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

Filing 99

MEMORANDUM OF LAW in Opposition re: 88 MOTION for Entry of Judgment under Rule 54(b) and §15 U.S.C. 16(b)-(h).. Document filed by Apple, Inc.. (Parker, Richard)

IN THE UNITED STATES DISTRICT COURT
FOR THE SOUTHERN DISTRICT OF NEW YORK

UNITED STATES OF AMERICA,
Plaintiff,
v.
APPLE INC., et al.
Defendants.

IN RE ELECTRONIC BOOKS ANTITRUST
LITIGATION
This document relates to:
ALL ACTIONS

THE STATE OF TEXAS;
THE STATE OF CONNECTICUT; et al.,
Plaintiffs,
v.
PENGUIN GROUP (USA) INC., et al.,
Defendants.

)
)
)
)
)
) Civil Action No.: 12-cv-02826 (DLC)
)
) (ECF Case)
)
)
)
)
)
)
) Civil Action No.: 11-md-02293 (DLC)
)
) CLASS ACTION
)
)
)
)
)
)
)
)
)
) Civil Action No.: 12-cv-03394 (DLC)
)
)
)
)
)

APPLE INC.’S MEMORANDUM OF LAW IN OPPOSITION TO THE UNITED
STATES’ MOTION FOR ENTRY OF FINAL JUDGMENT AGAINST DEFENDANTS
HACHETTE BOOK GROUP, INC., HARPERCOLLINS PUBLISHERS, L.L.C., AND
SIMON & SCHUSTER, INC.

I.

INTRODUCTION
Apple has not settled with the Government; it denies the allegations against it and is

actively defending this case. Apple has never participated in, encouraged, or sought to benefit
from collusion. It has no objection to the Proposed Judgment’s bar on collusion. But the
Government proposes to go much further. It seeks to terminate and rewrite Apple’s bargainedfor contracts1 before a single document has been introduced into evidence, before any witness
has testified, and before the Court has resolved the disputed facts. Once its existing contracts are
terminated, Apple could not simply reinstate them after prevailing at trial. The Court’s decision
would be irreversible. Nullifying a non-settling defendant’s negotiated contract rights by
another’s settlement is fundamentally unfair, unlawful, and unprecedented. The Government
does not cite a single case in which such relief was granted without a trial or merits
determination.
The Tunney Act requires that the Court consider “the public benefit, if any, to be derived
from a determination of the issues at trial.” 15 U.S.C. § 16(e)(1)(B). Moreover, because the
Proposed Judgment does not apply to all defendants, it may be entered only if there is “no just
reason for delay.” Here, the need for a trial on hotly-contested issues affecting the eBook
industry is clear. And delaying judgment would avoid imposing a settlement on Apple that
implicates contracts that Apple is entitled to defend at trial. Apple has pushed for an early trial.
In approximately ten months, the Court will be asked to determine, based on admissible
evidence, agency’s impact on eBook prices, whether there is any basis for the Government’s
claim that Apple conspired, and whether Apple’s contracts are anticompetitive. Apple
respectfully submits that the Court should not simply take the Government’s word for it now and
1

See Proposed Final Judgment Sections IV.A, V.A, V.B, V.C, and VI.B.

impose a penalty on Apple before it has had its day in court.
II.

THE SETTLEMENT UNLAWFULLY PENALIZES APPLE WITHOUT A TRIAL
AND GRANTS MORE RELIEF THAN WOULD A POST-TRIAL JUDGMENT
“[A] court may not enter a consent decree that imposes obligations on a party that did not

consent to the decree.” Firefighters Local 93 v. Cleveland, 478 U.S. 501, 529 (1986). This
principle of black letter law, which “is fundamental to our notions of due process,” EEOC v. Pan
Am. World Airways, Inc., 897 F.2d 1499, 1506 (9th Cir. 1990), “is commonsensical.”
Tourangeau v. Uniroyal, Inc., 101 F.3d 300, 306 (2d Cir. 1996) (citation omitted).
This case is about an alleged conspiracy to force Amazon to adopt agency. Thus, a
settlement enjoining collusion or precluding publishers from forcing agency on Amazon would
be appropriate.2 Yet the Government goes much farther. The Proposed Judgment penalizes
Apple in a manner that is inconsistent with the public interest and the law. Without Apple’s
consent and without a trial, the Proposed Judgment automatically terminates Apple’s agreements
(IV.A.) and effectively bars Apple (and other retailers) from selling eBooks under the agency
model for two years by mandating shared responsibility for pricing between principal and agent
(V.B., VI.B.). This result also is inconsistent with the fundamental tenet of agency relationships,
not justified by proven facts, and has been overwhelmingly opposed by the public.
The Government justifies the termination of Apple’s contracts before trial on the grounds
that they are causing ongoing harm. ECF No. 90 at 4. The Government is seeking to impose a
remedy on Apple before there has been any finding of an antitrust violation. Nor has the
Government proven that the MFNs in Apple’s agency agreements forced any publisher to adopt
agency with other retailers. The evidence will show that many independent publishers have
2

