs would have been a factor in determining the going prices on those markets. . . . Any combination which tampers with price structures is engaged in an unlawful activity.” ith i t t i di l f l ti it ” United States v. Socony-Vacuum Oil Co., 310 U.S. 150, 220-2 (1940) 107 The Apple Agency Agreements Did Not Increase Output Non-agency publishers’ share increased. Agency publishers’ share declined. PXͲ1105 “[I]f the Apple agency agreements were stimulating growth, then I would expect to see some indication of that in the share of the publishers who were operating under those agreements. And, in fact, I see the opposite.” Gilbert Testimony, TT 1565:3-7 108 Apple Admits the iBookstore Was Not Innovative “Q. You can’t tell us how many eBook titles came on to the market specifically because of Apple’s entry in 2010, correct? A. I can’t at this time.” “Q. And in fact, even after Apple launched its iPad, isn’t it true, sir, that Amazon offered eBooks with embedded audio and video before Apple did? A. That s correct That’s correct” “Q. And, in fact, Amazon’s Kindle app for the iPad, the first Kindle app for the iPad that came out the day that the iPad launched, the day that the iPad actually went to market, allowed for choice in customization of fonts; did it not? A. Correct.” McDonald T i M D ld Testimony, TT 2331:6-9, 2334 5 8 2340 25 2341 4 2331 6 9 2334:5-8, 2340:25-2341:4 109 Apple Admits the iBookstore Was Not Innovative “Q. So isn’t it a fact, sir, that Apple’s sepia feature in iBooks wasn’t an innovation at all? A. We didn’t come out with it first, correct. Q. In fact, Apple just copied it from Amazon, correct? A. I can’t speak to the nature of how we implemented it. Q. But that s what the document indicates, sir; does it not? that’s A. That’s what this document indicates, correct. Q. And so would you agree with me, sir, that at the very least, the part of your declaration that talks about changing the color of book pages from white to sepia I can’t as being an innovation of the iBooks app isn’t entirely accurate? A. Yes.” A Y ” McDonald Testimony, TT 2343:20-2344:6 110 From Apple’s Opening “The publishers sign A l ’ agency Apple’s agreements with an MFN and price caps” “Demand for agency convinces f th Amazon, of the a company, A futility of continued resistance to agency” “The publishers i i t raise prices to the price caps by agreement” BEFORE AFTER $9.99 $9 99 $12.99 $14.99 $12 99 – $14 99 “The MFN sharpens the publishers’ incentives to demand agency from Amazon” “Amazon adopts agency in circumstances where absent the Apple MFN it would not have adopted agency” “All of these links in the chain are required for the government to meet All its burden of proving that Apple participated in a price fixing scheme.” Apple’s Opening Statement, TT 136:11Ͳ23 111 From Apple’s Opening “The publishers sign A l ’ agency Apple’s agreements with an MFN and price caps” “Demand for agency convinces f th Amazon, of the a company, A futility of continued resistance to agency” “The publishers i i t raise prices to the price caps by agreement” BEFORE AFTER $9.99 $9 99 $12.99 $14.99 $12 99 – $14 99 “The MFN sharpens the publishers’ incentives to demand agency from Amazon” “Amazon adopts agency in circumstances where absent the Apple MFN it would not have adopted agency” “All of these links in the chain are required for the government to meet All its burden of proving that Apple participated in a price fixing scheme.” Apple’s Opening Statement, TT 136:11Ͳ23 112 From Apple’s Opening “The publishers sign A l ’ agency Apple’s agreements with an MFN and price caps” “Demand for agency convinces f th Amazon, of the a company, A futility of continued resistance to agency” “The publishers i i t raise prices to the price caps by agreement” BEFORE AFTER $9.99 $9 99 $12.99 $14.99 $12 99 – $14 99 “The MFN sharpens the publishers’ incentives to demand agency from Amazon” “Amazon adopts agency in circumstances where absent the Apple MFN it would not have adopted agency” “All of these links in the chain are required for the government to meet All its burden of proving that Apple participated in a price fixing scheme.” Apple’s Opening Statement, TT 136:11Ͳ23 113 From Apple’s Opening “The publishers sign A l ’ agency Apple’s agreements with an MFN and price caps” “Demand for agency convinces f th Amazon, of the a company, A futility of continued resistance to agency” “The publishers i i t raise prices to