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

Filing 245

PROPOSED FINDINGS OF FACT AND CONCLUSIONS OF LAW. Document filed by Apple, Inc..(Snyder, Orin)

UNITED STATES DISTRICT COURT
SOUTHERN DISTRICT OF NEW YORK
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UNITED STATES OF AMERICA,
Plaintiff,
12 Civ. 2826(DLC)

~

~•
APPLE INC., et al.,
Defendants.

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THE STATE OF TEXAS,
THE STATE OF CONNECTICUT,et al.,
Plaintiffs,
~

~•

12 Civ. 03394(ALC)

PENGUIN GROUP(USA)INC., et al.,
Defendants.

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APPLE INC.'S PROPOSED CONCLUSIONS OF LAW

Proof of the Existence of a Conspiracvl
1.

Section 1 ofthe Sherman Act provides that "[e]very contract, combination

in the form of trust or otherwise, or conspiracy, in restraint oftrade ... is hereby declared
to be illegal." 15 U.S.C. § 1.

1 Ofthe state plaintiffs' three conspiracy counts, Apple is alleged to be a party only to
one ofthem. States' Second Am. Compl. ¶¶ 126-28.

2.

Plaintiffs also bring claims under state law. States' Second Am. Compl. ¶¶

129-98. These claims parallel the section 1 claim in this case as state courts
"overwhelmingly look to federal antitrust decisions to construe their own antitrust
statutes." In re Digital Music Antitrust Litig., 592 F. Supp. 2d 435,447-SO & nn. 19-21
(S.D.N.Y. 2008)(collecting authorities), rev'd on other grounds by Starr v. Sony BMG
Music Entm't, 592 F.3d 314,327(2d Cir. 2010).
3.

Plaintiffs "must prove an antitrust violation by a preponderance of the

evidence." Concord Boat Corp. v. Brunswick Corp,, 207 F.3d 1039, 1058(8th Cir. 2000).
Plaintiffs must prove "two essential elements":(1)"[t]hat defendants entered into a
contract, combination or conspiracy"; and (2)"[t]hat such contract, combination or
conspiracy amounted to an unreasonable restraint of trade or commerce among the several
States." Cont'l Cablevision ofOhio, Inc. v. Am. Elec. Power Co.,715 F.2d 1115,1118(6th
Cir. 1983).
4.

Plaintiffs "mustfirst establish a combination or some form of concerted

action." Capital Imaging Assocs., P.C. v. Mohawk Palley Med. Assocs., Inc.,996 F.2d
537,542(2d Cir. 1993)(emphasis added). If plaintiffs cannot prove that Apple
participated in a conspiracy, then their section 1 claim "must fail" and the Court need not
reach an analysis of unreasonableness. Virgin Atl. Airways Ltd. v. British Airways PLC,
257 F.3d 256,263(2d Cir. 2001).
5.

Plaintiffs are required to introduce "direct or circumstantial evidence that

reasonably tends to prove that[Apple] had a conscious commitment to a common scheme"
with the publishers "designed to achieve [the] unlawful objective" of raising paces

2

throughout the e-book market. Monsanto Co. v. Spray-Rite Serv. Corp.,465 U.S. 752,764
(1984)(quotation marks omitted)(emphasis added).
6.

Plaintiffs also bear the burden of proving that Apple had a culpable intent,

as the "lack of intent by one party ... precludes a conspiracy to [restrain trade]." Geneva
Pharms. Tech. Corp. v. Barr Labs., Inc., 386 F.3d 485,507(2d Cir. 2004).
7.

The Supreme Court has held that "genuine contracts of agency" are not

"violations ofthe Anti-Trust Act"(per se or otherwise) as a "matter of principle." United
States v. Gen. Elec. Co.,272 U.S. 476,488(1926); see also Valuepest.com ofCharlotte,
Inc. v. Bayer Corp., 561 F.3d 282, 294(4th Cir. 2009)(upholding lawfulness of genuine
agency agreements).
8.

The Apple agency agreements are genuine contracts of agency, a

conclusion plaintiffs do not contest(reserving their right to allege a distinct conspiracy).
9.

The Supreme Court has recognized that vertically related firms have

"legitimate reasons to exchange information" on pricing, Monsanto,465 US. at 762, and
that vertical business relationships are likely to have procompetitive benefits and to
promote the purpose ofthe antitrust laws,see, e.g., Bus. Elecs. Corp. v. Sharp Elecs. Corp.,
485 U.S. 717, 724(1988)(vertical agreements "halve] real potential to stimulate
interbrand competition, the primary concern of antitrust law")(quotation marks omitted).
10.

