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

Filing 417

MEMORANDUM OF LAW in Support re: 416 Order,,,,,, / DEFENDANT APPLE INC.'S MEMORANDUM OF LAW IN SUPPORT OF ITS MOTION BY ORDER TO SHOW CAUSE FOR A STAY OF THE INJUNCTION PENDING APPEAL. Document filed by Apple, Inc.. (Boutrous, Theodore)

UNITED STATES DISTRICT COURT
SOUTHERN DISTRICT OF NEW YORK
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UNITED STATES OF AMERICA,
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Plaintiff,
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v.
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APPLE INC.,
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Defendant.
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:
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THE STATE OF TEXAS,
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THE STATE OF CONNECTICUT, et al.,
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Plaintiffs,
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v.
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PENGUIN GROUP (USA) INC., et al.,
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Defendants.
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12 Civ. 2826 (DLC)

12 Civ. 3394 (DLC)

DEFENDANT APPLE INC.’S MEMORANDUM OF LAW
IN SUPPORT OF ITS MOTION BY ORDER TO SHOW CAUSE
FOR A STAY OF THE INJUNCTION PENDING APPEAL

TABLE OF CONTENTS
Page
PRELIMINARY STATEMENT .................................................................................................... 1
BACKGROUND ............................................................................................................................ 2
LEGAL STANDARD..................................................................................................................... 6
ARGUMENT .................................................................................................................................. 8
I.

Apple Has a Substantial Possibility of Success on Appeal from the Court’s
Injunction and Modifications .............................................................................................. 8
A.
B.

The Injunction Is Not Authorized by Federal Rule of Civil Procedure 53 and
Violates the Constitutional Separation of Powers. ...................................................... 9

C.
II.

This Court Lacked Jurisdiction to Modify the Injunction During Apple’s
Appeal ......................................................................................................................... 8

The Injunction Deprives Apple of Its Right to a “Disinterested Prosecutor” ........... 14

Apple Will Suffer Irreparable Harm Absent a Stay .......................................................... 15
A.
B.

The Risk of Disclosing Privileged or Confidential Information Is an
Irreparable Injury ....................................................................................................... 19

C.
III.

The Injunction Irreparably Interferes with Apple’s Business Operations ................. 16

The Significant and Unrecoverable Costs Being Imposed on Apple Warrant a
Stay ............................................................................................................................ 19

A Stay of the Injunction Will Not Harm Plaintiffs or the Public Interest......................... 20

CONCLUSION ............................................................................................................................. 21

i

TABLE OF AUTHORITIES
Page(s)
Cases
ACORN v. United States,
618 F.3d 125 (2d Cir. 2010) ....................................................................................................... 6
Barclays Capital Inc. v. Theflyonthewall.com, Inc.,
650 F.3d 876 (2d Cir. 2011) ....................................................................................................... 6
Benjamin v. Fraser,
343 F.3d 35 (2d Cir. 2003) ................................................................................................. 11, 12
Berger v. United States,
295 U.S. 78 (1935) .................................................................................................................... 14
Bordelon v. Chi. Sch. Reform Bd. of Trs.,
8 F. Supp. 2d 779 (N.D. Ill. 1998) ............................................................................................ 18
Brenntag Int’l Chems., Inc. v. Bank of India,
175 F.3d 245 (2d Cir. 1999) ................................................................................................. 7, 19
Buckley v. Valeo,
424 U.S. 1 (1976) ...................................................................................................................... 13
City of N.Y. v. Mickalis Pawn Shop, LLC,
645 F.3d 114 (2d Cir. 2011) ..................................................................................................... 12
Cobell v. Norton,
334 F.3d 1128 (D.C. Cir. 2003) ...................................................................... 1, 9, 10, 12, 13, 14
Freedom Holdings, Inc. v. Spitzer,
408 F.3d 112 (2d Cir. 2005) ..................................................................................................... 18
Griggs v. Provident Consumer Disc. Co.,
459 U.S. 56 (1982) ...................................................................................................................... 8
Grutter v. Bollinger,
247 F.3d 631 (6th Cir. 2001) ...................................................................................................... 7
Hedges v. Obama,
724 F.3d 170 (2d Cir. 2013) ....................................................................................................... 6
Hilton v. Braunskill,
481 U.S. 770 (1987) .................................................................................................................... 7

ii

TABLE OF AUTHORITIES (cont.)
Page(s)
Ideal Toy Corp. v. Sayco Doll Corp.,
302 F.2d 623 (2d Cir. 1962) ....................................................................................................... 9
In re Adelphia Commc’ns Corp.,
361 B.R. 337 (S.D.N.Y. 2007).................................................................................................. 16
In re Peterson,
253 U.S. 300 (1920) .................................................................................................................. 11
In re Prof’ls Direct Ins. Co.,
578 F.3d 432 (6th Cir. 2009) .................................................................................................... 19
In re von Bulow,
828 F.2d 94 (2d Cir. 1987) ....................................................................................................... 19
Int’l Ass’n of Machinists v. E. Air Lines, Inc.,
847 F.2d 1014 (2d Cir. 1988) ................................................................................................. 8, 9
Juan F. v. Weicker,
37 F.3d 874 (2d Cir. 1994) ....................................................................................................... 12
Kidder, Peabody & Co. v. Maxus Energy Corp.,
925 F.2d 556 (2d Cir. 1991) ....................................................................................................... 9
La Buy v. Howes Leather Co.,
352 U.S. 249 (1957) .................................................................................................................. 11
LaRouche v. Kezer,
20 F.3d 68 (2d Cir. 1994) ........................................................................................................... 7
Missouri v. Jenkins,
515 U.S. 70 (1995) .................................................................................................................... 13
Mitchell v. Cuomo,
748 F.2d 804 (2d Cir. 1984) ..................................................................................................... 18
Morrison v. Olson,
487 U.S. 654 (1988) .................................................................................................................. 13
Muskrat v. United States,
219 U.S. 346 (1911) .................................................................................................................. 13
Nken v. Holder,
556 U.S. 418 (2009) ................................................................................................................ 6, 7
People ex rel. Clancy v. Superior Court,
39 Cal. 3d 740 (1986) ............................................................................................................... 14
iii