Indeed, Apple has no issue with several of the proposed settlement’s provisions. See Proposed Final Judgment
Sections IV.C., IV.D., V.E., V.F., VII, and VIII.

2

signed similar contracts with Apple while maintaining wholesale agreements with Amazon. The
Government’s theory regarding Apple’s MFN is legally unprecedented and, more important for
this proceeding, factually unproven.3
The Government contends that it may terminate Apple’s contracts because “as the
Complaint alleges . . . [they arose] from a conspiracy,” and “form the bedrock of [that]
conspiracy.” ECF No. 81 at 48. Yet those are mere allegations, not facts, and cannot serve as a
basis for judgment. The cases cited by the Government do not support its proposal. In each, a
court voided contracts after a finding of the existence of a conspiracy. See, e.g., United States v.
Paramount Pictures, 334 U.S. 131, 149 (1948); United States v. Nat’l Lead Co., 332 U.S. 319,
327-28 (1947). These cases do not support terminating a defendant’s legal rights based only on
unproven allegations and the willingness of other defendants to settle under pressure.4 And the
cases holding that a judgment can go beyond remedying the alleged harm are unavailing for that
same reason.5 There have been no findings here that could warrant pre-trial termination of
contracts that Apple contends are perfectly legal. And there certainly is no factual basis to
3

A decision to condemn these MFNs would conflict with existing case law, which requires a showing of market
power. See, e.g., Interview with Sharis A. Pozen, The Antitrust Source at 7 (April 2012), available at
http://www.americanbar.org/content/dam/aba/publishing/antitrust_source/apr12_pozen_intrvw_4_26f.authcheckdam
.pdf (“It’s not that all MFNs lead to competitive harm. But we take a close look at them when employed by firms
with significant market power.”). Apple had zero market share and no market power when it negotiated its entry
through the challenged agency agreements; even today, Apple is a distant third to Amazon and Barnes & Noble.
4

See, e.g., HBG’s Statement on the US Dept of Justice Case (Apr. 13, 2012) available at
https://www.hachettebookgroup.biz/about-HBG/item/hbgs-statement-us-dept-justice-case/ (“Although we remain
confident that we did not violate the antitrust laws, we faced the prospect of lengthy and costly litigation with
government plaintiffs with virtually unlimited resources. Hachette has decided that the costs, uncertainties, and
distractions of this litigation would be too disruptive to our business.”); HarperCollins Publishers Settles e-Books
Pricing Dispute with the Department of Justice (Apr. 11, 2012) available at
http://www.harpercollins.com/footer/release.aspx?id=994&b=&year=2012 (“HarperCollins did not violate any antitrust laws and will comply with its obligations under the agreement. . . . HarperCollins made a business decision to
settle the DOJ investigation in order to end a potentially protracted legal battle.”).
5

ECF No. 81 at 11-12. See Int’l Salt Co. v. United States, 332 U.S. 392, 395-396 (1947) (decree entered after
summary judgment granted); United States v. U.S. Gypsum Co., 340 U.S. 76, 89 (1950) (decree entered after trial);
Zenith Radio Corp. v. Hazeltine Research, Inc., 395 U.S. 100, 132 (1969) (same); Ford Motor Co. v. United States,
405 U.S. 562, 573 (1972) (same).

3

preclude the use of a business model in an evolving industry as a supposed remedy for collusion.
III.

