Thursday, December 18, 2014

A Good Week for Apple

Apple found itself in two different courtrooms this week. One had a happy outcome for the company, and the other… well, we’ll have to wait and see, but the signs look good.

The Early 2000s Called...

The first case dated back a full decade, and involved claims that Apple excluded songs not purchased through iTunes from iPods, and prohibited songs purchased through iTunes from non-Apple music players. As John Gruber (no, not that Jon Gruber, the MIT professor of “speak-o” fame and a big believer in the stupidity of the American voter, but the tech writer) noted, the case was absurd on its face:
[The case] had nothing to do with rival stores’ music files, and everything to do with rival music stores’ DRM [digital rights management].
Gruber goes on to note that Apple used DRM at the insistence of music publishers, and that one could always put music without DRM (i.e., unencrypted MP3s) onto iPods. Furthermore, in an amusing twist, the class-action lawsuit had two named plaintiffs. Apple showed that neither plaintiff actually purchased an iPod during the window claimed by the class. Oops. The judge allowed a last-minute substitution to another plaintiff, but it’s a little embarrassing to not vet your named plaintiff properly.

After the trial, the jury deliberated for a mere three hours before finding Apple not guilty.

Antitrust Overreach

On Monday, Apple and the U.S. Department of Justice presented oral arguments before the D.C. Circuit appeals court in the ebook price-fixing case. On Monday morning, George L. Priest, a law professor at Yale Law School and an antitrust expert, wrote an op-ed in the Wall Street Journal explaining why Apple should win its appeal. (The piece is behind the Journal’s paywall, sadly.) Priest wrote, in part:
Yet what Apple had coordinated was hardly a typical price-fixing conspiracy. The publishers had chosen Apple’s terms—including a cap on prices—even though the terms reduced the returns they would receive from e-book sales. The court entirely ignored what really mattered: the platform competition between Amazon and Apple. 
The court sharply restricted from the trial any evidence about Amazon, including its retaliatory practices against publishers who challenged its pricing. In 2010 Amazon deleted the buy option for Macmillan’s e-books and print books. More recently Amazon delayed shipment of Hachette’s books. The court also did not consider the publishers’ desire to increase e-book prices to protect their core print book business. 
In short, the court’s evidentiary rulings concealed the economic motivations driving the industry. All that mattered to Judge Cote was that the publishers’ new agency agreements meant that Amazon had to offer their e-books at non-subsidized, higher prices. 
This is not sensible antitrust policy. Apple attempted to enhance competition, not restrain it—and the court’s decision protects Amazon’s 90% market share in e-book competition.
During oral arguments, two of the three judges appeared sympathetic with Apple’s point of view, one even noting that the trial judge agreed that Apple’s conduct was legal as a general matter, and, therefore, the question of whether the company’s conduct in this instance harmed competition should have been judged under the fairly difficult-to-prove rule-of-reason standard, rather than a more truncated analysis. From a piece in the New Yorker:
On Monday, comments from the appellate judges in New York—especially Judge Dennis Jacobs—suggested that they might be more receptive than Cote to Apple’s line of reasoning. According to Agence France-Presse, Jacobs said, “What we’re talking about is a new entrant who is breaking the hold of a market by a monopolist who is maintaining its hold by what is arguably predatory pricing.”
It remains to be seen whether the reading of the panel’s views is correct, and whether they vacate the decision entirely or remand it back to the district court with instructions to use a different legal standard, but that was a pretty good start for Apple.

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