The Supreme Court has "rejected the approach of reliance on rules

governing horizontal restraints when defining rules applicable to vertical ones," and no
longer treats "vertical agreements a manufacturer makes with its distributors as analogous
to a horizontal combination among competing distributors." Leegin Creative Leather
Prods., Inc. v. PSKS, Inc., S51 U.S. 877, 888(2007).

3

11.

The Supreme Court has overruled its own precedents three times to reduce

scrutiny on vertical relationships. Cont'l T. V., Inc. v. GTE Sylvania, Inc., 433 U.S. 36, S9
(1977)(holding that vertical non-price restrictions are subject to the rule of reason,
overruling United.States v. Arnold, Schwinn & Co., 388 U.S. 365 (1967)); State Oil Co. v.
Khan,522 U.S. 3,7(1997)(holding that vertical agreements setting maximum prices are
subject to the rule ofreason, overruling Albrecht v. Herald Co., 390 U.S. 145 (1968));
Leegin, 551 U.S. at 907(holding that all "[v]ertical price restraints are to be judged
according to the rule of reason," overruling Dr. Miles Med. Co. v. John D. Park &Sons,
Co.,220 U.S. 373(1911)).
12.

As to Apple, plaintiffs allege a restraint of trade that is vertical in nature.

13.

To prove a "hub and spoke" conspiracy, plaintiffs must show that the

alleged vertical "hub" ofthe conspiracy was the party that allegedly implemented and
enforced the plan. Interstate Circurt v. United States, 306 U.S. 208,222(1939)(noting
that the defendant organized and implemented the plan); Toys "R" Us, Inc. v. FTC,221
F.3d 928,933(7th Cir. 2000)(noting that the defendant communicated messages from
manufacturer to competing manufacturer and "served as the central clearinghouse for
complaints about breaches in the agreement"); accord 14B P. Areeda & H. Havenkamp,
Antitrust Law ¶ 1426 & n.47(3d ed. 2010)(cautioning against application ofInterstate
Circurt and Toys "R" Us "to an altogether different set offacts")
The Evidence Must Tend to Exclude the Possibility of Independent Action
14.

"Direct evidence is extremely rare in antitrust cases." Am. Chiropractic

Assn v. Trigon Healthcare, Inc., 367 F.3d 212,226(4th Cir. 2004). Such evidence must

4

be a "smoking gun." Mayor &City Council ofBalt., Md. v. Citigroup, Inc., 709 F.3d 129,
136(2d Cir. 2013).
15.

Direct evidence in a section 1 conspiracy must be evidence that "is explicit

and requires no inferences to establish the proposition or conclusion being asserted." In re
Baby Food Antitrust Litig., 166 F.3d 112, 118(3d Cir. 1999). Far example, direct evidence
might consist of"a recorded phone call in which two competitors agreed to fix prices at a
certain level." Citigroup, 709 F.3d at 136.
16.

There is no direct evidence against Apple of a conspiracy. The issue of

whether Apple conspired with the publishers must be established through circumstantial
evidence.
17.

To establish a conspiracy by circumstantial evidence, plaintiffs must meet

the "stringent standards in Monsanto." Leegin, 551 U.S. at 903. In Monsanto,the
Suprenne Court held that antitrust law "limits the range of permissible inferences from
ambiguous evidence in a § 1 case." Matsushita Elec. Indus. Co. v. Zenith Radio Corp.,475
YJ.S. 574, 588(1986).
18.

Conduct that is "as consistent with permissible competition as with illegal

conspiracy does not, standing alone, support arz inference of antitrust conspiracy."
/SAT v. Associated Press, 18l F.3d 216,235(2d
Matsushita, 475 U.S. at 588; accord AD
Cir. 1999).
19.

A section 1 plaintiff"must present evidence that `tends to exclude the

possibility' that the alleged conspirators acted independently." Matsushita,475 U.S. at
588 (quoting Monsanto,465 U.S. at 764)(emphasis added). To prove a conspiracy,

5

plaintiffs must present evidence that "tends to exclude the possibilitiy" that Apple acted
independently.
The Strength of Evidence Required To Establish A Consniracv
20.

