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

Filing 426

DECLARATION of CYNTHIA E. RICHMAN in Support re: 425 Letter. Document filed by Apple, Inc.. (Attachments: # 1 Exhibit A, # 2 Exhibit B, # 3 Exhibit C, # 4 Exhibit D, # 5 Exhibit E, # 6 Exhibit F)(Boutrous, Theodore)

EXHIBIT A

Theodore J. Boutrous Jr.
Direct: +1 213.229.7804
Fax: [phone]
[e-mail]

October 31, 2013
VIA E-MAIL
J. Robert Kramer, II, Esq.
United States Department of Justice
950 Pennsylvania Avenue, NW, Suite 3220
Washington, D.C. 20530
Gabriel R. Gervey, Esq.
Office of the Texas Attorney General
P.O. Box 12548
Austin, TX 78711
Re:

United States v. Apple Inc. et al., 12-cv-2826 (DLC);
State of Texas, et al. v. Penguin Group (USA) Inc., et al., 12-cv-3394 (DLC)

Dear Bob and Gabriel:
Pursuant to Section VI.H of the Final Judgment, we write to provide the United States
and Plaintiff States with notice of Apple’s objections to certain actions by the External
Compliance Monitor. As set forth in detail in Apple’s letter to the External Compliance
Monitor (attached hereto as Attachment 1), Apple objects to the timing and scope of requests
by the External Compliance Monitor to interview Apple’s entire Board of Directors, its
executive team, and additional senior executives. See Final Judgment at § VI.C (ordering the
monitor to “conduct a review . . . [of] Apple’s internal antitrust compliance policies and
procedures” and “Apple’s training program” “as they exist 90 days after his or her
appointment”) (emphasis added). Apple also objects to the financial terms of the External
Compliance Monitor’s engagement, which the Final Judgment requires be “reasonable and
customary” and approved by the Plaintiffs. Final Judgment at § VI.I. The External
Compliance Monitor has proposed fees that are well above typical hourly fees paid to law
firm partners, as well as an additional administrative fee, and has not indicated a willingness
to agree to Apple’s standard expense policy. See Email Exchange between Michael
Bromwich and Kyle Andeer, October 23-26, 2013 (attached hereto as Attachment 2). Apple
does not believe the proposed fee structure is reasonable and customary, whether for a
monitor or a lawyer.

October 31, 2013
Page 2

We are available to discuss these issues with you at your convenience.

Sincerely,
/s Theodore J. Boutrous, Jr.
Theodore J. Boutrous, Jr.
Attachments
cc:

John R. Read, Esq.
Lawrence J. Buterman, Esq.

ATTACHMENT 1

Theodore J. Boutrous Jr.
Direct: +1 213.229.7804
Fax: [phone]
[e-mail]

October 31, 2013
VIA E-MAIL
Michael R. Bromwich
The Bromwich Group LLC
901 New York Avenue, NW 5th Floor
Washington, D.C. 20001
Re:

External Antitrust Compliance Monitoring

Dear Michael:
It was a pleasure meeting you last week, and Apple looks forward to working with
you to achieve our shared objective of developing a comprehensive and effective antitrust
training program consistent with Judge Cote’s Final Judgment. Apple is fully committed to
ensuring that its antitrust training program, and its policies and procedures related thereto,
are both robust and effective.
I am writing to follow up on three issues arising from our discussion last week and
your recent correspondence (letter of October 23, 20131 and e-mails on October 26 and 29,
2013). First, Apple believes that the timing and scope of your requests are inconsistent with
the letter and spirit of the Final Judgment. Judge Cote was very clear that the injunction
should be narrowly tailored to address the antitrust violation she found in this case and
sought to avoid unnecessarily burdening Apple or limiting its ability to innovate and do
business in this dynamic industry. See Hearing Transcript, United States v. Apple Inc., et al.,
No. 1:12-CV-2826, at 8-9 (Aug. 27, 2013) (“I want this injunction to rest as lightly as
possible on the way Apple runs its business.”) (hereinafter “Aug. 27, 2013 Hearing Tr.”).2
Notably in this regard, the Final Judgment provides that the External Compliance Monitor’s
review of Apple’s internal antitrust compliance policies and procedures and antitrust training
program is not to commence until “90 days after his or her appointment.” Final Judgment at
§ VI.C. Second, Apple also has concerns over the financial terms of your engagement,
which the Final Judgment requires be “reasonable and customary” and approved by the
1

As you are aware, Apple received a letter from you, in draft form, on October 23, 2013, which was not
finalized until October 26, 2013.
2

See also Aug. 27, 2013 Hearing Tr. at 27 (“I’m trying to think about, as I’ve indicated, where the real risks are
and to minimize the burdens on Apple.”)