TABLE OF AUTHORITIES (cont.)
Page(s)
Philip Morris USA, Inc. v. Scott,
131 S. Ct. 1 (2010) .................................................................................................................... 19
Reed v. Rhodes,
691 F.2d 266 (6th Cir. 1982) .................................................................................................... 12
Register.com, Inc. v. Verio, Inc.,
356 F.3d 393 (2d Cir. 2004) ..................................................................................................... 18
RoDa Drilling Co. v. Siegal,
552 F.3d 1203 (10th Cir. 2009) ................................................................................................ 17
Salinger v. Colting,
607 F.3d 68 (2d Cir. 2010) ....................................................................................................... 18
Thapa v. Gonzales,
460 F.3d 323 (2d Cir. 2006) ....................................................................................................... 7
Tom Doherty Assocs., Inc. v. Saban Entm’t, Inc.,
60 F.3d 27 (2d Cir. 1995) ......................................................................................................... 18
United States v. AU Optronics Corp.,
No. 3:09-00110 (N.D. Cal. Oct. 2, 2012) ................................................................................. 11
United States v. Grinnell Corp.,
86 S. Ct. 231 (1965) .................................................................................................................... 6
United States v. ITT Cont’l Baking Co.,
420 U.S. 223 (1975) .................................................................................................................. 12
United States v. Nat’l Lead Co.,
332 U.S. 319 (1947) .................................................................................................................... 6
United States v. Philip Morris USA Inc.,
566 F.3d 1095 (D.C. Cir. 2009) ................................................................................................ 12
United States v. Visa U.S.A., Inc.,
No. 98-cv-7076 (S.D.N.Y. Feb. 7, 2002).................................................................................... 6
Wisdom Imp. Sales Co. v. Labatt Brewing Co.,
339 F.3d 101 (2d Cir. 2003) ..................................................................................................... 17
Young v. U.S. ex rel. Vuitton et Fils S.A.,
481 U.S. 787 (1987) ............................................................................................................ 13, 14

iv

TABLE OF AUTHORITIES (cont.)
Page(s)
Statutes
28 U.S.C. § 455 ............................................................................................................................. 15
Other Authorities
11 Charles Alan Wright & Arthur R. Miller, Federal Practice and Procedure, § 2948
(1973) ........................................................................................................................................ 18
Vikramaditya Khanna & Timothy L. Dickinson, The Corporate Monitor: The New
Corporate Czar?, 105 Mich. L. Rev. 1713 (2007) ................................................................... 12
Rules
Fed. R. Civ. P. 53 ........................................................................................................ 5, 8, 9, 10, 15
Fed. R. Civ. P. 53(a) ..................................................................................................................... 11
Fed. R. Civ. P. 53(a)(1)(C) ..................................................................................................... 10, 11
Fed. R. Civ. P. 53(a)(2) ................................................................................................................. 15
Fed. R. Civ. P. 53(b)(3)................................................................................................................. 15
Fed. R. Civ. P. 62 ............................................................................................................................ 1
Fed. R. Civ. P. 62(c) ....................................................................................................................... 9
Constitution
U.S. Const. art. III, § 1 ............................................................................................................ 13, 14

v

Defendant Apple Inc. respectfully moves this Court pursuant to Federal Rule of Civil
Procedure 62 for a stay of Section VI of the permanent injunction.
PRELIMINARY STATEMENT
The “external compliance monitor” appointed by the Court, Michael Bromwich, is
conducting a roving investigation that is interfering with Apple’s business operations, risking the
public disclosure of privileged and confidential information, and imposing substantial and
rapidly escalating costs on Apple that it will never be able to recover if it prevails on its pending
appeal of this Court’s Final Judgment and the injunction.
The injunction, especially as it is being interpreted and implemented by Mr. Bromwich as
the Court’s agent, is flatly unconstitutional, and will be reversed on appeal. Neither the Federal
Rules of Civil Procedure nor Article III of the Constitution authorizes the appointment of such a
monitor. Indeed, the Department of Justice itself has successfully argued in another case that
courts may not grant monitors broad investigatory powers like those exercised by Mr.
Bromwich. See Cobell v. Norton, 334 F.3d 1128, 1140 (D.C. Cir. 2003). The significant
interference with Apple’s business operations, and the unrecoverable costs being imposed on
Apple, constitute clear irreparable injury.

Even if Apple prevails on appeal, the two-year

monitorship will be (at least nearly) completed by that point, and all the very real costs imposed
on Apple and the harm and disruption to its business from Mr. Bromwich’s invasive
investigation will have inflicted damage that neither Apple nor the Court will be able to undo.
The likelihood of success by Apple on appeal, combined with the irreparable injury Apple is
suffering from Mr. Bromwich’s unwarranted inquisition of the company’s high-level executives
and board of directors, warrant a stay of the monitor provision of the injunction while Apple’s
appeal is heard by the Second Circuit.

1

BACKGROUND
The Court stated that it was designing the injunction entered on September 6, 2013 “to
rest as lightly as possible on the way Apple runs its business,” and did not “charge[ the monitor]
with assessing Apple’s compliance generally with the terms of the final judgment.” Dkt. 371
(Aug. 27, 2013 Hr’g Tr.) at 8-9, 17. While plaintiffs had asked for a monitor with expansive
powers to review Apple’s antitrust compliance for a period of ten years (see Dkt. 329 Ex.1 at 10,
16), the Court provided for a much more limited two-year monitorship. The Court authorized a
monitor solely to review and report on Apple’s antitrust compliance and training programs as
they exist 90 days after the monitor’s appointment. Dkt. 374 § VI. The monitor was also
directed to make a report 180 days after appointment, which would be provided to Apple, the
United States, the plaintiff states, and the Court. Id. § VI.C. To facilitate these reviews, the
injunction authorized the appointed monitor to interview Apple personnel “who may have
counsel present” “subject to the[ir] reasonable convenience.” Id. § VI.G.1. While the injunction
requires Apple to pay all fees associated with carrying out the monitorship, the fees must be
“reasonable and customary.” Id. § VI.I.
On October 3, 2013, Apple noticed its appeals from the judgment and the injunction in
the DOJ and states’ actions. Dkt. 379 at 1. Apple did not seek an immediate stay of the
injunction because the company intended to revise and enhance its antitrust compliance and
training programs irrespective of any court order to do so. On October 16, 2013, in a brief order
that did not cite any authority for the appointment, the Court appointed Michael Bromwich (who

