6 Reasons Why Apple’s E-Book Defense Failed


Soon after U.S. District Judge Denise Cote issued a ruling that found Apple (NASDAQ:AAPL) guilty of violating antitrust laws in the e-book business, the Cupertino-based company announced its next move. “Apple did not conspire to fix e-book pricing and we will continue to fight against these false accusations…We’ve done nothing wrong and we will appeal the judge’s decision,” Apple spokesperson Tom Neumayr told The Verge.

According to legal experts cited by the Washington Post, Apple’s appeal could eventually reach the Supreme Court. Judge Cote outlines and refutes the “six principal arguments” that Apple used in its defense in her ruling. Fortune’s Philip Elmer-DeWitt notes Apple’s success on appeal may depend on how well it will be able to respond to the judge’s teardown of Apple’s six key defenses.

1. Monsanto Defense

First, Apple relied heavily on a previous Supreme Court decision involving Monsanto (NYSE:MON) that found that if “a defendant had a legitimate, independent reason for its actions” besides ambiguous involvement in a conspiracy, “then no fact-finder may infer that it engaged in a conspiracy.” Cote dismissed this argument by noting that the “Plaintiffs have shown by a preponderance of the evidence that Apple violated the antitrust laws.”

2. Apple Didn’t Conspire with Publishers


Second, Apple argued that it did not intend to conspire with publishers to raise e-book prices, and that it cannot be held liable for the publishers using Apple’s deals with them as “a tool to force an industry change to the agency model.” Although Cote noted that many of Apple’s individual business negotiation tactics were legal, Apple still “created a mechanism and environment that enabled them to act together in a matter of weeks to eliminate all retail price competition for their e-books.”

3. Not Responsible


Third, Apple insisted that the government failed to prove that it was responsible for the increase in e-book prices, since Amazon (NASDAQ:AMZN) could have refrained from adopting the agency model, and then publishers would have simply withheld e-books from Amazon. Judge Cote dismissed this argument by noting that the practice of withholding books, otherwise known as “windowing,” was not widespread and had only occurred for 37 titles.

4. The “Counter-Narrative”


Fourth, Apple presented a “counter-narrative” to the events as described by the prosecution. Judge Cote observed that the government’s version of events fits the documentary record and circumstantial evidence. Cote also said the government’s allegations are further supported by the fact that Apple’s conspiracy succeeded.

5. What About the Rule of Reason?


e-book ipad

Fifth, Apple argued that its conduct should not be analyzed as a per se violation of antitrust laws, but should rather be analyzed less stringently under the “rule of reason.” Essentially the “rule of reason” analysis would hinge on Apple being a “vertical player” in the industry. However, Judge Cote maintained that, “Apple directly participated in a horizontal price-fixing conspiracy.”

6. Don’t Hurt Businesses


Finally, Apple argued that a verdict against it would hurt businesses in general. Apple lawyer Orin Snyder summarized this view in his closing argument, which stated a verdict against Apple would create “a chilling and confounding effect not only on commerce,” but on “content markets throughout this country.”

Judge Cote seemed to agree with Apple’s general view on this issue when she wrote that, “It is certainly true that our nation’s antitrust laws should be applied with care. Courts must be sensitive to the unique features of any market and the ambiguities of commercial conduct to avoid chilling lawful competition.” However, Judge Cote dismissed this argument by pointing out that the e-book market’s “higher prices were not the result of regular market forces but of a scheme in which Apple was a full participant.”

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