Following on from its petition for
certiorari (request for judicial review), Apple has formally requested that the US Supreme Court
overturn the appellate court decision that found the appeals court mostly in agreement with Judge Denise Cote's original finding that Apple had conspired with publishers to raise the price of e-books in an effort the iPhone maker (and the publishers) have repeatedly said was intended to open the market to competition and diversify the number of publishers by making the industry viable.
The original conviction was handed down in a
bench trial by Judge Denise Cote, but was
upheld on appeal this past June by two of the three judges on the federal panel. The ruling leaves Apple on the hook for a $450 million settlement to states' attorneys general and some consumer groups, though the company will not have to pay unless the Supreme Court upholds the lower court's ruling.
The original conviction was handed down in a
bench trial by Judge Denise Cote, but while the appeals court overruled Apple's claim of innocence, it did
restrain the excesses of the antitrust monitor she appointed. Apple says that by the judge's own ruling, it had a vertical (reseller) relationship with the publishers -- and therefore could not be a part of, let alone "orchestrate," a pre-existing horizontal conspiracy to force Amazon to give up "wholesale" pricing and raise e-book prices.
Apple has argued to the Supreme Court that both previous verdicts "will harm competition and risk-taking" if upheld, harming competition and the national economy. The iPhone maker has consistently maintained that it did nothing wrong, and that its pursuit of appeal was about "principles and values," portraying its role in entering the e-book market and advocating for the "agency" pricing model (over Amazon's loss-leader "wholesale" approach) was about creating a sustainable market that allowed additional entrants and preventing an Amazon monopoly, which the company effectively held before Apple's entrance.
While Apple's ability to get it's conviction overturned may be in some doubt, it's belief that it has been unfairly portrayed by the Department of Justice has
gained credibility with
antitrust experts, publishing companies, and
outside observers of the case.
"This case ... presents issues of surpassing importance to the United States economy," attorneys for Apple argued in their certiorari 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, designed to level the playing field and clear a path for both it and other companies to enter the market. Amazon had been trying to preclude new entrants by pricing the e-books below cost, losing as much as $3 per copy sold. While the DOJ saw Apple's moves as raising prices for consumers, it was in fact simply selling the e-books for the genuine value publishers had put on the products.
It remains to be seen if Apple will be able to convince the Supreme Court of the flaws in the original judgment, but it now has additional ammunition in the form of a powerful opinion from the one dissenting federal appeals judge, who said Apple's actions were "unambiguously and overwhelmingly pro-competitive."
Original trial judge Denise Cote reporter Roger Parloff writes that Apple's appeal "hinges on whether Judge Cote, in reaching her decision, used the proper framework of analysis and, as a result, whether she failed to adequately weigh the pro-competitive aspects of Apple's conduct-for instance, the fact that it was bringing competition to a market until then dominated by a near-monopolist."
"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," Parloff wrote. "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 was the basis of Judge Cote's decision, but also included a perfunctory one-paragraph "rule of reason" analysis to protect her legal
error-filled ruling. Two of the three Appeals Court judges, including one that upheld the conviction on the
per se basis, refused to agree that Cote's "rule of reason" analysis was a credible finding. Thus, the company says, its actions require a rule-of-reason analysis, which it thus far has not received.
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, therefore resulting in a "circuit split" view, which is a strong cause for the Supreme Court to step in with a definitive view.
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