Unites States of America v. Apple, Inc. et al
REPLY to Response to Motion re: 234 MOTION in Limine to Preclude Dr. Kevin Murphy from Offering at Trial Testimony on His Opinions #1-#3.. Document filed by Unites States of America. (Fairchild, Stephen)
UNITED STATES DISTRICT COURT
FOR THE SOUTHERN DISTRICT OF NEW YORK
UNITED STATES OF AMERICA,
APPLE, INC., et al.,
Civil Action No. 12-cv-2826 (DLC)
THE STATE OF TEXAS;
THE STATE OF CONNECTICUT; et al.,
PENGUIN GROUP (USA) INC. et al.,
Civil Action No. 12-cv-03394 (DLC)
PLAINTIFFS’ REPLY MEMORANDUM IN SUPPORT OF THEIR MOTION IN
LIMINE TO PRECLUDE DR. KEVIN MURPHY FROM OFFERING AT TRIAL
TESTIMONY ON HIS OPINIONS #1-#3
Faced with overwhelming direct and circumstantial evidence that it participated in a
horizontal price-fixing conspiracy with Publisher Defendants, Defendant Apple, Inc. attempts to
avoid liability by extending Monsanto Co. v. Spray-Rite Serv. Corp., 465 U.S. 752 (1984), far
beyond its holding. According to Apple, Monsanto holds that Plaintiffs cannot make their
conspiracy case against Apple unless they present evidence that tends to exclude the possibility
that Apple was acting in its own economic self-interest when it negotiated and agreed to the
Apple Agency Agreements. Having no case law support of its reading of Monsanto, Apple
instead relies on its economic expert, Dr. Kevin Murphy, to suggest that Apple’s erroneous legal
standard—i.e., whether Apple’s conduct was in its own interests—is of some significance for
this case. But as Apple itself is forced to acknowledge, the Supreme Court has held that if a
plaintiff can “prove that a conspiracy existed, then the defendant may not avoid liability by
arguing that it stood to benefit individually from the conspiracy.” (Apple’s Opposition to
Plaintiffs’ Pre-Trial Memorandum of Law (“Apple Resp.”) at 11 (emphasis in original).)
Because Apple’s misguided reading of Monsanto is so central to its defense in this case—
and because the relevance of Dr. Murphy’s testimony depends on Apple’s misreading—a
focused discussion of what Monsanto says and does not say follows below. To be clear,
Monsanto says nothing at all about requiring proof of actions contrary to a firm’s economic
interest to support a finding of conspiracy; it merely stands for the basic proposition that proof of
a conspiracy requires evidence that reasonably tends to support the finding that the conspiring
firms were acting pursuant to a conscious commitment to a common scheme. Dr. Murphy’s first
three opinions, however, apply Apple’s erroneous interpretation of Monsanto, are irrelevant, and
therefore must be excluded.
Apple argues that the “proper inquiry” in this case under the Supreme Court’s decision in
Monsanto is “whether Apple acted in its independent economic self-interest.” 1 Based on this
misguided claim, Dr. Murphy answered a single binary question: whether Apple found the terms
it agreed to with Publisher Defendants, “attractive,” or were those terms “part of a conspiracy.”
(Murphy Dep. 58:20-60:16.) Thus, Dr. Murphy could have found the evidence suggestive of
conspiracy only if the terms of Apple’s agreements with Publisher Defendants were contrary to
Apple’s economic self-interest.
The question Dr. Murphy studied is not the correct inquiry in this case from either a legal
perspective or an economic one. Both sides acknowledge that the Supreme Court in Monsanto
upheld a jury finding of a vertical price-fixing conspiracy, and that the Court said that “[t]here
must be evidence that tends to exclude the possibility that the manufacturer and nonterminated
distributors were acting independently.” Monsanto, 465 U.S. at 764. Monsanto proceeds to hold
that to prove action is not undertaken “independent” of the conspiracy alleged, a plaintiff “should
present direct or circumstantial evidence that reasonably tends to prove that the manufacturer and
others had a conscious commitment to a common scheme designed to achieve an unlawful
objective.” Id. (quotations omitted). 2
See Apple’s Opposition to Plaintiffs’ Motion in Limine to Preclude Professor Kevin M. Murphy from Offering at
Trial Testimony on His Opinions #1-#3 (“Apple Opp.”) at 2 (emphasis in original). Plaintiffs are not suggesting that
the Supreme Court’s decision in Monsanto is “inapplicable where the alleged conspirator is in a vertical relationship
with its co-conspirators.” (Apple Resp. at 9 (internal quotations omitted).) In fact, Plaintiffs clearly and consistently
acknowledge in our papers that under Monsanto Plaintiffs 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.” (Plaintiff’s Proposed Conclusions of Law ¶ 2 (quoting Monsanto, 465
U.S. at 764).)