2

has no antitrust experience) as the external monitor and Barry Nigro of Fried Frank (who does)
to assist him. Dkt. 384.1
Immediately upon appointment, Mr. Bromwich began pushing far beyond the boundaries
of his ostensibly narrow mandate, launching a broad and amorphous inquisition, at Apple’s
expense, that bears little relation to the underlying issues in this litigation. The costs of his
monitorship are piling up, and Mr. Bromwich’s intrusion on Apple’s business continues
unabated—all while an appeal of the injunction is pending.
For example, although under the injunction Apple had 90 days to revise its programs, Mr.
Bromwich pressed for immediate interviews with the very top executives at the company, such
as CEO Tim Cook, and including others who have no involvement whatsoever in the day-to-day
operation of the business unit at issue—such as lead designer Jony Ive and board member Al
Gore. Boutrous Decl. Ex. B at 5, Ex. I at 1. Apple explained to Mr. Bromwich that his request
“to begin interviewing Apple’s entire board and its executive team, as well as additional senior
executives on November 18 is premature, not authorized by the Final Judgment, and would not
only be disruptive to Apple’s business operations but also directly contrary to Judge Cote’s
intent.” Id. Ex. A at 2; see also id. Ex. A at 3 (“It makes no sense and would be extremely
disruptive, to schedule those interviews before Apple has completed its internal assessment and
developed its new antitrust training program”).
Nevertheless, in an effort to adhere to the Court’s injunction, Apple sought to
accommodate Mr. Bromwich by arranging interviews with several high-level executives who
were responsible for the compliance and training measures. Id. Exs. C, F. In response to

1

Apple objected to Mr. Bromwich’s appointment due to his lack of antitrust experience, and
suggested the Court simply appoint Mr. Nigro alone. Boutrous Decl. ¶ 3.

3

Apple’s offer to provide Mr. Bromwich with significant access to the individuals most relevant
to his premature inquiry—which was not even authorized by the Final Judgment—Mr.
Bromwich accused the company of not taking “its obligations and [Mr. Bromwich’s]
responsibilities under the Final Judgment very seriously.” Id. Ex. B at 2. And when faced with
the fact that some of the executives and directors he wished to interview could not upend their
schedules to accommodate his travel preferences, Mr. Bromwich demanded that Apple “[b]e
prepared to support any representations concerning [the] availability [of those individuals] with
detailed copies of their schedules for [the] entire week” in which he planned to conduct
interviews. Id. (emphasis added).
Apple offered to arrange interviews on November 18 with the Chief Compliance Officer
and Head of Global Security (Tom Moyer), and the Associate General Counsel and Legal
Liaison to the Audit and Finance Committee (Gene Levoff), and promised more interviews in the
coming weeks. See id. Ex. F at 1. While Mr. Bromwich accepted this offer (id.), he pushed for
more interviews. When he learned that Apple General Counsel Bruce Sewell was attending the
Apple v. Samsung trial during the week of November 18, Mr. Bromwich proposed to “stop by the
courthouse and meet him.” Id. Ex. H. And he again sought to interview the new Antitrust
Compliance Officer, even though the day of the interviews was her first day on the job. Id.2
Not satisfied with the bevy of interviews Apple agreed to arrange even before his review
of the compliance and training programs is scheduled to commence, Mr. Bromwich continued
his demand for more interviews and access, contending this investigatory activity was authorized

2

Pursuant to the Final Judgment, Apple has hired an Antitrust Compliance Officer who is
working with the company to enhance and expand antitrust compliance and training. See
Dkt. 374 § V; Levoff Decl. ¶ 3. Apple does not seek a stay of the provision of the injunction
that requires and sets forth the duties of its Antitrust Compliance Officer.

4

by the Court in his ex parte pre-appointment interview. Id. Ex. K. Mr. Bromwich even
contacted Apple’s Board of Directors directly in an explicit effort to develop a relationship “that
is unfiltered through outside counsel.” Id. Ex. J at 5 (emphasis added).
Mr. Bromwich’s investigation has already resulted in substantial, and unrecoverable, cost
to Apple. He proposed an hourly rate for himself of $1,100 and an hourly rate of $1,025 for Mr.
Nigro of Fried Frank (Boutrous Decl. Ex. O at 2-3), plus a 15% “administrative fee”—something
never before seen by Apple (id. Ex. O at 2, Ex. N at 2-3). Emphasizing his goal of “generat[ing]
profits,” Mr. Bromwich defended his approach and refused Apple’s request that he provide a
budget and work plan or adopt a fee structure comparable to many major law firms working on
Apple matters. Id. Ex. N at 3-4. In his first two weeks of work, before any documents were
exchanged, interviews scheduled, or meaningful travel conducted, Mr. Bromwich’s invoice
totaled $138,432.40. Id. Ex. O at 3.
While no party filed a request seeking amendment of the monitor provisions, in the midst
of Apple’s attempts to resolve its disputes with Mr. Bromwich and the Department of Justice
concerning the nature, scope, timing and cost of his activities, this Court abruptly proposed
several amendments to the injunction, which would give the monitor even greater powers.
Invoking Rule 53 of the Federal Rules of Civil Procedure, the Court’s proposed amendments
would allow the monitor to interview Apple personnel ex parte (Dkt. 410 ¶ 3), and deliver ex
parte oral briefings every month to the Court (id. ¶ 4). The amendments also would require the
monitor to “make reasonable efforts to preserve all materials materially related to his duties,”
and would allow the Court to “order such materials publicly filed when in the interest of justice.”
Id. ¶ 5. And the amendments ordered the monitor “to proceed with all reasonable diligence.” Id.
¶ 1. This Court issued an order sustaining only one of Apple’s objections (Dkt. 411) to these