October 31, 2013
Page 2

Department of Justice (“DOJ”). Third, we also need to ensure that the confidentiality of any
information Apple may share with you during the course of your activities as monitor is
appropriately protected.
Apple is hopeful that these issues can be resolved quickly so that we can move
forward together to achieve the objectives of the Final Judgment. Each of these issues is
discussed in more detail below.
1.

Timing and Scope of Monitor’s Responsibilities

As you mentioned at the outset of our introductory meeting, the Final Judgment
defines the scope of your responsibilities in a manner that is clear and straightforward. The
monitor’s primary responsibility is to “conduct a review . . . [of] Apple’s internal antitrust
compliance policies and procedures, as they exist 90 days after his or her appointment” and
to “also conduct a review to assess whether Apple’s training program, required by Section
V.C of this Final Judgment, as it exists 90 days after his or her appointment, is sufficiently
comprehensive and effective.” Final Judgment at § VI.C (emphasis added).
During the August 27 hearing Judge Cote explained, “I don’t think that the [Monitor]
should conduct a review or assessment of the current policies. I would expect that Apple
would revise its current policy substantially and procedures and create an effective training
program. That will require some time. So I think this should be revised to have the
[Monitor] doing an assessment in three months from appointment and beginning to engage
Apple in a discussion at that point.” Aug. 27, 2013 Hearing Tr. at 20-21(emphasis added).
Apple is in the process of revising and enhancing its compliance training programs to
ensure that they are robust, comprehensive, effective, and compliant with the terms of the
Final Judgment. In this regard, Apple will soon be bringing on board its new Antitrust
Compliance Officer, as directed by the Final Judgment, and adding new lawyers with
antitrust compliance expertise in the legal department. In light of the express language of the
Final Judgment, as well as Judge Cote’s elaboration at the August 27 hearing, the time period
for your review of Apple’s antitrust policies and procedures and training program does not
commence until January 14, 2013 (90 days from the date of appointment).
Accordingly, your 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. We fully understand and expect
that there will be a need to conduct interviews with certain personnel at some point once
Apple’s new training programs are up and running. And you have Apple’s assurance that it
will be a most willing partner in facilitating those meetings. Furthermore, there will be
ample opportunity over the course of your engagement to determine whether Apple’s new
training program is consistent with the Judge’s Order and is effective in its impact.

October 31, 2013
Page 3

However, 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.
2.

Financial Terms and Fiduciary Responsibilities

The Final Judgment requires the monitor to operate on “reasonable and customary
terms” that are “consistent with reasonable expense guidelines.” Final Judgment at § VI.I.
Apple has already raised concerns regarding your hourly fees, the administrative fee you
seek to impose in addition to those fees, the need for additional personnel, and finally,
adherence to a defined expense policy. Apple does not believe your proposed fee structure is
reasonable and customary, whether for a monitor or a lawyer, and respectfully objects to it.
Moreover, your dictate that we simply accept these fees and costs at face value without any
support or explanation is inconsistent with the company’s fiduciary responsibilities to its
shareholders, and to the customary practices of Apple and other companies in conducting
business or legal activities. And, while the Final Judgment requires DOJ and Plaintiff States
to approve your fee and expense structure (see Final Judgment at § VI.I), it appears from
your correspondence you have not secured such approval but instead have simply submitted
your proposed approach to DOJ and it has not acted upon it.
3.

Confidentiality

To protect the confidentiality of any information Apple may share with you during
the monitorship, we have attached a non-disclosure agreement for your signature that is
consistent with Apple’s standard confidentiality agreements and the Stipulated Protective
Order in this matter. Apple also reserves its right to assert attorney-client privilege and work
product protections as appropriate throughout this process. Finally, Apple again requests
that, consistent with its policies, you, the Bromwich Group, Goodwin Procter, and Fried
Frank refrain from using Apple’s name in any marketing materials or media communications
like the press release Goodwin Procter issued announcing your appointment and containing a
direct quote from you.
*****
Concurrent with this response, Apple has submitted to DOJ and Plaintiff States a
notice of its objections, all of which are described above. Please direct any future
communications on these issues to me. As we work to resolve these issues, Apple will
continue to focus its efforts on its internal assessment and enhancement of its antitrust
policies and procedures and the training program mandated by the Final Judgment. As you
know, Apple has retained seasoned antitrust practitioners and former government officials at
the law firm of Simpson Thacher to aid it in this process. We appreciate an honest and open

October 31, 2013
Page 4

dialogue on these issues, and look forward to working with you to establish antitrust training
programs that are comprehensive and effective in satisfaction of the Final Judgment.