Notably, Monsanto was not the revolutionary antitrust decision that Apple perceives it to be. As early as 1963,
courts made clear that proof of a conspiracy in violation of the Sherman Act required some “consciousness of
commitment to a common scheme.” United States v. Standard Oil Co., 316 F. 2d 884, 890 (7th Cir. 1963).
Apple’s argument in defending Dr. Murphy’s analysis is not that, under Monsanto,
Plaintiffs must present evidence tending to exclude the possibility that defendants were acting
independently. Rather, Apple attempts to defend Dr. Murphy’s analysis by arguing that, under
Monsanto, Plaintiffs must present evidence that tends to exclude the possibility that Apple was
acting in its own economic self-interest. (Apple Resp. at 9.)
No court has ever interpreted Monsanto in this way. The economic self-interest test
Dr. Murphy applied is one factor courts often use to assess liability based on parallel conduct.
Apple, however, interprets these cases as setting forth substantive standards that must be met in
proving any Section 1 violation, whether or not parallel conduct is at issue. That is simply not
accurate. Here, Plaintiffs do not ask the Court to determine whether Apple participated in a
conspiracy with Publisher Defendants based on Apple’s parallel conduct. Thus, Dr. Murphy
should not have used his economic self-interest test as the sole consideration in his analysis.
A simple example illustrates why. Clearly, it was in Apple’s economic self-interest to
prevent Amazon from offering lower-priced e-books than Apple was prepared to offer. That
Apple acted to advance that goal in its negotiations with Publisher Defendants does not mean
that Apple did not conspire with Publisher Defendants as part of a common scheme to end
Amazon’s low pricing. Indeed, it helps supply Apple’s motive for having done precisely that.
Yet this common-sense understanding is wholly absent from Dr. Murphy’s analysis.
It is precisely this distinction that the Third Circuit explained in Fineman v. Armstrong
World Indus., Inc., 980 F.2d 171, 212-15 (3d Cir. 1992). In that case, the court noted that, in a
parallel conduct case to find “evidence of concerted action,” courts examine whether plaintiffs
can show, inter alia, “action contrary to the co-conspirator’s economic interest.” Id. at 214 n.32.
However, the court recognized that it is “inexplicabl[e]” to apply the requirements of a
parallel conduct case in the vertical context. Id. Instead, in reviewing whether a firm had
participated in a vertical conspiracy, the court cited a leading treatise for the proposition that a
“co-conspirator’s participation need only promote his own self-interest.” 3 Id. at 215 (emphasis
As Plaintiffs have previously explained, Apple attempts to defend Dr. Murphy’s analysis
by making the same argument that the defendant made in United States v. General Motors Corp.,
384 U.S. 127 (1966)—that the Court cannot find a conspiracy because Apple was merely signing
contracts with terms that it deemed to be in its economic self-interest. That argument was
squarely rejected by the General Motors Court in a decision that was left undisturbed by
Monsanto and subsequent decisions. Id. at 142. Because this precedent is fatal to the relevance
of Dr. Murphy’s first three opinions, Apple must resort to extreme contortions to cast doubt on
General Motors’ applicability here.
Apple’s attempts at protecting Dr. Murphy’s analysis from irrelevance fall far short.
Apple points to the fact that in General Motors the challenged conduct was a per se illegal
conspiracy where a defendant attempted to “hide behind lawful contracts,” (Apple Resp. at 11),
as if that somehow differentiates its fact pattern from this case. Apple’s very next sentence,
however, identifies the issue here as centering on the terms of its contracts with Publisher
Defendants. Id. But just as in General Motors, Plaintiffs are not separately challenging the
terms of the Apple Agency Agreements. Instead, Plaintiffs challenge Apple’s knowing
participation in a horizontal price-fixing conspiracy to increase consumer prices and restrain
Apple contends that “[n]o federal court of appeals” or “any judge of this District” “has adopted” Plaintiffs’
interpretation of Fineman. (Apple Resp. at 9.) This careful formulation ignores that the District Court in
Washington, DC has adopted precisely this interpretation of Fineman. See Atlantic Coast Airlines Holdings, Inc. v.
