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You are here: MacNN Forums > News > Tech News > Apple offers to settle states' class-action e-book lawsuit

Apple offers to settle states' class-action e-book lawsuit
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Jun 17, 2014, 01:22 AM
Attorneys representing some 33 US states and territories along with some consumer groups on Monday filed a document with the court offering to settle the class-action lawsuit against Apple over alleged e-book price-fixing. The filing notes that all parties involved have agreed to the settlement, leaving Judge Denise Cote will little justification to deny it. Specific amounts were not mentioned in the agreement -- and in what could be a brilliant legal move, Apple's payment of anything is contingent on the verdict of the appeals court.

Cote has already acknowledged the letter by halting a trial scheduled for July that was set to determine damages, based on her original verdict in the federal e-book case. The consortium of plaintiffs was seeking as much as $280 million in damages from the alleged actions, but a willful finding (which seemed likely with Judge Cote again presiding) would have tripled the damages to as much as $840 million.

Specifics of the deal are currently sealed, pending a final settlement agreement that the court must approve -- which must be filed within the next 30 days. As part of the agreement filed today, however, any payment by Apple to the state attorneys general or the consumer groups depends on the finding of the appeal. Apple believes it has a strong case (supported by others) for winning at least a partial reversal of Judge Cote's decision, which has been widely criticized for both not being grounded in antitrust law as well as being a case of judicial overreach. If Apple does win on appeal, it may end up owing nothing to the civil litigants.

The company, which has vociferously denied any wrongdoing, was convicted by Cote in a bench trial of conspiring with publishers to push Amazon, then as now the dominant e-book seller online, into using a more publisher-friendly "agency" model of pricing (where the publishers can set the online price of books, sales and temporary promotions excluded) rather than Amazon's "wholesale" model, where the retailer bought books at an agreed on "wholesale" rate and then priced them as it wished.

Publishers were unhappy with Amazon because it was engaging in predatory loss-leader pricing of e-books in an effort to build the market and sell more of its own Kindle e-readers. As it has now begun doing again, Amazon would use its monopoly position to then renegotiate lower wholesale prices, hoping to boost profits but putting an economic squeeze on suppliers - exactly as publishers and critics predicted. It has now escalated an ongoing feud with Hatchette and opened up a new front against Bonnier Media Group. Various authors and the Author's Guild has openly accused the company of violating Section 2 of the Sherman Antitrust Act itself, though the DOJ has thus far been mute regarding Amazon.

In court, numerous witnesses testified that moves were afoot among the publishers to put pressure on Amazon to revert to an agency model before Apple even began talking to publishers -- however, Judge Cote and the US Department of Justice discounted that testimony, and instead ruled that Apple had led the publishers in a conspiracy that sought to damage Amazon and raise bestselling e-book prices on consumers, though in fact e-book prices did and continue to fall on average.

Apple has had mixed results in attempting to roll back Judge Cote's draconian punishments. It was successfully able to reverse some of the more onerous aspects of the antitrust monitoring Judge Cote imposed, but not remove the monitor entirely (or at least until after the appeal was concluded, if still required). Much of her judgement, however, is still in force, including the barring of Apple from entering into any new agreements with publishers and other competitive disadvantages that have effectively handed back a monopoly on e-book sales to Amazon -- which the e-tailer is now openly abusing to wrangle better deals with publishers and other content providers, including Warner Bros.

The iPhone maker has had no luck at all in getting Judge Cote to dismiss or delay the class-action suit, but the new agreement may not only avoid any trebling of damages, but provide an end-run around the judge and the lawsuit itself, if Apple can manage a reversal on appeal to the Second Circuit Court of Appeal -- the same panel of judges that largely de-fanged Cote's antitrust appointee.

( Last edited by NewsPoster; Jun 17, 2014 at 08:36 AM. )
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Jun 17, 2014, 02:09 AM
Ok, so Amazon gets to continue with their predatory pricing and other anti-competitive practices while Apple is punished for supposedly "price fixing" when the agency model placed pricing in the hands of the publishers instead of Apple? Ok. I guess these lawyers speak a different language than I do. I speak english.
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Jun 17, 2014, 02:16 AM
Judge Cote should be tossed out. She is no more a judge than I am. A judge is supposed to be impartial and listen to evidence from both sides. She did none of the above, only predetermined Apple was guilty even before the trial got started. And kept that guilty verdict from start to finish no matter what evidence or testimony to the contrary Apple had brought fourth. This settlement is the best news for Apple until it goes to court for its appeal which I believe they will be successful with as a lot of evidence has come forth after the trial showing that Apple actually made books more affordable when it was doing business. Which is totally the opposite what the DOJ was claiming. Cote is a clown and never should be in a court of law.
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Jun 17, 2014, 02:28 AM
Amazon wins and keeps doing what it does best. Laughable.
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Jun 17, 2014, 07:36 AM
You're fooling yourselves if you really think there's much of a chance this verdict is going to be tossed out.

I'm not sure whether putting links in my comment will cause it to get moderated or tossed out, so I'll just say to Google "Apple's Chances on an E-Book Ruling Appeal Are Lousy, Say Legal Scholars" on the news site AllThingsD. Effectively, legal experts say that Cote based her decision so heavily on the facts, they say, that she didn't really leave Apple much room to appeal.

The appeals court didn't "de-fang" Judge Cote's anti-trust monitor, they allowed him to continue subject to certain restrictions—but those restrictions were identical to the ones he was ALREADY UNDER from Section VI, Paragraph G of the Judge's original consent decree. (Go ahead, look it up.) So, it's like, "Go on with what you are doing, but don't do any of those things you were already forbidden from doing anyway."

