After being largely ignored -- even after
presenting evidence -- at the first bench trial and in
the appeal of Apple's
e-book antitrust conviction, four large industry groups representing the content creators and sellers of e-books
have filed amicus curae ("friend of the court") briefs in support of Apple, urging the Supreme Court to overturn the rulings. The filings say that Amazon used loss-leader pricing to eliminate competition and abuse its monopoly, ultimately doing more harm to consumers than Apple has ever been accused of.
The Authors Guild, Authors United, bookseller Barnes & Noble, and the American Booksellers Association filed the joint brief, which tells the Court that the erroneous conviction of Apple as the leader of a conspiracy among publishers to raise e-book prices "threatens to undermind the very objective of antitrust law -- to ensure robust competition," and that Apple's entry into the e-book marketplace broke Amazon's monopoly, which was eliminating publisher diversity and harming authors with an unsustainable business model designed to ensure no competitors could enter the market, and that its own Kindle hardware would become the only e-reader.
The case as made by the Department of Justice has never been about Amazon -- despite evidence of
abusive behavior presented during the trial, and despite ignored statements from Sony that it, and not Apple, was the first to approach publishers about using the "agency" pricing model to force Amazon to price e-books fairly, including a "most favored nation" clause in contracts
months before Apple approached publishers with the iBookstore concept.
Instead, the DOJ argued that because Jobs and publisher companies talked about the need to raise prices in order to make the e-book market sustainable, they were guilty of "conspiring" to harm consumers, despite admissions by publishers that the agency model was discussed as a tool to regain power from Amazon before Jobs and Apple reached the same conclusion in their pitch to publishers.
The Jobs email at the center of the DOJ's case
The brief from the four organizations said that Amazon's practice of selling e-books below cost was an effort to stop the creation of "a healthy marketplace for the ideas and First Amendment-protected expression that authors and bookstores facilitate," threatening both smaller publishers and brick-and-mortar bookstores that could not compete with its loss-leader prices with extinction. The Borders chain, as well as a number of veteran smaller bookstores, shuttered in part due to the undercutting of printed book prices by Amazon's $10 price point on e-book bestsellers, versus the $20 to $40 such books commanded in physical form, and the inability to enter the e-book or e-reader market.
At one point, Amazon controlled 90 percent of the e-book market, well above the "monopoly" threshold of 67 percent. Following the entry of Apple and the introduction of "agency" pricing, where publishers set the price rather than retailers, other companies entered the fray, and Amazon's share eventually dropped to 60 percent due to the effect of leveling the playing field, and similar prices across the market, brought on by the switch to "agency" pricing.
While in the short-term, this did cause e-book prices to rise back to sustainable levels -- around $12-14 for the most popular e-books -- prices overall continued to hover around the $10 mark, and have since actually gone down slightly, only with more booksellers and publishers in the market rather than Amazon's sole-source strategy. The
amicus brief argues that these moves promoted "the robust discourse that is vital to democracy" and that the groups "fundamentally question the wisdom of the Second Circuit's use of antitrust law to punish a business arrangement that demonstrably increased competition in the e-book marketplace," said Author's Guild Executive Director Mary Rasenberger in a group statement.
By ignoring the harm Amazon was doing to the market, and instead
focusing on alleged price-fixing that the DOJ accused Apple of instigating, the federal government, as well as initial trial judge Denise Cote. erred in the July 2013 trial, Apple and the amicus briefs argue.
Apple, in its initial filing asking for the Supreme Court appeal, said that Cote and to a lesser extent the Appeals court
based their decisions on a flawed model of antitrust violations, failing to weigh Apple's entry as pro-competitive and the benefits of a second major bookseller in creating market equilibrium that benefits authors, publishers, and ultimately consumers -- by making the market more diverse and competitive as part of the ruling.
"This case ... presents issues of surpassing importance to the United States economy," attorneys for Apple argued in their filing. Disruptive entry into new or stagnant markets -- the "lifeblood of American economic growth," according to the filing -- often requires the "very type" of monopoly-busting action the company engaged in when it forged new agreements with publishers in late 2009.
The government's principal arguments have been founded on two premises that have been widely criticized as deeply flawed by legal experts: The first being that Apple was a vertical leader of a "horizontal" conspiracy among publishers, and the second was that was that lower prices were the be-all and end-all of consumer interest. The DOJ has maintained a position of being uninterested in the concept that a more-sustainable "true" pricing level would encourage new entrants, despite the obvious benefits to consumers.
The DOJ argued that this represented a conspiracy to upset "market forces," but ignored the fact that loss-leader pricing would eventually lead to publisher consolidation, reducing diversity among publishers and authors, and the number of outlets available -- effectively sanctioning a monopoly of the market to Amazon, which was much more likely to ultimately harm buyers than a slight (and temporary) price increase.
Apple's belief that it has been unfairly portrayed by the Department of Justice has
gained credibility with
antitrust experts, economists, publishing companies, and
outside observers of the case -- leading Barnes and Noble, which competes directly with Apple with its e-bookstore and Nook hardware, to assist in the filing on Apple's behalf. Should it ultimately lose the case, the iPhone maker will owe groups of class action lawyers and state Attorney Generals around $450 million. However, should it win a partial or complete overturning of the ruling, Apple
would owe nothing to the group beyond a small amount of attorney's fees and court costs.
Bolstering Apple's case is the dissenting ruling of the third appeals court judge, who said Apple's actions were "unambiguously and overwhelmingly pro-competitive."
Fortune writer Roger Parloff, in an analysis of the SCOTUS appeal, wrote that "most conduct challenged as violating the antitrust laws is tested under a 'rule of reason' analysis, where the court weighs all the circumstances, including the potentially pro-competitive and anti-competitive effects of whatever the defendant did. However, when certain categories of conduct are alleged -- including horizontal price-fixing -- courts have decided that there is such a longstanding consensus that such conduct is anti-competitive, that it can be considered illegal
per se, freeing the judge from undergoing a full-blown rule-of-reason analysis."
This, Parloff says, is the
fundamental flaw in the original judge's decision -- while Cote included a perfunctory one-paragraph "rule of reason" analysis to protect her legal
error-filled ruling, even one of the Appeals Court judges ruling to uphold the finding on the strength of the
per se judgement disagreed that the "rule of reason" analysis was credible. Apple has argued that its actions require a rule-of-reason analysis that it has thus far not received, and which it expects will result in at least a partial overturning of the previous judgements.
The filing also points to two previous court precedents to back up its attack on the
per se rationale behind the original decision: a 2007 Supreme Court decision ("Leegin Creative Leather Prods., Inc. v. PSKS, Inc") that found that vertical price-fixing cannot be found illegal
per se, and must be analyzed by rule-of-reason, and a federal appeals court ruling more recently that an alleged "vertical" participant in a "horizontal" conspiracy must be judged under rule-of-reason.
While Apple has avoided making the Amazon-as-abusive-monopoly argument as the centerpiece of its own filings, others have repeatedly pointed out that the DOJ may well have
gone after the wrong entrant in the e-book market. At the time of its trial, Amazon was (and continues to) use its market power to dictate terms favorable to itself but harmful to authors and publishers, the organizations filing the
amicus brief maintain.
Its market position, which -- as as a result of the DOJ's bias and rulings against Apple -- is again creeping back to its former levels, has led to decisions on which books to promote on its homepage, or recommend to shoppers. The online retailer uses this to win crippling concessions from publishers. The Apple brief specifically
cites confrontations with publishers Macmillan and Hachette, which did in fact result in some books temporarily disappearing from Amazon's website -- moves that publishers and authors have called "bullying."
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