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

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8

9

10

11

12

13

14

15

16

17

18

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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

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T

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T

F

January 11

S
1

2

3

4

5

6

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8

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(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

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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