5

proposals—ruling that “the Court will not receive ex parte briefings or reports from the Monitor
about his work” (Dkt. 413).3
Despite Apple’s repeated objections, Mr. Bromwich has pushed forward, and continues
to press for interviews with and ex parte access to Apple Board members and executives. See,
e.g., Boutrous Decl. ¶ 5. These unauthorized and unconstitutional investigatory efforts are
extraordinarily intrusive, disruptive, and costly, and are causing irreparable harm to Apple.
LEGAL STANDARD
This Court has “judicial discretion” (Nken v. Holder, 556 U.S. 418, 433 (2009)) to grant
Apple a stay of the permanent injunction. See, e.g., Hedges v. Obama, 724 F.3d 170, 188 (2d
Cir. 2013) (granting stay of permanent injunction pending appeal); Barclays Capital Inc. v.
Theflyonthewall.com, Inc., 650 F.3d 876, 890 (2d Cir. 2011) (same); ACORN v. United States,
618 F.3d 125, 133 (2d Cir. 2010) (same); United States v. Visa U.S.A., Inc., No. 98-cv-7076,
Dkt. 247 at 1 (S.D.N.Y. Feb. 7, 2002) (same in antitrust case); see also, e.g., United States v.
Grinnell Corp., 86 S. Ct. 231 (1965) (Fortas, J., in chambers) (staying judgment in Sherman Act
case); United States v. Nat’l Lead Co., 332 U.S. 319, 324 (1947) (noting that stay under the
Sherman Act injunction had been granted).
A motion for a stay “is a motion, not to [the court’s] inclination, but to its judgment; and
its judgment is to be guided by sound legal principles.” Nken, 556 U.S. at 434 (quotation marks

3

Apple has fully complied with section VI.H of the injunction in its objections to the
monitorship. See Boutrous Decl. Ex. Q. Apple served a letter on the Department of Justice
and plaintiff states on October 31, 2013, outlining its objections to the timing, scope, and
financial terms of the monitor’s engagement. See Boutrous Decl. Ex. R. Apple has
reiterated these concerns, including in a teleconference on November 4, 2013 (Boutrous
Decl. ¶ 4); in its objections filed with the Court on November 27, 2013 (Dkt. 411); in a letter
on December 6, 2013 (Boutrous Decl. Ex. Q); and again in a teleconference on December 9,
2013 (Boutrous Decl. ¶ 4).

6

omitted).

Accordingly, in determining whether to issue a stay pending appeal, this Court

examines four factors:
(1) whether the stay applicant has made a strong showing that he is likely to
succeed on the merits; (2) whether the applicant will be irreparably injured absent
a stay; (3) whether issuance of the stay will substantially injure the other parties
interested in the proceeding; and (4) where the public interest lies.
Hilton v. Braunskill, 481 U.S. 770, 776 (1987). The four factors operate as a “sliding scale,”
where “the necessary level or degree of possibility of success will vary according to the court’s
assessment of the other stay factors.” Thapa v. Gonzales, 460 F.3d 323, 334 (2d Cir. 2006)
(internal quotation marks omitted).
In order to warrant a stay, Apple must show only that it has “a substantial possibility,
although less than a likelihood, of success on appeal.” LaRouche v. Kezer, 20 F.3d 68, 72 (2d
Cir. 1994) (emphasis added) (internal quotations omitted). Indeed, where, as here, “the balance
of hardships tips decidedly in [Apple’s] favor,” Apple need only show “some possibility of
success.” Thapa, 460 F.3d at 335; see also Grutter v. Bollinger, 247 F.3d 631, 633 (6th Cir.
2001) (movant need only “show, at a minimum, serious questions going to the merits”) (internal
quotation marks omitted).
A party establishes irreparable harm where, “but for the grant of equitable relief, there is
a substantial chance that upon final resolution of the action the parties cannot be returned to the
positions they previously occupied.” Brenntag Int’l Chems., Inc. v. Bank of India, 175 F.3d 245,
249 (2d Cir. 1999). And while “the traditional stay inquiry calls for assessing the harm to the
opposing party and weighing the public interest,” “[t]hese factors merge when the Government is
the opposing party,” as in this case. Nken, 556 U.S. at 435.

7

ARGUMENT
I.

APPLE HAS A SUBSTANTIAL POSSIBILITY OF SUCCESS ON APPEAL
FROM THE COURT’S INJUNCTION AND MODIFICATIONS
The Court’s imposition of an external monitor on Apple wielding inquisitorial powers,

who has a financial incentive to engage in the most extensive and time-consuming investigation
possible, and who claims authority to interview Apple personnel without counsel present and
potentially divulge that information to the public, violates the constitutional separation of powers
and Apple’s due process right to a disinterested prosecutor. Neither Rule 53, concerning “special
masters,” nor any other rule or source of authority permits appointment of such a monitor in the
first place. In addition, the Court lacked jurisdiction to modify the injunction once Apple noticed
its appeal. There is at the very least a substantial possibility that Apple will succeed on appeal of
the Court’s injunction and orders modifying the injunction.

A.

This Court Lacked Jurisdiction to Modify the Injunction During Apple’s
Appeal

The first reason Apple will prevail on appeal is that the Court’s amendments materially
modified the injunction entered on September 5, 2013. Because the appeal of the original
injunction is currently pending (Dkt. 379 at 1), this Court lacks jurisdiction to further modify the
Final Judgment.
The filing of a notice of appeal “confers jurisdiction on the court of appeals and divests
the district court of its control over those aspects of the case involved in the appeal.” Griggs v.
Provident Consumer Disc. Co., 459 U.S. 56, 58 (1982) (per curiam). Once a party notices an
appeal, the district court may take actions “only in aid of the appeal or to correct clerical errors,
and may not adjudicate substantial rights directly involved in the appeal.”