It takes"strong" evidence to satisfy Monsanto's"tends to exclude"standard

in cases where plaintiffs' theory is implausible and the challenged conduct can reasonably
be perceived as procompetitive. In re Publ'n Paper Antitrust Litig., 690 F.3d 51,63(2d
Cir. 2012).
21.

"(I]fthe factual context renders [plaintiffs'] claim implausible—ifthe claim

is one that simply makes no economic sense—[plaintiffs] must come forward with more
persuasive evidence to support their claims than would otherwise be necessary."
Matsushita,475 U.S. at 587.

22.

The Supreme Court has emphasized the procompetitive benefits of"market

entry for new firms and brands." Leegin, 551 U.S. at 891.
23.

The Supreme Court has consistently recognized that restricted inferences

are necessary in antitrust cases to avoid enforcement that "could deter or penalize perfectly
legitimate conduct" and create "`irrational dislocation' in the market." Monsanto,465
U.S. at 763-64; see also In re Flat Glass Antitrust Litig., 385 F.3d 350, 357(3d Cir. 2004)
"a
( higher threshold is imposed in antitrust cases to avoid deterring innocent conduct that
reflects enhanced, rather than restrained, competition").
24.

Because plaintiffs' claims make "no economic sense" and challenge

conduct integrally related to market entry, plaintiffs must provide "strong" evidence to
support an inference of a conspiracy.

Apple's Conduct Was Driven By Its Independent Business Interests
25.

When "[t]he most natural inference from the evidence" is that the

defendant had a "legitimate,independent reason" for its actions, nn inference ofconspiracy
is possible under the Supreme Court's case law. Euromodas,lnc. v. Zanella, Ltd.,368 F.3d
11, 20(1st Cir. 2004)(citing Matsushita,475 U.S. at 588); see also 14A Areeda,supra,
¶ 1413a{ conspiracy can be inferred from parallel behavior when" an alleged
"no
conspirator "had an `independent' ox `good business reason' for the challenged act").
26.

Mere proof that the defendant had a plausible motive to conspire is never

(
sufficient for liability. Citigroup, 709 F.3d at 139 "evidence that the defendant had a
motive to enter into an antitrust conspiracy may indicate simply that the defendant[]
operates] in an oligopolistic market,that is, may simply restate the (legally insufficient)
fact that market behavior is interdependent and characterized by conscious parallelism")
(quoting In re Ins. Brokerage Antitrust Litig.,618 F.3d 300,322(3d Cir. 2010))(quotation
"Motivation to enter a conspiracy
marks omitted); see also 14A Areeda,supra, at ¶ 1411(
is never enough to establish a traditional conspiracy").
27.

"[I]ndependent business reasons" preclude a conspiracy finding where the

defendant acted pursuant to its own business policy and philosophy, including to protect its
brand and business reputation. H.L. Hayden Co. v. Siemens Med. Sys., Inc.,879 F.2d 1005,
1014(2d Cir. 1989); see also Burlington Coatfactory Warehouse Corp. v. Esprit de
Corp., 769 F.2d 919,924(2d Cir. 1985).
28.

Plaintiffs' experts, Professors Gilbert and Balser, do not contest Apple's

independent businessjustifications for its conduct. See White v. R.M. Packer Co.,635 F.3d
571, 581, 585-86 (lst Cir. 2011)(concluding that plaintiffs "antitrust claims fail" where

7

s

"[p]laintiff own expert stated that `no unambiguous conclusion can be gleaned from
defendants' pattern of parallel pricing"' and results of analysis were "mixed"); see also
United Air Lines, Inc. v. Austin Travel Corp., 867 F.2d 737,739(2d Cir. 1989)(affirming
grant ofsummary judgment in section 2 case where "expert conceded that there was no
reasonable ox realistic possibility that [defendant] could achieve a monopoly").
29.