THE SETTLEMENT DOES NOT MEET TUNNEY ACT STANDARDS
The Tunney Act was enacted to “assure that courts undertake meaningful review of

antitrust consent decrees to assure that they are in the public interest and analytically sound . . .
[and] to preclude a court from engaging in rubber stamping of antitrust consent decrees.” United
States v. SBC Commc’ns, Inc., 489 F. Supp. 2d 1, 12 (D.D.C. 2007) (internal citations and
quotations omitted). The Proposed Settlement has generated a firestorm of criticism. Everyone
from a United States Senator to authors to publishers to retailers big and small to readers have
delivered the same message to the Antitrust Division: this decree does not serve the public
interest and poses a significant threat to future competition.
This Court is vested with responsibility to determine whether the decree is in the public
interest. The Court’s review should be particularly searching because the overwhelming
majority of comments (about 800 of 868, or 92%)—submitted by actual market participants—
oppose the settlement as posing a significant threat to competition and the public interest.
The crux of the Government’s position is that the settlement is in the public interest
because Apple’s agreements with the Publisher Defendants caused a handful of eBook prices to
increase, and the settlement will somehow reduce the prices of those eBooks without increasing
the price of other eBooks. Apple and others hotly dispute this contention, and it will be a subject
for trial. The Government’s casual dismissal of the torrent of objections as being the views of
persons who “misunderstand” the settlement or have an interest in higher prices is unpersuasive.
ECF No. 81 at v, vi. These authors, publishers, retailers, and consumers know the marketplace
better than anyone. They are concerned that the Government threatens to harm future
competition in a nascent market that it does not fully understand. The Government gave its

4

critics the back of the hand with the message that the Government, not the people operating
day-to-day in the market, knows what best serves the public interest. The critics have raised
significant and substantial questions about the threat to future competition and the industry posed
by the Proposed Judgment; these questions counsel strongly in favor of developing a full record
before the requested relief is imposed.6
IV.

THE COURT NEED NOT DECIDE THE GOVERNMENT’S MOTION NOW
As an alternative, the Proposed Judgment need not be ruled upon now. Since the

Proposed Judgment “does not apply to all defendants in this action, it may be entered only if the
Court ‘expressly determines that there is no just reason for delay’” under Rule 54(b). ECF No.
90 at 3 (quoting Fed. R. Civ. P. 54(b)). Respect for the “historic federal policy against piecemeal
appeals,” Curtiss-Wright Corp. v. Gen. Elec. Co., 446 U.S. 1, 8 (1980) (citations and quotations
omitted), provides reason for delay here. There is a significant risk of “piecemeal appeals” here
given that Apple could, and likely would, appeal a decision to enter the Proposed Judgment
now,7 while any of the non-settling defendants or the Government could appeal a judgment after
trial.8 Apple would have to appeal now because there is no guarantee that it would be able to
reinstate its contracts once it prevails at trial. The Court should avoid raising these issues by
deferring judgment until after trial, just ten months away.
6

For example, many expressed concerns about the possibility that the Government has unwittingly placed a thumb
on the scales in favor of Amazon, the industry monopolist. Amazon was the driving force behind the Government’s
investigation, and it told a story to the Government that has yet to be scrutinized. Amazon talked with the
Government repeatedly throughout the investigation, even hosting a two-day meeting at its Seattle headquarters. In
all, the Government met with at least fourteen Amazon employees—yet not once under oath. The Government
required that Amazon turn over a mere 4,500 documents, a fraction of what was required of others.

7

ECF No. 90 at 4. Because the Proposed Judgment would interfere with Apple’s contractual rights, Apple has
standing to appeal. See Zupnick v. Fogel, 989 F.2d 93, 98 (2d Cir. 1993) (non-settling defendant has standing to
appeal co-defendants’ settlement “where it can demonstrate that it will sustain some formal legal prejudice as a
result of the settlement” (quotation omitted)).
8

See also O’Bert ex rel. Estate of O’Bert v. Vargo, 331 F.3d 29, 41 (2d Cir. 2003) (a court’s “power to enter a final
judgment before the entire case is concluded . . . [must] be exercised sparingly.”).

5

Dated:

August 15, 2012
O’MELVENY & MYERS LLP
By:
/s/ Richard Parker
Richard Parker (admitted pro hac vice)
1625 Eye Street
Washington, D.C. 20006
Tel: [phone]
Fax: [phone]
E-mail: [e-mail]
Andrew J. Frackman
Edward N. Moss
7 Times Square
New York, New York 10036
Tel: [phone]
Fax: [phone]
E-mail: [e-mail]
[e-mail]
GIBSON DUNN & CRUTCHER LLP
Daniel S. Floyd (admitted pro hac vice)
Daniel G. Swanson (admitted pro hac vice)
333 South Grand Avenue
Los Angeles, California 90071
Tel: [phone]
Fax: [phone]
E-mail: [e-mail]
[e-mail]
Attorneys for Defendant Apple Inc.

6