Int’l Ass’n of

Machinists v. E. Air Lines, Inc., 847 F.2d 1014, 1017 (2d Cir. 1988) (internal quotation marks
omitted).
8

The Court’s limited jurisdiction under Federal Rule of Civil Procedure 62(c) allows the
Court to modify the injunction only where necessary “to preserve the status quo pending appeal”
(id. at 1018; see also Kidder, Peabody & Co. v. Maxus Energy Corp., 925 F.2d 556, 564-65 (2d
Cir. 1991)) in order to protect the appellate court’s exercise of exclusive jurisdiction. Ideal Toy
Corp. v. Sayco Doll Corp., 302 F.2d 623, 625 (2d Cir. 1962).
Here, however, the Court’s modifications drastically modify the status quo, and serve to
add additional errors to the injunction on appeal. The Final Judgment created a monitorship of
limited scope and duration (see Dkt. 374 § VI), designed to tread “as lightly as possible on the
way Apple runs its business” (Dkt. 371 [Aug. 27, 2013 Hr’g Tr.] at 8-9). The Final Judgment
therefore allowed Apple personnel to “have counsel present” while being interviewed. Dkt. 374
§ VI.G.1. The Court’s amendments remove that critical protection, allowing Mr. Bromwich to
interview Apple personnel ex parte (Dkt. 410 ¶ 3), and the Court to disclose the information
gained therefrom and any of his other work materials to the public (id. ¶ 5). These substantive
changes expand the monitor’s role and are therefore prohibited while the Final Judgment is on
appeal.

B.

The Injunction Is Not Authorized by Federal Rule of Civil Procedure 53 and
Violates the Constitutional Separation of Powers.

Apple is likely to succeed on appeal from the injunction and the Court’s modifications
thereof, because the investigation the injunction authorizes, especially in light of Mr.
Bromwich’s interpretation of the scope of his authority and his conduct to date, far exceeds what
is permitted under Rule 53 and violates the separation of powers.
Indeed, when the government was faced with a similar monitorship in another case, the
Department of Justice took the opposite position it takes here and prevailed, arguing that a
monitor may not be given broad investigative authority. See Cobell, 334 F.3d at 1140. Cobell

9

involved a one-year monitorship imposed on the Department of Interior with the parties’ consent.
The court “authorized the Monitor to engage in ex parte communications, and required the
[defendant] to ‘facilitate and assist’ the Monitor, to ‘provide him with access to any offices or
employees to gather information,’ and to pay his hourly fees and expenses.”

Id. at 1141

(alterations omitted). The government objected to the monitor’s appointment unless the court
placed certain conditions on the scope of his powers. The district court, however, appointed him
without regard to some of those conditions.
On appeal, the Department of Justice argued that the court had no authority to give the
monitor “far-ranging investigative powers” or “require it to pay for his services,” and that the
monitor should be disqualified because of his “wide-ranging ex parte contacts with [Department
of Interior] employees, including both oral discussions and the receipt of documents.”
Appellants’ Brief, No. 02-5374, 2003 WL 25585726 (D.C. Cir. Mar. 14, 2003). The D.C.
Circuit agreed with the government, explaining that the monitor “became something like a party
himself” because instead of resolving disputes that were brought to him, he “was charged with an
investigative, quasi-inquisitorial, quasi-prosecutorial role.” 334 F.3d at 1142. The court held
that “it was surely impermissible to invest the Court Monitor with wide-ranging extrajudicial
duties over the Government’s objection.” Id. For these same reasons, the monitorship imposed
by this Court is improper.
The Court acknowledged for the first time in its order proposing modifications to the
injunction that its authority to appoint a monitor is governed by Rule 53 (Dkt. 410), which
provides in relevant part that a court “may appoint a master only to: … address … posttrial
matters that cannot be effectively and timely addressed by an available district judge or
magistrate judge of the district” (Fed. R. Civ. P. 53(a)(1)(C)). Rule 53 authorizes district courts

10

to appoint a special master only to the extent necessary to “aid judges in the performance of
specific judicial duties.” La Buy v. Howes Leather Co., 352 U.S. 249, 256 (1957) (emphasis
added); see also In re Peterson, 253 U.S. 300, 312-13 (1920). As a result, appointment under
Rule 53(a) gives a master (or monitor) the authority only to address issues that would otherwise
be addressed “by an available district judge or magistrate judge.” Fed. R. Civ. P. 53(a)(1)(C);
see La Buy, 352 U.S. at 256.
Compliance monitorships arising out of litigated antitrust cases are extremely rare.
Indeed, Apple knows of only one such case—United States v. AU Optronics Corp., No. 3:0900110, (N.D. Cal. Oct. 2, 2012)—a criminal case involving allegations of naked price fixing
with no conceivable pro-competitive effects. No. 3:09-00110, Dkt. 976 at 1-7, 17-18. There the
defendant’s alleged “standard operating procedure ha[d] been collusion,” it “had never known
any other way of doing business [or] operated lawfully,” and the company had “no antitrust
compliance program whatsoever.” No. 3:09-00110, Dkt. 948 at 53-54. To the extent they can
ever even arguably be imposed by a federal court, monitorships should be reserved for only these
very worst antitrust violators. They should not be imposed in a civil antitrust case such as this
one that concerns only a six-week course of conduct that was critical for Apple, “an esteemed
company” (Dkt. 326 at 158), to enter into a nascent and rapidly evolving e-books market.
Where a monitorship is appropriate, the “judicial duties” that may be delegated to a
monitor include “the ability to convene and to regulate hearings, to rule on the admissibility of
evidence, to subpoena and swear witnesses, and to hold non-cooperating witnesses in contempt.”
Benjamin v. Fraser, 343 F.3d 35, 45-46 (2d Cir. 2003), overruled on other grounds by Caiozzo v.
Koreman, 581 F.3d 63 (2d Cir. 2009)). These “quasi-judicial” functions are properly delegated
to “quasi-judicial officers,” such as special masters and possibly monitors, in their exercise of the

11

judicial power delegated to them by Article III judges. Id. at 45; see also Reed v. Rhodes, 691
F.2d 266, 269 (6th Cir. 1982) (special masters act “in a quasi-judicial capacity”); Cobell, 334
F.3d at 1139 (“Special Master-Monitor … was serving as a judicial officer”).
To be sure, monitors may be given additional authority when they are appointed as part
of a negotiated consent decree before judgment between a private party and a government
enforcement agency, as is generally the case.

See Vikramaditya Khanna & Timothy L.

