Unites States of America v. Apple, Inc. et al
MEMORANDUM OF LAW in Opposition re: 234 MOTION in Limine to Preclude Dr. Kevin Murphy from Offering at Trial Testimony on His Opinions #1-#3.. Document filed by Apple, Inc.. (Snyder, Orin)
UNITED STATES DISTRICT COURT
SOUTHERN DISTRICT OF NEW YORK
UNITED STATES OF AMERICA,
12 Civ. 2826 (DLC)
APPLE INC., et al.,
: 12 Civ. 03394 (DLC)
PENGUIN GROUP (USA) INC., et al.,
THE STATE OF TEXAS,
THE STATE OF CONNECTICUT, et al.,
APPLE INC.’S OPPOSITION TO PLAINTIFFS’ MOTION IN
LIMINE TO PRECLUDE PROFESSOR KEVIN M. MURPHY
FROM OFFERING AT TRIAL TESTIMONY ON HIS OPINIONS 1 TO 3
One of Apple’s expert economists, Professor Kevin Murphy, has concluded that “as a
matter of economics, all the actions taken by Apple in connection with its entry into e-book
retailing are consistent with it acting independently of any conspiracy with publishers.” Murphy
Decl. ¶ 8 (emphasis added). Plaintiffs move to exclude Professor Murphy from testifying to this
conclusion, and related opinions 1 to 3 of his Initial Report, on the basis that the economic
standard applied by Professor Murphy is not legally relevant in this case. Plaintiffs’ motion—
like their pre-trial brief—rests on a gross distortion of the applicable law. Professor Murphy’s
testimony on opinions 1 to 3 is highly probative of a central question in this case—whether the
challenged provisions of the Apple agency agreements tend to exclude the possibility that Apple
acted independently. The Court should deny the motion to exclude his testimony.
PLAINTIFFS’ ARGUMENT THAT DR. MURPHY’S TESTIMONY IS
BASED ON AN ERRONEOUS LEGAL STANDARD IS BASELESS
Plaintiffs’ feeble effort to exclude Dr. Murphy’s testimony by attempting to avoid the
applicable legal standard under Monsanto Co. v. Spray-Rite Service Corp., 465 U.S. 752 (1984),
must be rejected. As explained more fully in Apple’s Opposition to Plaintiffs’ Pre-Trial
Memorandum of Law, which Apple incorporates herein by reference, Plaintiffs distort both the
facts and the law when they argue that it “is not relevant to any issue before the Court” that
Apple acted consistent with its own economic interests when negotiating the agency agreements.
First, contrary to Plaintiffs’ contention, not a single piece of Plaintiffs’ evidence meets
the legal requirements for “direct evidence” of Apple’s participation in the alleged conspiracy.
See Opp. Br. Section I.
Second, Plaintiffs’ assertion that Monsanto’s “tends to exclude” standard does not
apply—and that evidence of independent economic self-interest carries no weight—where the
alleged conspirators are in a vertical relationship is wholly contrary to binding Supreme Court
and Second Circuit precedent. Indeed, Monsanto itself was a vertical relationship case. See
Opp. Br. Section II. Plaintiffs’ reliance on a single footnote from Fineman v. Armstrong World
Industries, Inc., 980 F.2d 171, 214 n.32 (3d Cir. 1992), and a gross misrepresentation of United
States v. General Motors Corp., 384 U.S. 127 (1966), do not show otherwise.1 Mot. 2, 6. And
Plaintiffs miss the point completely by remarking that they are “hard-pressed to imagine”
whether a vertical actor would ever join or orchestrate “a conspiracy where it was not in its
economic self-interest to do so.” Mot. 6. The proper inquiry under Monsanto is whether Apple
acted in its independent economic self-interest—the overwhelming evidence in this case proves
that it did.
Third, Plaintiffs invoke Interstate Circuit, Inc. v. United States, 306 U.S. 208 (1939), and
Toys “R” Us, Inc. v. Federal. Trade Commission, 221 F.3d 928 (7th Cir. 2000), as though they
offer a freestanding means of proving a section 1 conspiracy. Mot. 7. That is flatly incorrect.
Plaintiffs’ quotation from General Motors rewrites that case and distorts its meaning. See
Mot. 2. Plaintiffs state, “Nor is it of consequence for this purpose whether [the challenged
conduct was] economically desirable [to one of the conspirators].” Id. (additions bolded).
The actual quotation is, “Nor is it of consequence for this purpose whether the ‘location
clause’ and franchise system are lawful or economically desirable,” Gen. Motors, 384 U.S.
at 142 (emphasis added). Plaintiffs’ reference to “the challenged conduct” is a complete
misstatement of the facts: the “location clause” and “franchise system” were not the
challenged conduct in that case. See id. at 140.
Neither case permits Plaintiffs to short-circuit Monsanto; both cases were decided on proof of
critical facts not present in this case. See Opp. Br. Part IV.
Accordingly, Plaintiffs’ bald assertion that “Dr. Murphy’s testimony is premised on clear
legal error” and thus “not relevant” (Mot. 3) is facially meritless and must be rejected.