Given that Apple was ASKING for the monitor's outright removal altogether, and they didn't get anything near that, it's really kind of amusing to see Apple partisans spinning that as a "victory." When nothing else goes your way, I guess you grasp at whatever straws you can get.

And Apple's attempt to get the damages trial stayed altogether was soundly rebuffed by the appeals court, which applied the following test:

"The four factors to be considered in issuing a stay pending appeal are well known: (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."

So apparently the appeals court doesn't feel Apple's likely to succeed on appeal either—or at the least that whatever chance it has doesn't outweigh the other factors.

So far in the appeals process we have DoJ 2, Apple zilch. You really think the appeals court is going to suddenly change its mind?

As for the idea that Judge Cote was "biased," note that Apple asked her for a pre-trial view based on the evidence she'd already seen. This is a common practice in this kind of case. The evidence she'd already seen strongly suggested that Apple was guilty, and she said so. That's what a pre-trial view is. Some judges even make partial drafts of their opinions available as pre-trial views, so if that makes Judge Cote "biased," not only is she not alone, but she's also far from the worst offender.

It's part of a judge's job to try to get the parties in a case to settle if they can, to avoid the costly, time-intensive process of a trial. And part of the way they do that is to tell one party or the other at trial that the evidence is weighing against them, and they're really going to have to pull something out of their hat in the courtroom to counterbalance it—so really, they might want to go ahead and settle if they can't do that.

Again, that pre-trial view was not based on "bias," but rather on evidence Cote had already seen—and given that she oversaw the process of settlement between the five publishers and the Department of Justice as well, she'd already seen quite a lot of it.

Abraham Lincoln once asked how many legs a dog had if you called a tail a leg. The answer was still four, because calling a tail a leg doesn't make it one. By the same token, calling Judge Cote biased and her decision likely to get tossed out doesn't make that so either.
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Jun 17, 2014, 09:50 AM
Robotech_Master, you bring up good points and the information on legal practice is helpful in understanding this case. Still, I'd venture to say Apple will contest the matter of "facts" as its appeal...to prove a conspiracy even existed as opposed to a complex business arrangement. Further, I'd think Apple will take as acceptable "victory" a less stringent punishment that the DOJ's proposed no publisher contracts for 5 years and allowing links to Amazon bookstore purchases w/in iOS, among other consequences.
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Jun 17, 2014, 10:17 AM
Originally Posted by Robotech_Master View Post
I'm not sure whether putting links in my comment will cause it to get moderated or tossed out, so I'll just say to Google "Apple's Chances on an E-Book Ruling Appeal Are Lousy, Say Legal Scholars" on the news site AllThingsD. Effectively, legal experts say that Cote based her decision so heavily on the facts, they say, that she didn't really leave Apple much room to appeal.
You could have linked, no problem. While I know that the appeal chances are low, the "facts" as stated by the DOJ and Cote don't really address the big picture, do they? When are they going to look at the Warner and Hachette bullying that's going on now?
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Jun 17, 2014, 10:50 AM
For one thing, calling it "bullying" is really jumping to conclusions. Given how mum both sides have been about the state of negotiations, we can't even really be sure who's doing what. Amazon removed pre-order buttons, yes, but are the shipment delays caused by Amazon or are they on Hachette? There's conflicting evidence on that score. Even Neil Gaiman, a Hachette author married to a Hachette author, admitted it's hard to place blame accurately with what little we know.

Nothing requires Amazon to carry products if they don't want to. For example, Amazon has previously pulled incest erotica titles and other such products from its store. By the same token, they don't have to offer pre-orders. You could say that it's a wise move not to offer them, given that they can't be sure whether they'll necessarily still be able to offer the products by the time they come out. And if it puts pressure on the other party, that's two birds with one stone. Note that they haven't done anything like disable "Buy" buttons as they did when Macmillan attempted to impose agency pricing.

Likewise, Amazon can offer as much or as little of a discount as it wants. The complaints that Hachette books have been priced at or near the publisher's suggested retail rather than given Amazon's usual margin discounts amuses me greatly. Didn't the publishers just illegally collude because they WANTED their books priced higher? If Hachette really didn't want its titles sold at the suggested retail price, maybe it should have suggested a lower one.

There's nothing at all unusual about retailers and suppliers squabbling over terms, or about one or the other of them trying to put pressure on the other. Barnes & Noble did it with Simon & Schuster last year, and DC several years ago, but few people were up in arms over the bookstore "bullying" anyone then.

The big publishers really need to cut their operating costs. The trade publishing industry has grown into this massively unwieldy, inefficient behemoth that runs on money. Why is it really necessary to print more books than they know they'll need, send them all out, then take up to half of them back and either destroy them or sell them to overstock vendors where they compete with the product that's still on shelves at full price? They charge outlandishly high prices to subsidize this excess, while self-publishers and small presses are able to charge less AND earn higher royalties for their authors. Then they collude illegally to try to keep those prices high. Maybe it's just going to take Amazon getting them by the throat to knock some sense into them and get them to slim down.
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Jun 17, 2014, 01:14 PM
I can see your mind is as closed on this matter as Judge Cote's, Robotech_Master, so we'll revisit the topic when the appeal is complete and see if you turn out to be correct. In the meantime, allow me to direct your attention to Judge Cote's rating by her peers at "The Robing Room," and take particular note of the fact that nearly all of the ratings were written years before the DOJ e-book case. See if you notice a pattern:

Charles Martin
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Jun 17, 2014, 01:35 PM
A pattern? You mean a bunch of lawyers who lost their cases and then cast about for someone to blame other than themselves, given that they OBVIOUSLY had right, justice, and impeccable good looks on their side?
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