Dickinson, The Corporate Monitor: The New Corporate Czar?, 105 Mich. L. Rev. 1713, 1716
(2007). In those instances, the monitorships “should be construed basically as contracts.’” Juan
F. v. Weicker, 37 F.3d 874, 879 (2d Cir. 1994) (quoting United States v. ITT Cont’l Baking Co.,
420 U.S. 223, 236-37 (1975)). Indeed, the parties may agree to terms that otherwise would
violate the defendant’s constitutional rights. City of N.Y. v. Mickalis Pawn Shop, LLC, 645 F.3d
114, 146 (2d Cir. 2011).
But absent such an agreement, monitors may not engage in “‘wide-ranging extrajudicial
duties’” to fill “‘an investigative, quasi-inquisitorial, quasi-prosecutorial role that is unknown to
our adversarial legal system.’” United States v. Philip Morris USA Inc., 566 F.3d 1095, 1149
(D.C. Cir. 2009) (per curiam) (quoting Cobell, 334 F.3d at 1142). Here, Apple opposed the
monitorship in a civil antitrust case as improper and unnecessary, reserved its right to challenge
the appointment, and appealed the Final Judgment (see Dkt. 331 at 9-13; Dkt. 379); and the
Court appointed Mr. Bromwich over Apple’s objections (Boutrous Decl. ¶ 3). As a result, “the
district court must confine itself (and its agents) to its accustomed judicial role.” Cobell, 334
F.3d at 1142.
The injunction and Mr. Bromwich’s authority go well beyond what is granted by Article
III and are flatly unconstitutional. Article III vests federal courts with only “[t]he judicial

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power.” U.S. Const. art. III, § 1; see also Young v. U.S. ex rel. Vuitton et Fils S.A., 481 U.S. 787,
816 (1987) (Scalia, J., concurring in the judgment) (judicial power is “the only kind of power
that federal judges may exercise by virtue of their Article III commissions”); Muskrat v. United
States, 219 U.S. 346, 355 (1911) (“The power conferred on [federal courts] is exclusively
judicial, and it cannot be required or authorized to exercise any other”) (internal quotation marks
omitted).

As a result, courts may not exercise “executive or administrative duties of a

nonjudicial nature.” Morrison v. Olson, 487 U.S. 654, 677 (1988) (quoting Buckley v. Valeo,
424 U.S. 1, 123 (1976) (per curiam)); see also Missouri v. Jenkins, 515 U.S. 70, 132 (1995)
(Thomas, J., concurring) (“There simply are certain things that courts, in order to remain courts,
cannot and should not do”).
The injunction purports to give Mr. Bromwich the power to conduct investigations and
interviews with Apple personnel, but this is not a judicial function and therefore cannot be
delegated by the Court.

The injunction, especially as modified and as interpreted by Mr.

Bromwich, improperly gives the monitor investigative powers generally reserved to prosecutors.
See Cobell, 334 F.3d at 1141-42. In fact, the injunction gives the monitor the same powers
provided to the Department of Justice and the State Attorneys General (compare Dkt. 374 §
VII.A.1-2 (plaintiffs permitted “access … to inspect and copy” documents, and “to interview …
Apple’s officers, employees, or agents”), with id. § VI.G.1-3 (monitor may interview witnesses
and demand documents)), plus additional power not given even to the government entities, such
as interviewing witnesses ex parte. Compare Dkt. 410 ¶ 3 (monitor may “communicate with a
party … on an ex parte basis”) with Dkt. 374 § VII.A.2 (Apple personnel may have counsel
present during interviews) and id. § VII.C (“No information or documents obtained by [the
plaintiffs] … shall be divulged … to any person other than an authorized representative of the

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executive branch of the United States, the Attorney General’s Office of any Plaintiff State, or the
External Compliance Monitor, except in the course of legal proceedings”).
Broad investigations conducted with a general purpose of sniffing out wrongdoing are
executive functions far outside “[t]he judicial power.” U.S. Const. art. III, § 1. Apple thus has at
least a substantial possibility of demonstrating on appeal that the Court erred in appointing a
monitor to “act[] as an internal investigator” who “report[s] ... to the district court.” Cobell, 334
F.3d at 1141.

C.

The Injunction Deprives Apple of Its Right to a “Disinterested Prosecutor”

The injunction is also likely to be reversed on appeal because it deprives Apple of its
right to a “disinterested prosecutor” without “a personal interest, financial or otherwise.” Young,
481 U.S. at 808 (internal quotation marks omitted). Due process demands a “disinterested
prosecutor with the unique responsibility to serve the public, rather than a private client” (or
himself). Young, 481 U.S. at 814-15 (Blackmun, J., concurring).
Mr. Bromwich is being paid for investigating Apple and Apple alone (see Dkt. 410 ¶ 8;
Dkt. 374 § VI.I), and it is Apple’s adversaries, including the plaintiff states, that have the
authority to approve the expenses that he intends to charge. See Dkt. 374 § VI.I. This creates a
potential incentive for Mr. Bromwich to run as broad and intrusive an investigation as possible,
and deprives Apple of its due process right to a neutral prosecutor. See Young, 481 U.S. at 80405; Berger v. United States, 295 U.S. 78, 88 (1935); People ex rel. Clancy v. Superior Court, 39
Cal. 3d 740, 746 (1986).
This lucrative engagement also creates a personal incentive—or at least the appearance of
such—for Mr. Bromwich to prolong the term of the monitorship as long as possible. For
example, with the exception of broad statements about training, Mr. Bromwich has not offered

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any concrete or constructive advice on developing good compliance programs (Boutrous Decl. ¶
6), the only communication that would promote efficiency at this stage of the monitorship. And
there is no incentive for Mr. Bromwich to act efficiently. The Final Judgment provides that his
initial appointment shall “be for a period of two years,” but permits the Court “sua sponte [to]
extend the appointment by one or more one-year periods.” Dkt. 374 § VI.A.
The monitorship also violates Federal Rule of Civil Procedure 53(a)(2), which requires
that a special master (whether designated as a “master” or “monitor”) “must not have a
relationship to the parties, attorneys, action, or court that would require disqualification by a
judge under 28 U.S.C. § 455, unless the parties, with the court’s approval, consent to the
appointment after the master discloses any potential grounds for disqualification.” Id. To ensure
a monitor who fails to meet this requirement is not appointed, Rule 53 allows a court to issue an
order appointing a special master “only after: (A) the master files an affidavit disclosing whether
there is any ground for disqualification under 28 U.S.C. § 455; and (B) if a ground is disclosed,
the parties, with the court’s approval, waive the disqualification.” Fed. R. Civ. P. 53(b)(3)
(emphasis added). To Apple’s knowledge, Mr. Bromwich never filed such an affidavit with the
Court, thus making his appointment facially invalid. And given his direct financial stake in the
matter, this arrangement could not possibly satisfy 28 U.S.C. § 455’s judicial disqualification
standards.
II.