Plaintiffs cannot establish a conspiracy by conceding that the defendant

made business decisions justified by valid independent business interests, and arguing only
that the defendant's conduct was also plausibly consistent with a conspiracy. See, e.g.,
C'itigroup, 709 F.3d at 138 (dismissing conspiracy allegations where defendants' conduct
"made perfect business sense" and was "notjust a rational business decision, but the only
rational business decision"); AD/SAT, 181 F.3d at 241 (concluding summaryjudgment was
warranted because each defendant's conduct was "as consistent with the defendant's
legitimate, independent business interest as with an illegal combination in restraint of
trade"); H.L. Hayden, 879 F.2d at 1014 (affirming grant of summary judgment where the
defendant presented evidence that it terminated business relations with plaintiff for
"independent business reasons"); Burlington,769 F.2d at 924(affirming grant ofsummary
judgment and concluding that plaintiff failed to meet Monsanto's test where
"uncontradicted evidence" showed defendant had azi independent business justification).2

See also Am. Chiropractze Assn Inc. v. Trigon Healthcare Inc., 367 F.3d 212,
226-27 (4th Cir. 2004)(finding no conspiracy where evidence in record showed actions
were "appropriate and reasonable" and independent); Ferguson v. Greater Pocatello
Chamber of Commerce, 848 F.2d 976, 981-82 (9th Cir. 1988) (affirming summary
judgment where each defendant "presented evidence of facially valid institutional and
business reasons for its decision"); Houser v. Fox Theatres Mgmt. Corp., 845 F.2d 1225,
1232-33(3d Cir. 1988)(affirnning summary judgment where defendants' actions were in
their own economic interests); In re Travel Agent Comm'n Antitrust Litig., 583 F.3d 896,
[Footnote continued on next page]
2

[Footnote continued from previous page]
908 (6th Cir. 2009) (dismissing conspiracy allegations where "each defendant had a
reasonable, independent economic interest" in its actions); Kreuzer v. Am. Acad. of
Perzodontology, 735 F.2d 1479, 1488 (D.C. Cir. 1984) (holding that if a defendant
"offer[s] an innocent explanation ofthe questioned conduct" and it "is plausible and more
logical than a theory of concerted action, then a conspiracy may not be found");
Merck-Medco Managed Care, LLC v. Rite Aid Corp., 201 F.3d 436, 1999 WL 691840, at
*15 (4th Cir. 1999)(per curiam)(affirming grant of summary judgment where evidence
was equally consistent with decisions that "were independent or were made for legitimate
business reasons"); Miles Drstribs. Inc. v. Specialty Constr. Brands, Inc., 476 F.3d 442,
450(7th Cir. 2007)(affirming grant ofsummaryjudgment where defendants' actions were
"as consistent with permissible competition as with a conspiracy"); Todorov v. DCH
Healthcare Auth., 921 F.2d 1438, 1457-58(11th Cir. 1991)(affirming summary judgment
where "record amply supports the procompetitive reasons" defendant offexed for its
actions); Wallace v. Bank of Bartlett, 55 F.3d 1 166, 1169-70 (6th Cir. 1995)(affirming
grant ofsummaryjudgment where defendants' conduct was based on "legitimate interest"
and where "[p]laintiff's expert evidence [was] equally consistent with independent action
as it [was] with conspiracy"); Williamson Oil Co. v. Philip Morris US.~, 346 F.3d 1287,
1306-07 (11th Cir. 2003) (affirming grant of summary judgment where defendants'
conduct was "readily explained as economically rational, self-interested responses" and
where plaintiffs conceded that defendants' conduct "was an exceptionally competitive
move"); Alpha Lyracom Space Commc'ns, Inc. v. Comsat Corp., 968 F. Supp. 876, 894
(S.D.N.Y. 1996)(finding no conspiracy despite parallel refusals and evidence that a joint
venture met on numerous occasions where defendant presented "ample evidence" of
independent business reasons); Kramer v. Pollock-Krasner Found., 890 F. Supp. 250,256
(S.D.N.Y. 1995)(finding no conspiracy where challenged actions "could equally have
");
been prompted by lawful, independent goals. Reading Intl, Inc. v. Oaktree Capital
Civ. 1895,2007 U.S. Dist. LEXIS 504, at *36(S.D.N.Y. Jan. 9, 2007)
Mgmt. LLC,No.03
(finding no conspiracy where evidence showed defendants exercised "their independent
business judgment"); Reborn Enters. Inc. v. Fine Child, Inc., 590 F. Supp. 1423, 1442
(S.D.N.Y. 1984) "[I]f a decision ...was solely based on legitimate business reasons ...
(
then plainti:Cf's claim must be dismissed." (quotation marks and brackets omitted));
Sample, Inc. v, Pendleton Woolen Mills, Inc., 704 F. Supp. 498, 501-03 (S.D.N.Y. 1989)
(finding no conspiracy where defendant's actions were consistent with "legitimate
business concerns"); U.S. Info Sys. v. I13EW Local Union No. 3, No. 00 Civ. 4763, 2007
U.S. Dist. LEXIS 56229, at *49-50(S.D.N.Y. Aug. 3, 2007)(finding no conspiracy where
defendants' conduct was equally consistent with own self-interest); Balaklaw v. Lovell,
822 F. Supp. 892, 902 (N.D.N.Y. i 993)(finding no conspiracy where defendants "had a
legitimate, business reason" for its conduct); Breakdown Servs., Ltd. v. Now Castzng, Inc.,
S50 F. Supp. 2d 1123, 1137(C.D. Cal. 2007)(finding no conspiracy where defendant "set
forth a plausible and justifiable reason for its conduct that is consistent with proper
business practice. Flash Elecs., Inc. v. Universal Music & Vzdeo Dzstrib. Corp., No.
");
CV-01-0979, 2009 WL 7266571, at *1, *10-14 (E.D.N.Y. Oct. 19, 2009)(Report and
Recommendation), adopted infull, 2010 WL 5390176(E.D.N.Y. Dec. 22, 2010)(finding
[Footnote continued on next page]
E