Mesa Air Grp., Inc., 295 F. Supp. 2d 75, 92 (D.D.C. 2003) (describing Fineman as standing for the proposition that
there is “no need to show that a party in a vertical relationship acted contrary to its own self interest” to find a
conspiracy, and applying that standard in the matter before it). Notably, Apple cites to no cases that arrive at a
contrary outcome. Nor does Apple challenge the logic of Plaintiffs’ interpretation of Fineman.
retail price competition. And just like the defendant in General Motors, Apple defends its
conduct by pointing to outcomes—certain contractual terms—that are in its economic selfinterest. That is the very argument rejected in General Motors.
Apple proceeds to confirm that General Motors holds “that if the plaintiff can prove that
a conspiracy existed, then the defendant may not avoid liability by arguing that it stood to benefit
individually from the conspiracy.” (Apple Resp. at 11 (emphasis in original).) It is befuddling
how this characterization supports the relevance of Dr. Murphy’s analysis, given that Apple’s
primary defense is that its conduct was to its economic benefit. 4 Properly read, General Motors
stands for the common-sense proposition that proof of a conscious commitment to a common
scheme precludes Apple from defending against its participation in the conspiracy by claiming
its conduct was in its own economic interest.
Apple’s attempts to defend Dr. Murphy’s analysis by distinguishing Interstate Circuit,
Inc. v. United States, 306 U.S. 208 (1939) 5 and Toys “R” Us, Inc. v. FTC, 221 F.3d 928
(7th Cir. 2000), are similarly unconvincing. Apple recognizes that in both cases the “hub” of the
conspiracy was the “party that allegedly orchestrated, directed, and enforced” the conspiracy.
(Apple Resp. at 21.) Surely Apple is not arguing that either of those defendants “orchestrated,
directed, and enforced” a conspiracy that was anything but “attractive” to it. Such an outcome
would be ludicrous. Yet, that is precisely what Dr. Murphy’s analysis, and Apple’s arguments,
Plaintiffs do not agree with Apple’s insinuation that Monsanto overruled General Motors. (Apple Resp. at 10.)
Monsanto did not hold that a defendant can counter proof of a conspiracy by citing its own lawful self-interest, nor
did it even address the issue. Monsanto makes no mention of General Motors.
Apple’s claim in a footnote that Interstate Circuit is not a per se case is contradicted by the decision itself, the
Supreme Court’s own interpretation of Interstate Circuit, and the law in this and other Circuits. See United States v.
Masonite Corp., 316 U.S. 265, 274-76 (1942); PepsiCo, Inc. v. Coca-Cola Co., 315 F.3d 101, 110 (2d Cir. 2002).
To the contrary, the case Apple relies on, Royal Drug Co. v. Group Life Health Insurance Co., 737 F.2d 1433, 1437
(5th Cir. 1984), (Apple Resp. at 24 n.17) mistakenly observed that Interstate Circuit analyzed the reasonableness of
the price level fixed by the defendants, VI Phillip E. Areeda & Herbert Hovenkamp, ANTITRUST LAW ¶ 1426d n.23
(3d ed. 2010) (“the Interstate Circuit Court did not appraise the price level”), which therefore misled the Royal Drug
court into believing Interstate Circuit was not a per se case.
ask this Court to find. 6 Indeed, it is difficult to see how Apple can make the argument it does in
supporting the relevance of Dr. Murphy’s testimony without suggesting that Interstate Circuit
and Toys “R” Us were wrongly decided.
That Dr. Murphy’s economic self-interest test is nothing more than a façade is made clear
by his failure to apply the test to Publisher Defendants, where it would actually have relevance.
The conspiracy in this case was horizontal because it was “the product of a horizontal
agreement” among Publisher Defendants. Denny’s Marina, Inc. v. Renfro Prods., Inc., 8 F.3d
1217, 1220 (7th Cir. 1993) (quotation omitted) (citing General Motors Corp., 384 U.S. at 140). 7
Thus, the relevant questions are 1) whether there was a conspiracy among Publisher Defendants,
and 2) whether Apple knowingly facilitated or otherwise participated in that conspiracy.