Very truly yours,
s/ Theodore J. Boutrous, Jr.
Theodore J. Boutrous, Jr.

Enclosure

ATTACHMENT 2

Subject:

Monitoring Letter

On Oct 26, 2013, at 8:47 AM, Michael Bromwich <[e-mail]> wrote:

Dear Kyle,
Thanks very much for your response to my cover note and our draft letter. Unfortunately, I think you
may have misconceived its purpose. It was not to begin a negotiation about fees, rates, and expenses,
nor was it meant to provide you with an opportunity to provide us with guidelines that are applicable
to providers of legal services where Apple is the client -- but that are inapplicable to firms providing
independent monitoring services. It was to give you an opportunity to modify or revise the
confidentiality provision. In light of your response, it probably makes sense to execute any
enhancements to the confidentiality agreement separately. I have attached a signed copy of the
monitoring letter. The only change is the date.
Without responding to each item in your note, I wanted to clarify the following:
1. Administrative fees are completely standard for consulting firms. The Bromwich Group is not a
law firm and does not practice law. The normal range for the administrative/management fees for
consulting firms is between 10% and 25%. Therefore, the 15% is at the low end of the range.
2.

We will add additional personnel, whether from Fried Frank or elsewhere, only as necessary and appropriate. We will keep
you informed if we add personnel performing significant substantive responsibilities but not if we use a lawyer to do a discrete
research project or a legal assistant to provide support. We will do this as a courtesy and we do not intend to provide a
rationale. It will be because we need additional assistance.

3. On expenses, please advise whether your lawyers from Gibson Dunn working on this matter, your
Wilmer lawyers working on the Samsung matter in the ND of California, and other lawyers working
on high-end litigation and corporate matters follow these expense guidelines without exception. If
they do, we will seriously consider doing so. We are happy to receive from you a list of Apple's
preferred hotels.
4. We are serving as an independent compliance monitor pursuant to a Court order, not as counsel to
Apple subject to its direction and control. Accordingly, we will not be providing a budget. You are
incorrect in stating that this is standard practice in monitorships. We will do everything we
reasonably can to keep fees and expenses to a minimum. We plan to provide you each month with a
statement of the number of hours spent by each timekeeper on this matter but not to provide
descriptions of the amount of time spent on specific tasks. We will maintain such records and will
share them with the Department of Justice, the Plaintiff States, and the Court if requested to do so.
5. We will submit our invoices directly to you, or to someone you designate. We will be happy to
execute W-9s.
1

6. My consulting firm did not issue a press release. Goodwin Procter posted an item on its web site
without my advance knowledge or consent to clarify that the firm itself would not be involved in the
monitorship.
We very much look forward to your responses to the various substantive matters we discussed on
Tuesday and to your confirming the particulars of our initial visit to Cupertino the week of November
18.
Best regards.