30.

Where the defendant offers "overwhelming evidence that the challenged

action was taken unilaterally for sound business reasons," then plaintiffs' conspiracy
allegations "cannot stand." Comfort Trane Air Conditioning Co. v. Trane Co., 592 F.2d
1373, 1384(5th Cir. 1979)(quotation marks omitted).
31.

Courts have overturned trial verdicts where, under Monsanto,the evidence

was as consistent with the defendant's independent business interest as with a conspiracy.
See Intl Distrib. Ctrs., Inc. v. Walsh Trucking Co., 812 F.2d 786, 794 (2d Cir. 1987)
(overturning ajury verdict for the plaintiffs where,"taken as a whole,the evidence pointed
with at least as much force toward independent action by the defendants as toward
[Footnote continued from previous page]
no conspiracy where defendants had "legitimate business reasons" for its conduct);
Friedman v. Del. Cnty. Mem'l Hosp., 672 F. Supp. 171, 188 (E.D. Pa. 1987)(finding no
conspiracy where defendant "had legitimate business justifications" for its conduct); In re
Graphics Processing Units Antitrust Litig., 527 F. Supp. 2d 1011, 1022(N.D. Cal. 2007)
(dismissing antitrust conspiracy allegations where defendants "[e]ach ha[d] its own
independent reason" for its actions); LaFlamme v. Societe Air Fr., 702 F. Supp. 2d 136,
152(E.D.N.Y. 2010)(dismissing antitrust conspiracy allegations where change in market
conditions plausibly "instigated independent decisions by defendants" to perform
challenged action); Maxim Integrated Prods., Inc. v. Analog Devices, Inc., No.
C-92-20716, 1994 WL 514024, at *2 (N.D. Cal. Sept. 7, 1994), rev'd zn part on other
grounds, 79 F.3d 1153 (9th Cir. 1996) (unpublished) (finding no conspiracy where
defendants "had sound, legitimate business reasons" for their conduct); Ralph C. Wilson
Indus., 1'nc. v. Am. Broad. Cos., 598 F. Supp. 694, 708 (N.D. Cal. 1984) (finding no
conspiracy where defendants "submitted overwhelming evidence that their ...practices
");
were undertaken in the exercise of their independent and sound business judgment.
Temple v. Circuit City Stores, Inc., No. 06 CV 5303, 2007 WL 2790154, at *7(E.D.N.Y.
Sept. 25, 2007) (dismissing antitrust conspiracy allegations where plaintiff alleged
defendants acted "fox business reasons" and to "protect their own profits" (internal
brackets omitted)); Tomina~a v. Shepherd, 682 F. Supp. 1489, 1496 (C.D. Cal. 1988)
(finding no conspiracy where defendant "raised [a] plausible business justification" for its
conduct); Wright v. S. Mono Hosp. Dist., 631 F. Supp. 1294, 1321 (E.D. Cal. 1986)
(finding no conspiracy where defendants "c[a]me forth with more than sufficient evidence
to establish that their acts benefitted their self interests while at the same time advancing
legitimate business decisions").