APPLE WILL SUFFER IRREPARABLE HARM ABSENT A STAY
The injunction, particularly as modified and as illustrated by the monitor’s recent

conduct, is already causing irreparable harm to Apple.

And because, absent a stay, the

monitorship will likely be complete prior to a decision by the Second Circuit, Apple will have no
ability to obtain effective relief on appeal. In re Adelphia Commc’ns Corp., 361 B.R. 337, 347-

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48 (S.D.N.Y. 2007) (“where the denial of a stay pending appeal risks mooting any appeal of
significant claims of error, the irreparable harm requirement is satisfied”) (emphasis omitted).
The irreparable injury flowing to Apple as a result of the injunction is substantial, and warrants a
stay during the pendency of Apple’s appeal.

A.

The Injunction Irreparably Interferes with Apple’s Business Operations

Mr. Bromwich’s inappropriate demand for access to Apple’s senior leadership—
including officers, directors, and employees who have little or nothing to do with antitrust
compliance or the iBooks Store—has already inflicted significant and irreparable harm by
interfering with Apple’s ability to manage its business.

Mr. Bromwich has consistently

demanded that Apple’s senior leaders meet with him on his schedule and on short notice—
sometimes as short as two days. E.g., Boutrous Decl. Ex. B at 2-5, Ex S. When some of those
leaders—responsible for the day-to-day management of one of the largest companies in the
world—have been unable to accommodate Mr. Bromwich’s strict timetable, he has demanded
“detailed copies of their schedules” (Id. Ex. B at 2), and even asked to meet Apple’s General
Counsel Bruce Sewell “at the courthouse” where Mr. Sewell was attending the high-stakes Apple
v. Samsung trial (id. at Ex. H).
Rather than rein in this deeply intrusive conduct, the Court proposed amendments to the
permanent injunction that explicitly authorize Mr. Bromwich to “meet with a party or a party’s
agent on an ex parte basis” (Dkt. 410 ¶ 3) and to retain any of Apple’s documents he deems
“materially related to his duties” (Id. ¶ 5). Mr. Bromwich has maximized this authority to its
fullest—contacting Apple’s directors directly in a purported effort to build a relationship
between Apple’s leaders and the “monitoring team” that is “unfiltered through outside counsel.”

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Boutrous Decl. Ex. J at 5. Even after Apple’s objections, he has continued with this effort to
communicate directly with Apple officials during his investigation. Boutrous Decl. ¶ 5.
At a bare minimum, Apple officers, directors, and management are being harmed by the
time-consuming distraction of Mr. Bromwich’s roving investigation. These individuals are
subjected to Mr. Bromwich’s indiscriminate demands for interviews and information—even
where, like director Al Gore, they are not directly involved in the company’s antitrust
compliance efforts. At worst, Mr. Bromwich’s inquisitorial zeal for communication with
Apple’s employees “unfiltered through outside counsel” fosters an atmosphere of suspicion that
is antithetical to the efficient operation of a major corporation. In either case, Mr. Bromwich’s
investigation significantly interferes with the ability of Apple’s managers to lead the company.
Where, as here, an activity interferes with the effective management of a business, courts
recognize that it imposes real but unquantifiable harms. “Conduct that unnecessarily frustrates
efforts to obtain or preserve the right to participate in the management of a company may …
constitute irreparable harm.” Wisdom Imp. Sales Co. v. Labatt Brewing Co., 339 F.3d 101, 114115 (2d Cir. 2003). Barriers to “unfettered” management of a property or business “result[] in
delays, missed opportunities, and, most importantly, unquantifiable damages.” RoDa Drilling
Co. v. Siegal, 552 F.3d 1203, 1211 (10th Cir. 2009). The effect is particularly severe where a
business’s “income potential depends upon active management,” which is indisputably true of a
leading innovator in the rapidly evolving technology sector. Id. Time that Apple’s leaders spend
preparing for and sitting for interviews with Mr. Bromwich—as well as upending their schedules
on short notice to accommodate his requests—is time they cannot spend investigating new
business opportunities, promoting efficiency in their operations, or participating in the
development of new technology.

17

Because Mr. Bromwich’s significant interference with Apple’s management affects the
company’s ability to identify and exploit new business opportunities by distracting its most
senior personnel, it creates exactly the sort of business harm the Second Circuit has identified as
irreparable. “[L]oss of ... business opportunities,” like loss of goodwill and harm to a business’s
reputation, cannot be translated “with any precision [into an] amount of monetary loss” and
therefore irreparably harms a company. Register.com, Inc. v. Verio, Inc., 356 F.3d 393, 404 (2d
Cir. 2004). So too do “anticipated loss of market share growth” and interference with the
development and marketing of new and innovative products, which are both natural and
foreseeable effects of Mr. Bromwich’s overzealous romp through Apple’s executive
suite. Freedom Holdings, Inc. v. Spitzer, 408 F.3d 112, 114 (2d Cir. 2005); see also Tom
Doherty Assocs., Inc. v. Saban Entm’t, Inc., 60 F.3d 27, 37 (2d Cir. 1995) (“We have … found
irreparable harm in the loss of a relatively unique product.”).
Indeed, because Mr. Bromwich’s conduct risks violating Apple’s constitutional rights,
this alone warrants a stay. “‘When an alleged deprivation of a constitutional right is involved,
most courts hold that no further showing of irreparable injury is necessary.’” Mitchell v. Cuomo,
748 F.2d 804, 806 (2d Cir. 1984) (quoting 11 Charles Alan Wright & Arthur R. Miller, Federal
Practice and Procedure, § 2948, at 440 (1973)); see also Salinger v. Colting, 607 F.3d 68, 81
(2d Cir. 2010) (explaining that “loss of First Amendment Freedoms” necessarily “constitutes
irreparable injury”) (internal quotations omitted); Bordelon v. Chi. Sch. Reform Bd. of Trs., 8 F.
Supp. 2d 779, 789 (N.D. Ill. 1998) (finding a due process violation constituted irreparable harm).
There is no doubt that Mr. Bromwich’s inquiry will continue to disrupt Apple’s business
operations and harm the company, though the quantity of the harm inflicted by Mr. Bromwich
will be “very difficult,” or impossible, “to quantify,” Tom Doherty Assocs., 60 F.3d at 38, and it