MRB
On Fri, Oct 25, 2013 at 10:45 PM, Kyle Andeer <[e-mail]> wrote:
Dear Michael,
Thank you for sharing your draft letter It is very helpful in that it tees up a number of different issues that make
sense to address at the outset of our relationship. As you noted, the treatment of confidential information is one
of several issues that will require additional research and thought. Although the disclosure of such information
is highly unlikely given the narrow scope of the External Compliance Monitor's responsibilities, we agree that
this is an issue we should seek to address at the outset. It likely makes sense for us to execute one of our
"customary confidentiality agreements" as contemplated in the Final Judgment. Final Judgment at § VI.I, U.S.
v. Apple, Inc., No. 1:12-CV-2826 (S.D.N.Y. Sept. 5, 2013). We will provide a full response on these and other
issues in the next week, as well as a retention obligations agreement and confidentiality agreements to address
this point.
I do want to raise concerns with the compensation and expense terms outlined in your letter which are in tension
with the terms of the Final Judgment which require the External Monitor to operate on "reasonable and
customary terms" that are "consistent with reasonable expense guidelines.” Final Judgment at § VI.I, U.S. v.
Apple, Inc., No. 1:12-CV-2826 (S.D.N.Y. Sept. 5, 2013). From our perspective they do not reflect the
competitive realities of the marketplace. We expect that your firm – like all of Apple’s legal service providers –
will comply with Apple’s Outside Service Provider Policy (“OSP”) (attached) and its standard expense policy
(also attached).
1. Administrative Fee. You request that the Bromwich Group be paid a “management/ administrative fee” of
15% of all billable hours. As you will note in the attached policies, Apple does not pay any of its legal vendors
a "management/administrative fee."
2. Hourly Rates. You have requested that Apple pay you $1,100 per hour and Mr. Nigro $1,025 per
hour. These rates are very high, particularly when compared to the average rate Apple pays a law firm partner
($565 per hour). Even if one looks at the top 25%, the average rate per partner is $801 per hour. Apple is
prepared to compensate you at $800 per hour and Mr. Nigro at a rate of $700 per hour. With the foregoing
principles in mind, we also ask that you provide the hourly rate for Maria Cirincione.
3. Additional Personnel. Pursuant to Apple’s Outside Service Provider Policy, the Bromwich Group (and Fried
Frank) should notify Apple before adding new timekeepers to its team and provide a rational for the additional
resources. As you appreciate, this is a standard requirement that ensures costs do not spiral out of control.
2

4. Expense policy. Apple expects that you will adhere to its standard expense policy (attached) Apple will pay
for coach airfare, lodging at Apple preferred hotels, and per diems of $15 for breakfast, $25 for lunch and $30
for dinner. The policy also outlines our guidelines on telephone and copying charges. Apple will not reimburse
for data storage and information technology services. This is consistent with these policies is in keeping with
the “reasonable expense guidelines” language in Section VI.I of the Final Judgment.
5. Budget and Invoicing. The Bromwich Group should submit an expected budget for its services for the
coming year. As you know this is standard practice in any engagement, including in monitorships. In addition,
Apple expects that your invoices will describe time spent on tasks and a description of those tasks. Apple
reserves the right to challenge fees that are excessive, outside the scope your responsibilities, and/or unjustified
pursuant to Sections VI.I. and VI.J. of the Final Judgment.
6. Billing. Apple requires firms to submit invoices - within 30 days of service - via an electronic portal. We
can set up a meeting with our eBilling team as soon as you are ready. Apple will also require a signed W9 in
order to pay invoices for your firm.
7. Marketing. Apple does not allow the firms it works with to market their representation of Apple (see OSP at
6). We noted that your firm, Goodwin Proctor, your consulting practice, The Bromwich Group, and Mr. Nigro's
firm, Fried Frank all issued press releases announcing your appointments. We ask that you please refrain from
using Apple's name in any marketing materials or media communications.
The requests in your letter do not reflect market realities. That raises significant concerns on our part. We
sincerely hope that you will reflect on these points and that we can work out these issues without going to the
Department of Justice and the courts. Please let me know if you would like to discuss.
Best regards,
Kyle

On Oct 23, 2013, at 3:58 PM, Michael Bromwich <[e-mail]> wrote:

Dear Kyle,
I have attached a draft letter that sets forth our duties and responsibilities as the external antitrust
compliance monitor under the Final Judgment, and touches on other matters relevant to our
monitoring work, including information about fees, expenses, and confidentiality. This letter is
specifically tailored to the provision of monitoring services under the Final Judgment. Accordingly, it
is different in various ways from the engagement letter that would be appropriate if Apple were a
client of a law firm or my consulting firm.

3

Before I provided a signed version of the letter, I wanted to make sure it should be addressed to you
rather than someone else at Apple, and give you the opportunity to suggest any revisions to Section 10
of the letter dealing with confidentiality. I realize this may be a sensitive issue and I wanted to make
sure the language I have crafted is acceptable. I am willing to consider reasonable modifications.
Please confirm that you should be the recipient of this letter (or provide an alternative addressee) and
suggest any reasonable changes to the confidentiality language as promptly as you can.
Thanks very much.
MRB
<Apple Monitoring Letter -- 10-23.doc>

<Apple -- 10-26 Letter.pdf>
_______________________
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4