Dr. Murphy has nothing to say on the first question, and admits that he has “no comparative
advantage” to offer the Court on the second. (Murphy Dep. 97:5-98:1.)
As Apple acknowledges, “an expert’s failure to offer testimony relevant to the proper
legal standards can be fatal.” (Apple Opp. at 4-5 (citing Williamson Oil Co., Inc. v. Philip
Morris USA, 346 F.3d 1287, 1323 (11th Cir. 2003))); see also FED. R. EVID. 702. Dr. Murphy’s
first three opinions are not relevant to the legal standards here and therefore should be excluded.
Apple claims that both courts considered whether the defendant could offer an independent justification for its
conduct. (Apple Resp. at 21.) But this merely repeats the same error Apple makes in its interpretation of Monsanto.
There is a difference between acting independently from a common scheme and Apple’s argument that its actions
were in its individual economic interest. Moreover, in Toys “R” Us, the defendant retailer did argue its actions were
a “legitimate business response to combat free riding.” 221 F.3d at 937. But the court considered that argument
only in the context of evaluating the competitive effects of the agreement as part of its rule of reason inquiry that it
conducted in the alternative (after finding per se liability)—and not in considering whether Toys “R” Us participated
in the conspiracy. In any event, the court’s discussion is of little aid to Apple, because the court rejected the
defendant’s argument, finding that the defendant was truly interested in “maximizing its own profits,” id. at 938,
while noting that what the defendant “wanted or did not want is neither here nor there.” Id. Thus, far from
maximizing one’s economic self-interest being a grounds for excusing liability, the court used it as a basis to uphold
Because Publisher Defendants are horizontal rivals, it is possible to infer an agreement among them based on
parallel conduct and plus factors, including behavior that, absent a conspiracy, would be against any conspiring
firm’s economic self-interest. See, e.g., Apex Oil Co. v. DiMauro, 822 F.2d 246, 253-54 (2d Cir. 1987); In re
Currency Conversion Fee Antitrust Litig., 265 F. Supp. 2d 385, 418-19 (S.D.N.Y. 2003).
Neither Dr. Murphy nor Apple points to any economic theory that suggests that a firm’s
participation in a conspiracy when it is in a vertical relationship to the other firms in the
conspiracy can be determined by whether its conduct was in its own interest. 8 As
Professor Gilbert has testified, Dr. Murphy offers “no reason why, as a matter of economic
theory, it is necessary for a firm alleged to have facilitated a conspiracy—as opposed to the
horizontal competitors who are conspiring—to act contrary to its unilateral interests for the
conspiracy to succeed.” (Gilbert Direct ¶ 84.) Indeed, common sense and everyday experience
counsel the opposite.
Apple appears to believe that merely because Dr. Murphy’s opinions are those of an
economist, it follows necessarily that he is offering “economic analysis.” (Apple Opp. at 4.) But
this is no more necessarily true than claiming a prediction that the Mets will win the World
Series this year constitutes a “legal opinion” if it is made by a lawyer. It is not the province of an
economist to testify about Apple’s intent or its knowledge of or participation in the conspiracy.
In re Rezulin Prods. Liability Litig., 309 F. Supp. 2d 531, 546-47 (S.D.N.Y. 2004). Dr. Murphy
admits as much, yet still testifies on these points. (Murphy Dep. 93:8-98:18.) He should not be
permitted to do so at trial.
For the reasons set forth above, Plaintiffs respectfully request that the motion in limine to
exclude opinions 1-3 of Dr. Murphy’s testimony be granted.
Notably, all of the case law to which Apple cites to the contrary arises in the parallel-conduct context, where
Plaintiffs acknowledge action against independent economic interest may be relevant. Again, Dr. Murphy declined
to assess whether Publisher Defendants were acting against their independent economic interest, which is highly
Dated: May 8, 2013
Mark W. Ryan
Lawrence E. Buterman
David Z. Gringer
Attorneys for the United States
United States Department of Justice
450 Fifth Street, NW, Suite 4000
Washington, DC 20530
On Behalf of the United States of America
Assistant Attorneys General
Office of the Attorney General of Texas
P.O. Box 12548
Austin, TX 78711
W. Joseph Nielsen
Gary M. Becker
Assistant Attorneys General
Office of the Attorney General of Connecticut
55 Elm Street
Hartford, CT 06106
On Behalf of the Plaintiff States
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