10

conspiracy, and a jury would have to engage in impermissible speculation to reach the
latter conclusion")(quotation marks and alterations omitted); Lovett v. Gen. Motors C'orp.,
988 F.2d 575, 579, 581 (8th Cir. 1993)(overturning a jury verdict based on the plaintiff's
"ambiguous" evidence because of the "strong competing inference" that the defendant
acted independently to meet its "legitimate business goals").
32.

Apple's challenged conduct was motivated by legitimate, independent

business reasons, and independent conduct is therefore the more natural inference from the
evidence rather than conspiracy.
Whether the Evidence Can Meet The Monsanto Standard
33.

Where a defendant has offered "substantial evidence supporting [a]

plausible and legitimate explanation of[its] conduct" as Apple has, plaintiffs "may not rest
on conclusozy assertions of conspiracy" and instead must come forward with strong
additional evidence ofthe defendant's conspiratorial activities. H.L. Hayden, 879 F.2d at
1014(citing Burlington, 769 F.2d at 923);see also Todorov v. DC'HHealthcare Auth.,921
(
F.2d 1438, 1456(11th Cir. 1991) "when the defendant puts forth a plausible,
procompetitive justification for his actions, we will not be quick to infer, from
circumstantial evidence, that a violation ofthe antitrust laws has occurred; the plaintiff
must produce more probative evidence that the law has been violated").
34.

For Monsanto's strict standard to be satisfied, the plaintiff must offer

compelling facts that clearly tended to exclude the possibility ofindependent action. See,
e.g., Capital Imaging,996 F.2d at 545 (the evidence "strongly suggest[ed]" that the

defendant's justifications for its conduct were a complete sham).

11

35.

Evidence that a defendant acted in a similar way in entering into separate

vertical agreements proves nothing, because "[s]imilar contract terms can reflect similar
bargaining power and commercial goals[.]" In re Elevator Antitrust Litig., 502 F.3d 47,51
(
(2d Cir. 2007); see also Ins. Brokerage,618 F.3d at 327 "one cannot plausibly infer" a
hub-and-spoke conspiracy from the mere fact that several insurers entered similar
commission agreements with an insurance broker).
36.

A change in market conditions that makes it necessary for a firm to change

its business model is not evidence ofa conspiracy. See Citigroup, 709 F.3d at 138
(defendants' en masse exit from market in reaction to market conditions was "notjust a
rational business decision, but the only rational business decision"); Travel Agent Comm'n,
S83 F.3d at 898,908(holding that a decision by seven airlines to eliminate, within days,the
practice of paying base-commissions to travel agencies was based on each airline's
"reasonable, independent economic interest" where the market had "changed
fundamentally since 1983 due to technological advances in airline ticket purchasing").
37.

The use of MFNs to bargain for low prices "is the sort of conduct that the

antitrust laws seek to encourage" and therefore do not support a finding of a conspiracy.
Blue Cross &Blue Shield United of Wisc. v. Marshfield Clinic, 65 F.3d 1406, 1415 (7th
"`Most favored nations' clauses are standard devices by which
Cir. 1995); see also id.(
buyers by to bargain for low prices, by getting the seller to agree to treat them as favorably

").
as any oftheir other customers.... It is not price fixing.
38.

"[C]ourts have not found MFN provisions illegal." ABA Section of

Antitrust Law,Antitrust Law Developments 222(7th ed. 2012). Further, the particular

12

MFN theory advanced here is novel, has never been examined before, and has not been
substantiated by plaintiffs.
39.

Communications during contract negotiations are not evidence of a

conspiracy, because "the fact that a manufacturer and its distributors are in constant
communication about prices and marketing strategy does not alone show that the
distributors are not making independent pricing decisions. A manufacturer and its
distributors have legitimate reasons to exchange information about the prices and the
reception oftheir products in the market." Monsanto,465 U.S. at 762.
40.

No conspiracy can be inferred from parallel conduct where "time [is] ofthe

essence." Fed. Broad. Sys., Inc. v. Am. Broad. Co., 167 F.2d 349, 352(2d Cir. 1948)(the
court could not infer a conspiracy from the fact that the defendants all terminated their
respective agreements with the plaintiff on the same day, because time was ofthe essence).
41.

Offering the same terms to multiple contracting parties is a standard

negotiation tactic that is not evidence of a conspiracy. See Ins. Brokerage, 618 F.3d at
329-30(no conspiracy can be inferred from the fact that a broker told its insurer-partners
the terms it had offered to its other insurer-partners, because that sharing "could be a
powerful tool for a broker attempting to negotiate a more favorable agreement with a
particular insurer-partner").
42.