PROFESSOR MURPHY’S TESTIMONY IS WELL WITHIN HIS
Plaintiffs also claim that Professor Murphy’s first three opinions should be excluded
because he applied a “legal standard,” and not “economicreasoning,” to the record evidence in
this case. Mot. 2. Not true. Plaintiffs wrongly equate economics with econometrics. See Mot. 4
(“Dr. Murphy did not engage in any empirical or econometric analysis.”). Whether an expert has
rendered an economic opinion does not depend on the presence of an econometric or other
numerical analysis. If the rule was otherwise, many of the opinions offered by the DOJ’s expert,
Professor Gilbert, and nearly all of the opinions offered by the States’ expert, Professor Baker,
would be excludable on that ground alone. Whether Apple’s conduct was consistent with its
independent business interests (absent a conspiracy) is a question that is susceptible to economic
analysis. Economists can and do testify as to whether a defendant’s challenged conduct is
contrary to its unilateral self-interest, i.e., its economic self-interest. See, e.g., Fed. Trade
Comm’n v. Abbott Labs., 853 F. Supp. 526, 534-35 (D.D.C. 1994) (crediting expert testimony
that challenged conduct was in defendant’s unilateral and independent self-interest and that the
government “failed to show . . . that [defendant’s] action was the result of collusion . . . ”); see
also ABA Section of Antitrust Law, Proof of Conspiracy Under Federal Antitrust Laws 223-24
(2010) (“[E]conomists can bring their expertise to bear in assessing whether a competitor’s
conduct is in its unilateral, economic self-interest. Put differently, an economist can help answer
the following question: Are firms behaving in a manner that would be rational (i.e., that would
increase their profits or net worth) absent a collusive agreement?”).
That is what Professor Murphy did here. Opinion 1 is that an economic evaluation of
whether the evidence tends to exclude the possibility that Apple behaved independently should
consider the economic incentives Apple faced. Initial Report ¶ 11. Opinion 2 is that Apple’s
negotiation of the Apple agency agreements was consistent with its historical practices and
economic incentives absent a conspiracy. Initial Report ¶ 12. And Opinion 3 is that the
challenged provisions in the Apple agency agreements were in Apple’s economic self-interest
absent any participation in or knowledge of an alleged conspiracy among the publishers. Initial
Report ¶ 14.
The fact that Professor Murphy framed the relevant economic question and his opinions
in a way that is congruent with the legal standard is not a basis for exclusion.2 Indeed, as
demonstrated in Apple’s motion to exclude the testimony of the Plaintiff States’ expert,
Professor Baker, the opposite is true: an expert’s failure to offer testimony relevant to the proper
legal standards can be fatal. Williamson Oil Co., Inc. v. Philip Morris USA, 346 F.3d 1287, 1323
Cases cited by Plaintiffs at page 8 of their motion stand for the unremarkable proposition that
an economist may not offer a legal conclusion. Professor Murphy does not offer any opinion
on the legality of Apple’s conduct. His opinions do not touch the ultimate issue of liability,
even if they do go to issues of fact that are relevant to determining liability under the
governing legal standard—whether Apple’s conduct was consistent with it unilateral business
interest absent conspiracy. Such testimony is not improper, as demonstrated by the very
cases cited by Plaintiffs. See United States v. Bilzerian, 926 F.2d 1285, 1294 (2d Cir. 1991)
(an expert may opine on “an issue of fact within the jury’s province”); United States v.
Duncan, 42 F.3d 97, 103 (2d Cir. 1994) (declining to exclude expert testimony that “merely
posited factual conclusions which are not prohibited even if ‘they embrace an ultimate issue
to be decided by the jury’”) (quoting Bilzerian, 926 F.2d at 1294); see also Fed. R. Evid.
704(a) (“An opinion is not objectionable just because it embraces an ultimate issue.”).
(11th Cir. 2003) (affirming lower court’s exclusion of Plaintiffs’ expert opinion as irrelevant
where expert did not differentiate between lawful behavior and collusive price-fixing).
In any event, Plaintiffs can only identify two fragments of Professor Murphy’s Initial
Report as evidence that his opinions are bereft of economic analysis. Mot. 8. They fault
Professor Murphy’s conclusion that Apple followed a “business strategy . . . of negotiating
simultaneously, but independently, with the major publishers . . . .” Mot. 8 (quoting Initial
Report ¶ 46). They also attack Professor Murphy’s conclusion that Apple’s negotiations with the
publishers “by themselves suggest neither anticompetitive effect nor intent” and “do not suggest
Apple’s participation in or knowledge of a conspiracy.” Initial Report ¶ 40; see also Mot. 8.
Neither of these snippets reflects improper “inferences” about Apple’s intent or motive, as
Plaintiffs appear to claim. Rather, these statements are part of Professor Murphy’s broader
conclusions, drawn from analyzing economic facts, that Apple’s strategy for negotiating the
agency agreements was consistent with Apple’s historic practice and in Apple’s economic
interest, absent the existence of a conspiracy. Initial Report ¶¶ 29-40, 41-46. As described, this
is a permissible mode of economic inquiry and Plaintiffs’ cases are not to the contrary.3
In Mid-State Fertilizer Co. v. Exchange National Bank of Chicago, 877 F.2d 1333 (7th Cir.
1989), summary judgment for defendants was granted where plaintiffs’ expert affidavit
contained seven one-sentence conclusions and “no facts, no hint of an inferential process, no
discussion of hypotheses considered and rejected.” Id. at 1338-40. The Court held that “[a]n
expert who supplies nothing but a bottom line supplies nothing of value to the judicial
process.” Id. at 1340. In contrast, Professor Murphy has served Plaintiffs with 46 pages of
expert analysis and submitted a detailed declaration to the Court, describing his conclusions
and the bases for his conclusions. Plaintiffs’ reliance on In re Rezulin Products Liability
Litigation, 309 F. Supp. 2d 531 (S.D.N.Y. 2004), is similarly misplaced. There, the court
excluded opinions that “have no basis in any relevant body of knowledge or expertise.” Id. at
546. In contrast, Professor Murphy’s opinions about whether Apple acted in its unilateral
self-interest absent conspiracy is a question that is susceptible to economic analysis, as
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