Why Apple's loss of this lawsuit was inevitable
As anyone interested in the e-book pricing wars and the US/DOJ vs Apple lawsuit will have heard on Monday, Apple lost the lawsuit. Here's Judge Cote's decision ("Opinion & Order"). It's written very clearly for a legal document and she answers each of Apple's points.
Bear in mind that the DOJ just went for a civil case rather than a criminal one.
Apple took a chance on the trial because, most agree, it didn't want the government oversight (over the type of negotiations with content companies) that the five settling publishers had to accept, some concern over private lawsuits, and because Apple management has a strong faith in their ability to market, even to a judge who, in her denial of Apple's Motion to Dismiss the case, had already explained why the main arguments they would use during the ensuing trial would not be successful.
One general point:
Apple's defense team pushed the point that they were trying to ensure a healthier, free market atmosphere against a company (Amazon) that dominated it and which would possibly eventually cause competitors to have to leave the arena -- but the Wall St Journal (a fairly conservative site that is itself a publisher with some colorfully-expressed enmity toward Amazon from its owner Robert Murdoch) quoted Herbert Hovenkamp, a law professor at the University of Iowa, who explained, as others have, that:
"The goal of antitrust policy is to protect consumer prices ... It’s not to protect inefficient firms from having to exit the market."
and again, from PaidContent's Matthew Ingram on the same point, which Apple lawyers should have known:
' ...antitrust law in the U.S. isn’t designed to help prevent competitors from being squashed by a large player in an industry — even if that player has what amounts to a monopoly position. The key point is whether that particular company’s behavior alters or damages the marketplace in a way that harms consumers. And when it comes to that, the DoJ is on rock-solid ground. '
and Monday, Judge Cote wrote:
'...it is essential to remember that the antitrust laws were enacted for "the protection of competition, not competitors." '
Apple's response yesterday was to restate their role of white knight saving the e-book world from Amazon and "We've done nothing wrong and we will appeal the judge's decision."
Those new to the case and curious about it can see original news sources in a Timeline and a set of articles that are a news history of the e-mail pricing wars
The page of articles also provides links to the primary court documents, some of which are fascinating reading, as they consist of private mails between several companies' executives and give insight into the thinking and atmosphere of higher management in those companies.
They even come with some admonitions from the writers to delete the email received (and most of us know this doesn't mean they are truly deleted).
So, anyone interested in the nitty gritty of the lawsuit, after being puzzled by news summaries, can get some original-source reading of intrigue-ridden moments.
1. Apple insisted it was no "ringleader" of the publishers' effort and that Apple was just going along with the publishers who were driving the price hikes. Well, there is a lot of data there -- but for those not interested in too much detail, there was a whiff of gunsmoke from Simon and Schuster's chief executive, Carolyn Reidy, when the DOJ introduced an email from Reidy to Apple's Eddy Cue (the negotiator) in which she said she "looked forward" to his progress in "herding us cats."
2. Especially for sleuths. Apple's SVP of Internet Services, apparently tried to mislead the judge after a key DOJ document indicated that Steve Jobs sent an email to Apple's Eddy Cue January 14, 2010, Subject title "Re: Book Prices Thoughts" saying:
' 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 don't, I'm not sure we can be competitive...'
Does this even matter? Two Apple execs (Keith Moerer and Kevin Saul) had both testified that Apple was "indifferent" to what kind of agreement the publishers signed with Amazon. Steve Jobs's email posed a conflict with Moerer and Saul's testimony.
When Eddy Cue didn't want the email to be evidence that Apple had planned to require that the publishers move Amazon to the agent model too, for new releases, Orin Snyder, Apple's Chief Counsel, came back by asking Moerer:
"Are you aware that the e-mail was never sent?"
Judge Cote ordered Snyder's question removed from the record.
Apple's Snyder came back the next day to introduce a longer version of the email, stamped with the same date, suggesting that the email introduced had been a discarded draft.
This led to Apple siders in the blogosphere arguing even after the trial ended, that the DOJ had introduced an early, discarded draft, but the people writing this in commenter areas probably never followed up on that story to find out what actually happened when the judge decided to analyze the pieces that were part of an odd sequence.
The DOJ returned to ask Eddy Cue, on the stand, what the longer email meant and if he'd ever received it, and Cue said he hadn't.
It's interesting that each email version has a timestamp header line: "Received(Date):" ... with the time filled in.
Not leaving well-enough alone, Apple Counsel Snyder came back to this on a later date, introducing FIVE different versions of Jobs's email. The key wording about Amazon did not appear in the other four versions. CNN Fortune's Philip Elmer-DeWitt wrote that Snyder seemed to be implying that Jobs's thinking had evolved over the first four email versions drafts.
The problem for Snyder was that the version that the government had introduced was time-stamped LATER than the other four versions.
Apple's Snyder explains this by saying that's the timestamp that's applied when a computer window is closed. (?)
DOJ lawyer Buterman pointed out, furthermore, that the DOJ-introduced version not only had the latest time stamp, but it was the ONLY one that was signed in Jobs's usual manner, "Steve"...
Then the sleuthy judge put her analytical ways to work on this -- and noted that the first version's wording appeared on the 2nd version but part of the text was moved down and replaced in the paragraph by other wording, while the original words were left dangling below the body of the message (probably meant for deletion but forgotten) in all subsequent copies.