The evidence does not tend to exclude the possibility ofindependent

conduct and does not permit the inference that Apple engaged in a conspiracy.
Statements Attributed to Steve Jobs
43.

Ambiguous statements from a corporate executive do not allow the court to

infer a conspiracy. See O.S.C. Corp. v. Apple Computer, Inc., 792 F.2d 1464, 1468(9th

13

Cir. 1986)(applying Monsanto and finding that a remark "by Apple's President
that ...something was going to be done about price erosion" was insufficient evidence of
a conspiracy).
44.

The statements by Steve Jobs on which plaintiffs rely do not permit the

inference that Apple engaged in a conspiracy.
The Plausibility of Plaintiffs' Theory
45.

Where, as here, plaintiffs' theory is "implausible," and where the

defendant's conduct "is consistent with other, equally plausible explanations," the
evidence "does not give rise to an inference ofconspiracy." Matsushita, 475 U.S. at 587,

Nonapplicability of the Per Se Rule
46.

Vertical price restraints, including vertical price ceilings, are subject to the

"o.
rule ofreason. State Oil C v. Khan,522 U.S. 3,22(1997). When price caps are allegedly
used to effectuate per se unlawful arrangements,the rule of reason must still be employed.
Id. at 17. MFNs are also evaluated under the rule of reason. Blue Cross &Blue Shield
(MFNs are "not
United of Wisc. v. Marshfield Clinic, 65 F.3d 1406, 1415 (7th Cir. 1995)
price-fixing"); United States v. Blue Cross Blue Shield ofMich., 809 F. Supp. 2d 665,67]
(E.D. Mich. 2011).
47.

The Supreme Court has stated that "a departure from the rule-of-reason

standard must be based upon demonstrable economic effect rather than upon formalistic
line drawing." Leegin, 551 U.S. at 887(quotation marks and ellipsis omitted).
48.

The per se rule is reserved for practices that have "manifestly

anticoinpetitzve" effects and "lack ...any redeeming virtue." Leegrn, 551 U.S. at 886.

14

49.

"The Supreme Court has repeatedly expressed reluctance to adopt per se

rules where the economic impact of certain practices is not immediately obvious." Major
League Baseball Props. v. Salvino, Inc., 542 F.3d 290,316(2d Cir. 2008). Put succinctly,
"[i]t is a bad idea to subject a novel way of doing business(or an old way in a new and
previously unexamined context ...)to per se treatment under antitrust law." In re Sulfuric
Acid Antitrust Litig., 703 F.3d 1004, 1011 (7th Cir. 2012).
50.

Courts have thus refused to apply the per se rule in markets(like the one for

digital books)that are innovative and evolving, because trade restraints "in such markets
may produce efficiencies that courts have not previously encountered and thus the
Supreme Court had not factored into the per se rule as originally conceived." United States
v. Microsoft Corp., 253 F.3d 34,93(D.C. Cir. 2001). It is not immediately or manifestly
obvious that Apple's challenged conduct is anticompetitive or falls in a category of
conduct that is always, or almost always, anticompetitive.
51.

Apple's challenged conduct does not lack all redeeming virtue and might

plausibly be found to have a net procompetitive effect. Entry that leads to "an eventual fall
in ...price" is "an unequivocally socially beneficial effect";if"agreements facilitated that
entry, their net effect on economic welfare may well[be] positive." Sulfuric Acid,703 F.3d
at 1011.
52.

A per se analysis is therefore inapplicable to this case.

53.

"[F]or the same reasons that per se liability is unwarranted here," Apple

cannot be held liable under the "quick look" doctrine. Texaco,Inc. v. Dagher,547 U.S. 1,
7 n.3(2006).

15

The Application of the Rule of Reason
54.

The rule of reason "distinguishes between restraints with anticompetitive

effect that are harnnful to the consumer and restraints stimulating competition that are in the
consumer's best interest." Leegin, 551 U.S. at 886.
55.

The "antitrust laws are designed primarily to protect interbrand

competition,from which lower prices can later result." Leegin, 551 U.S. at 895.
56.