the price caps by agreement” BEFORE AFTER $9.99 $9 99 $12.99 $14.99 $12 99 – $14 99 “The MFN sharpens the publishers’ incentives to demand agency from Amazon” “Amazon adopts agency in circumstances where absent the Apple MFN it would not have adopted agency” “All of these links in the chain are required for the government to meet All its burden of proving that Apple participated in a price fixing scheme.” Apple’s Opening Statement, TT 136:11Ͳ23 114 From Apple’s Opening “The publishers sign A l ’ agency Apple’s agreements with an MFN and price caps” “Demand for agency convinces f th Amazon, of the a company, A futility of continued resistance to agency” “The publishers i i t raise prices to the price caps by agreement” BEFORE AFTER $9.99 $9 99 $12.99 $14.99 $12 99 – $14 99 “The MFN sharpens the publishers’ incentives to demand agency from Amazon” “Amazon adopts agency in circumstances where absent the Apple MFN it would not have adopted agency” “All of these links in the chain are required for the government to meet All its burden of proving that Apple participated in a price fixing scheme.” Apple’s Opening Statement, TT 136:11Ͳ23 115 From Apple’s Opening “The publishers sign A l ’ agency Apple’s agreements with an MFN and price caps” “Demand for agency convinces f th Amazon, of the a company, A futility of continued resistance to agency” “The publishers i i t raise prices to the price caps by agreement” BEFORE AFTER $9.99 $9 99 $12.99 $14.99 $12 99 – $14 99 “The MFN sharpens the publishers’ incentives to demand agency from Amazon” “Amazon adopts agency in circumstances where absent the Apple MFN it would not have adopted agency” “All of these links in the chain are required for the government to meet All its burden of proving that Apple participated in a price fixing scheme.” Apple’s Opening Statement, TT 136:11Ͳ23 116 Purposes of Remedy • End Apple’s illegal conduct United States v. Parke, Davis Co., 362 U.S. 29, 48 (1960) • Restore competition to the marketplace Int’l Salt Co. v. United States, 332 U.S. 392, 401 ( l l d (1947) ) • Deprive Apple of the benefits of its conspiracy United States v. Paramount Pictures, Inc., 334 U.S. 131, 171 (1948) • Prevent reoccurrence United States v. U.S. Gypsum Co., 340 U.S. 76, 88-89 (1950) The Court has broad remedial powers to accomplish these purposes. Int’l Salt, 332 U.S. at 400-01 117 Proposed Final Judgment Prohibited: • Agency prohibited for two years • Retail price MFNs prohibited for five years • Apple prohibited from further antitrust law violations • Apple prohibited from retaliation or discrimination Required: R i d • Antitrust compliance program • Antitrust training for executives • Independent monitoring trustee • Allow t d pa ty boo se e s to reinstate hyperlinks to their stores ow third-party booksellers e state ype s t e sto es See Plaintiffs’ Proposed Conclusions of Law (April 26, 2013) at ¶ 88 118 The Government Proved at Trial • Fearing for the future of their “industry,” publishers conspired to raise retail e-book prices; however, their efforts had proved largely unsuccessful. • Apple wanted to enter the e-book market, but feared that price competition with Amazon, the market leader, would involve either Apple accepting a lower margin, or no one buying Apple’s books. • The publishers sought a plan from Apple that would solve their “Amazon issue.” • Rather than risk competition on the merits with Amazon, Apple accepted the publishers’ invitation to fix industry pricing. • To effectuate their common goals, Apple orchestrated a horizontal conspiracy among the publishers to move the industry to an agency model, which would let the publishers set higher retail prices that they had agreed upon with Apple. • Each of the publishers, assured of the participation of four other publishers in the conspiracy, threatened Amazon with the choice of either adopting the agreed-upon terms or face losing all new release e books for agreed upon terms, e-books seven months. • The conspiracy was effective: Amazon was forced to accept an agency model, e-book prices rose overnight and significantly, and consumers paid higher prices for e-books. • Rather than accept responsibility for their actions, high-level Apple executives have consistently denied, under oath, what their normal course business documents make clear: they conspired with the publishers to raise e-book prices and restrain retail price competition, harming consumers. 119