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cannot be remedied after the fact. This interference with Apple’s business operations thus
constitutes irreparable harm warranting a stay.

B.

The Risk of Disclosing Privileged or Confidential Information Is an
Irreparable Injury

The monitor’s authority to conduct witness interviews and investigations on an ex parte
basis also risks disclosure of privileged or confidential materials and communications. Mr.
Bromwich’s attempts to contact Apple personnel directly, “unfiltered by outside counsel”
(Boutrous Decl. Ex. J at 5), risk revealing privileged or confidential materials or communications
to Mr. Bromwich, who would then be free to disclose that information in his reports to plaintiffs
and the Court.
Erroneously disclosing such protected information is itself irreparable harm. See In re
von Bulow, 828 F.2d 94, 98-99 (2d Cir. 1987) (explaining that once confidential communications
have been disclosed, an appeal is “often an exercise in futility”); In re Prof’ls Direct Ins. Co.,
578 F.3d 432, 438 (6th Cir. 2009) (“an erroneous forced disclosure of confidential information
could not be adequately remedied on direct appeal because a court cannot restore confidentiality
to documents after they are disclosed”).

C.

The Significant and Unrecoverable Costs Being Imposed on Apple Warrant
a Stay

Because the costs of the monitor’s efforts are not recoverable if Apple prevails on appeal,
that monetary injury constitutes irreparable harm warranting a stay. See, e.g., Brenntag Int’l
Chems., 175 F.3d at 249-50 (noting that irreparable injury includes monetary obligations owed
by insolvent parties); see also Philip Morris USA, Inc. v. Scott, 131 S. Ct. 1, 4 (2010) (Scalia, J.,
in chambers) (“Normally the mere payment of money is not considered irreparable, but that is

19

because money can usually be recovered from the person to whom it is paid. If expenditures
cannot be recouped, the resulting loss may be irreparable.”) (internal citations omitted).
Here, the injunction requires Apple to pay all costs and expenses associated with the
monitorship. Dkt. 374 § VI.I. The rates Mr. Bromwich is charging are higher than any Apple
has encountered in its known past matters (Boutrous Decl. Ex. O at 1), and exceed what Apple
understands Mr. Bromwich has ever previously quoted (see id. Ex. O at 2).
For just the first two weeks of work, before the 90-day deadline triggering his review of
Apple’s compliance and training programs before any documents were exchanged, interviews
scheduled, or meaningful travel conducted, Mr. Bromwich charged Apple $138,432.40. See id.
Ex. O at 3. This number will surely skyrocket once Mr. Bromwich begins billing Apple for
actual interviews, travel, and review of documents, which will result in millions of dollars of
unrecoverable costs that Apple never should have incurred if, as Apple submits is likely to occur,
the Court’s Final Judgment is overturned on appeal.
III.

A STAY OF THE INJUNCTION WILL NOT HARM PLAINTIFFS OR THE
PUBLIC INTEREST
By contrast, plaintiffs have no basis on which to claim that a stay of the injunction will

harm them or the public interest. Plaintiffs admit that the public interest has already been
vindicated through the publisher defendants’ consent decrees. Although Apple believes its entry
into the e-books market unleashed rather than restricted competition and will be making that
argument on appeal, plaintiffs themselves declare that there is now “revitalized price competition
among e-book retailers” as a result of the publisher consent decrees. Dkt. 329 at 11. They
further note “the ongoing effective relief consumers are currently enjoying under the Publisher
Defendant consent decrees” (id. at 6) and conclude that “[w]ith the Publisher Defendant consent
decrees now operative, price competition has returned to the marketplace.” Id. at 11 (emphasis

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added). In light of their unambiguous recognition that competition is flourishing independently
of the injunction that Apple now seeks to stay, any claims of harm to the public interest are
baseless.
Moreover, even though Apple is appealing this Court's July 10 decision and the Final
Judgment in their entireties, Apple does not seek to stay provisions of the Final Judgment other
than the external compliance monitorship—leaving in effect restrictions on Apple's contracts
with publishers and the enhancements to Apple's compliance undertaken by the company during
the pendency of the appeal. Apple has already renegotiated its agreements with the publisher
defendants pursuant to the Final Judgment(Dkt. 374 §§ III, IV), and hired an outside law firm to
assist Apple in enhancing its compliance programs (Levoff Decl. ¶ 3). And Apple has already
distributed the Final Judgment to all relevant personnel, confirmed that they have read and
understood the terms, and held three live trainings for employees on the meaning of the Final
Judgment. Id. ¶ 4. These safeguards are more than sufficient to protect the public interest.
CONCLUSION
For these reasons, this Court should stay Section VI of the injunction pending appeal.

Resp ctfully submitted,

Dated: December 12, 2013

~ ~~~~~
Theodore J. Bou us, Jr.
Daniel G. Swanson
Gibson, Dunn & Crutcher, LLP
333 South Grand Avenue
Los Angeles, CA 90071
[phone]
tboutrous(a~gibsondunn.com

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Cynthia Richman
Gibson, Dunn & Crutcher, LLP
1050 Connecticut Avenue, N.W.
Washington, DC 20036
[phone]
On behalf of Defendant Apple Inc.

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