Plaintiffs bear the initial burden under the rule of reason, which entails

"showing that the challenged action has had an actual adverse effect on competition as a
whole in the relevant market." Capital Imaging,996 F.2d at 543 (emphasis added);see
KM.B. Warehouse Distribs. v. Walker Mfg. Co.,61 F.3d 123, 127(2d Cir. 1995)(same);
Major League Baseball, 542 F.3d at 317(same). Without determining the proper
definition ofthe relevant market, it is appropriate to evaluate plaintiffs' claims of
anticompetitive effect in the relevant market they have defined: trade e-books sold in the
United States.
57.

"Supracompetitive pricing entails a restriction in output." Brooke Group

Ltd. v. Brown &Williamson Tobacco Corp., 509 U.S. 209,233 (1993). That output
allegedly "expanded at a slower rate than it [otherwise] would have" is a "counterfactual
proposition" that"is difficult to prove in the best ofcircumstances." Id. Plaintiffs have not
proven that output was restrained in the alleged relevant market.
58.

The Supreme Court has explained that "prices can be increased in the

course of promoting procompetitive effects." Leegin, 551 U.S. at 895-96.
59.

Every critical indicator of market health—lower price, higher output, more

selection, higher quality, lower concentration—signals that the trade e-books market has

16

been thriving since agency and consumers have been reaping the benefits. When contracts
are challenged under the rule ofreason and there is "no showing that the market as a whole
has been affected at all by the contract[s]," section 1 has not been violated. Jefferson
Parish Hosp. Dist. No. 2 v. Hyde,466 U.S. 2, 31 (1984).
60.

Apple's conduct has not violated the rule ofreason and is not unreasonable.
Plaintiffs' Requested Relief

I.

The United States
61.

The United States "may seek injunctive remedies on behalf ofthe general

public" in an antitrust case. United States v. Borden Co., 347 U.S. 514, 518(1954).
62.

"[W]hether or nor injunctive reliefshould be granted depends greatly on the

dictates of public interest. Protection ofthe public should be a paramount consideration in
determining the propriety ofan injunction." United States v. ~lM. Prince Textiles, Inc.,
262 F. Supp. 383,389-90(S.D.N.Y. 1966).
63.

Because enjoining Apple's procompetitive conduct would not serve the

public interest in any respect, the United States' requests for injunctive relief should be
denied.
II.

The State Plaintiffs
64.

The state plaintiffs are treated as private parties when seeking an injunction

pursuant to section 16 of the Clayton Act, 1 S U.S.C. § 26. See California v. Am. Stores
Co., 495 U.S. 271,295 (1990); New York v. Kraft Gen. Foods,852 F. Supp. 1030, 1033
(S.D.N.Y.1993).

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65.

As private litigants under section 16,the state plaintiffs "must prove

threatened loss or damage to [their] own interests in order to obtain relief." Am. Stores Co.,
495 U.S. at 295; see also Cargill, Inc. v. Monfort ofColo., 479 U.S. 104, 1 l3 (1986).
66.

Because Apple's procompetitive does not threaten any loss or damage to

the state plaintiffs, their requests for injunctive relief should be denied.
67.

The state plaintiffs's request for treble damages under section 4c ofthe

Clayon Act, 15 U.S.C. § 15c, on behalf of injuries to natural persons, is limited to those
damages that arise from violations ofthe Sherman Act. See In re Wyo. Tight Sands
Antitrust Cases, 855 F.2d 1286, 1290 n.l (10th Cir. 1989).
68.

Because the conduct of Apple challenged by the state plaintiffs does not

give rise to a violation ofthe Sherman Act, the state plaintiffs' request for treble damages
should be denied.

Re ectfu y

Dated: Apri126, 2013
By:

mi d,

~_
Orin Snyder
Lisa H. Rubin
Gibson,Dunn & Crutcher, LLP
200 Park Avenue,47th Floor
New York, NY 10166
[phone]
[e-mail]
[e-mail]
Daniel S. Floyd (Pro Hac Vice)
Daniel G. Swanson(Pro Hac Vice)
Gibson, Dunn & Crutcher, LLP
333 South Grand Avenue
Los Angeles, CA 90071
[phone]
[e-mail]
[e-mail]
18

Cynthia Richman
Gibson, Dunn & Crutcher, LLP
1050 Connecticut Avenue, N.W.
Washington, D.C. 20036
[phone]
[e-mail]
Howard E. Heiss
O'Melveny &Myers LLP
Times Square Tower
7 Times Square
New York, NY 10036
[phone]
[e-mail]
On behalfofDefendant Apple Inc.

r

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