' Anyway, so it's like hanging down there just sort of riding at the bottom of the e-mail for the rest of the chain, which, to me, is additional confirmation that this is the last in the series. '
That's when Cue tried to explain it all away by saying about Steve Jobs, "He's writing that first one, he's confused about it... This was before the iPad launch, which most of us watched.
(NOTE: See another story, by CNet's Shara Tibken, showing how often Cue had to say Jobs was 'confused' to get away from any idea that they ever thought about insisting that publishers require all retailers to go the Agency Agreement route.
"Apple's initial proposal sent to publishers on January 4 and 5 of 2010 said publishers working with Apple had to move all retailers to agency..."
The judge thanked him. But she has shown a tendency to analyze thoroughly everything submitted to her (not taking at face value declarations from either side) and this was not a good moment for Apple's defense, as it showed clearly a desire on Snyder's part to get this clearly weak set and the idea of the last one as an early draft past the judge (or, even worse, the Defense team had not even taken the time to take a logical look at the 5 versions they submitted).
At the weakest, it showed some definite intent by Steve Jobs at that time and it contradicted what Moerer and Saul had testified. While Eddy Cue testified that he changed his mind on this and that explicit language did not make it into the final contract language, the publishers did in fact coincidentally insist that Amazon agree to use the Agency model.
Judge Cote's Decision describes this in Footnote 24 connected with her statement on Page 50 that "there is no evidence...that Apple ever rescinded its demand that each of [the e-book retailers] move to an agency arrangement with all resellers."
Random House refused to sign up for the change to higher book prices, explaining that they felt retailers best understood selling; their e-books were not allowed in the Apple iBookstore for a year (imagine the media uproar if Amazon had banned Random House from the Amazon store for not agreeing to their wholesaler model with lower pricing for bestsellers), until Random House waved the white flag when Apple withheld permission for an app important to Random House.
Things that stood out, in the Decision - as cited by the PublishersWeekly article by Andrew Albanese
1. "In the final analysis, the case wasn’t even close. In its defense, Apple had argued on three main points, and lost soundly on all three." (Details in the article)
2. "Throughout the opinion Cote made numerous observations on the proceedings in her court. She criticized the publishers and Apple executives not only for what she clearly views as their participation in a conspiracy, but also for their lack of credibility on the stand, calling out Macmillan CEO John Sargent and S&S CEO Carolyn Reidy by name as among the most 'unreliable' witnesses...
"The poor performances on the stand helped doom Apple. Indeed, given the vast amount of documentary evidence, Apple needed its witnesses to strongly rebut the facts, but they did not...
"Jobs’s statements offered 'powerful evidence of conspiratorial knowledge and intent...'
" 'Apple has struggled mightily to reinterpret Jobs’s statements in a way that will eliminate their bite. Its efforts have proven fruitless.'
Judge Cote's Decision itself has this interesting footnote in connection with publishers insisting they never talked with the other publishers about their contract talks with Apple.
' On December 15, Hachette’s Young spoke to S&S’s Reidy by telephone prior to his meeting with Cue. On December 16, Reidy called Young just minutes after her meeting with Cue had ended. The next day, the two exchanged three calls. '
What's next? - From the same PublishersWeekly article
Albanese quotes Christopher Sagers, a law professor at Cleveland State University "who has followed the case closely." Apple is appealing to the Second Circuit, and Sagers says "I think it's extremely unlikely, however, that the Second Circuit would do anything except resoundingly affirm in all respects."
Sagers adds that the judge's "fact rulings" are "essentially unassailable on appeal...it will be exceedingly hard because you’ve got a 160-page opinion that is extraordinarily, meticulously detailed as to the findings of fact.”
While there are a few ways to handle this, he expects a damages trial but they can put that off until after the appeal, which should take about a year..."
More at the PW article.
Here's an especially good article by Ars Technica's Jon Brodkin on the history of this e-book-pricing battle and a thorough explanation of the differences between the traditional wholesaler arrangement and the agency model
"How Apple led an e-book price conspiracy—in the judge’s words"
and a very good summary by Brian X. Chen and Julie Bosman, for the New York Times.
For side interest: Fortune's Philip Elmer-Dewitt and AllThingsD's Peter Kafka detailed Eddy Cue's day spent talking about Steve Jobs and his loving care to the iPad and its content. Neither writer understood how any of that had any bearing on the case, but the Judge did allow it all in. The MacObserver's Bryan Chaffin mentions both these articles asking and himself asking "Why?":
"Long-term Apple watchers and fans of Steve Jobs will enjoy the added context of knowing some of these things. The question, however, is why did Apple's attorneys spend its time with Eddy Cue talking about them."
Re the 'marketing' tactic I mentioned earlier, Chaffin mentions "heartstrings" but then points out that "This isn't a jury trial, though; it's a bench trial...[the Judge]..will be deciding the case on law, not emotion."
Elmer-Dewitt for Fortune, a business-conservative site, wrote, "Orin Snyder, Apple's chief counsel, did his best to exploit the pathos." These words are from hardnosed business writers.
I liked the link to Elizabeth Williams' courtroom drawings, drawn for Bloomberg TV.
Judge Cote's decision - the best read of all on this, and no more difficult to understand than a mystery novel. The intrigue detailed just before (and because of) the launch of the iPad and iBookstore is fascinating stuff.
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