Professional Documents
Culture Documents
133741cv(L)
UnitedStatesv.Apple,Inc.
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UNITEDSTATESCOURTOFAPPEALS
FORTHESECONDCIRCUIT
AugustTerm2014
(Argued:December15,2014
Decided:June30,2015)
Nos.133741cv,133748cv,133783cv,133857cv,133864cv,133867cv
UNITEDSTATESOFAMERICA,STATEOFTEXAS,STATEOFCONNECTICUT,STATEOF
ALABAMA,STATEOFALASKA,STATEOFARIZONA,STATEOFARKANSAS,STATEOF
COLORADO,STATEOFDELAWARE,STATEOFIDAHO,STATEOFILLINOIS,STATEOF
INDIANA,STATEOFIOWA,STATEOFKANSAS,STATEOFLOUISIANA,STATEOF
MARYLAND,COMMONWEALTHOFMASSACHUSETTS,STATEOFMICHIGAN,STATEOF
MISSOURI,STATEOFNEBRASKA,STATEOFNEWMEXICO,STATEOFNEWYORK,STATE
OFNORTHDAKOTA,STATEOFOHIO,COMMONWEALTHOFPENNSYLVANIA,STATEOF
SOUTHDAKOTA,STATEOFTENNESSEE,STATEOFUTAH,STATEOFVERMONT,
COMMONWEALTHOFVIRGINIA,STATEOFWESTVIRGINIA,STATEOFWISCONSIN,
COMMONWEALTHOFPUERTORICO,ANDDISTRICTOFCOLUMBIA,
PlaintiffsAppellees,
v.
APPLE,INC.,SIMON&SCHUSTER,INC.,VERLAGSGRUPPEGEORGVONHOLTZBRINCK
GMBH,HOLTZBRINCKPUBLISHERS,LLC,DBAMACMILLAN,SIMON&SCHUSTER
DIGITALSALES,INC.,
DefendantsAppellants,
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HACHETTEBOOKGROUP,INC.,HARPERCOLLINSPUBLISHERSL.L.C.,THEPENGUIN
GROUP,ADIVISIONOFPEARSONPLC,PENGUINGROUP(USA),INC.,
Defendants.
Before:
JACOBS,LIVINGSTON,andLOHIER,CircuitJudges.
RaymondJ.Lohier(CircuitJudge)filesaseparateconcurringopinion,joiningin
thejudgmentandinthemajorityopinionexceptforPartII.B.2.
DennisJacobs(CircuitJudge)filesaseparatedissentingopinion.
FORPLAINTIFFSAPPELLEES:
MALCOLM L. STEWART, Deputy Solicitor
General, U.S. Department of Justice,
Washington,DC,WilliamJ.Baer,Assistant
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FORDEFENDANTSAPPELLANTS:
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DEBRAANNLIVINGSTON,CircuitJudge:
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binditintophysicalvolumes,andthenshipandsellthevolumestothepublic.
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devicethatcarriesdigitalcopiesofbooks,knownasebooks.Thisinnovation
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had the potential to change the centuriesold process for producing books by
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eliminating the need to print, bind, ship, and store them. Amazon began to
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popularize the new way to read, and encouraged consumers to buy the Kindle
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byofferingdesirablebooksnewreleasesandNewYorkTimesbestsellersfor
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$9.99.Publishingcompanies,whichhavetraditionallystoodatthecenterofthe
Since the invention of the printing press, the distribution of books has
particularlyits$9.99pricing,asathreattotheirwayofdoingbusiness.
ebooksontheiPadbycreatingavirtualmarketplaceonthedevice,whichcame
tobeknownastheiBookstore.Workingwithinatighttimeframe,Applewent
directly into negotiations with six of the major publishing companies in the
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iPadunderarrangementswherebythepublishershadtheauthoritytosetprices,
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andcouldsetthepricesofnewreleasesandNewYorkTimesbestsellersashighas
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$19.99and$14.99,respectively.Eachoftheseagreements,byvirtueofitsterms,
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resultedineachPublisherDefendantreceivinglessperebooksoldviaAppleas
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opposedtoAmazon,evengiventhehigherconsumerprices.Justafewmonths
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aftertheiBookstoreopened,however,everyoneofthePublisherDefendantshad
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taken control over pricing fromAmazon and had raised the prices on many of
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theirebooks,mostnotablynewreleasesandbestsellers.
ByNovember2009,Apple,Inc.(Apple)hadplanstoreleaseanewtablet
TheUnitedStatesDepartmentofJustice(DOJorJusticeDepartment)
and 33 states and territories (collectively, Plaintiffs) filed suit in the United
StatesDistrictCourtfortheSouthernDistrictofNewYork,allegingthatApple,
raise prices across the nascent ebook market. This agreement, they argued,
violated1oftheShermanAntitrustAct,15U.S.C.1etseq.(ShermanAct),
and state antitrust laws. All five Publisher Defendants settled and signed
consent decrees, which prohibited them, for a period, from restricting ebook
retailers ability to set prices. Then, after a threeweek bench trial, the district
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court (Cote, J.) concluded that, in order to induce the Publisher Defendants to
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participateintheiBookstoreandtoavoidthenecessityofitselfcompetingwith
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Amazonovertheretailpriceofebooks,Appleorchestratedaconspiracyamong
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thePublisherDefendantstoraisethepriceofebooksparticularlynewreleases
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and New York Times bestsellers. United States v.Apple Inc., 952 F. Supp. 2d 638,
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647(S.D.N.Y.2013).Thedistrictcourtfoundthattheagreementconstitutedaper
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tradeundertheruleofreason.Seeid.at694.OnSeptember5,2013,thedistrict
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court entered final judgment on the liability finding and issued an injunctive
order that, inter alia, prevents Apple from entering into agreements with the
Publisher Defendants that restrict its ability to set, alter, or reduce the price of
ebooks, and requires Apple to apply the same terms and conditions to ebook
applicationssoldonitsdevicesasitdoestootherapplications.
erroneousandthattheprovisionsoftheinjunctionrelatedtoitspricingauthority
and ebook applications are not necessary to protect the public. Two of the
Publisher Defendants Macmillan and Simon & Schuster join the appeal,
arguing that the portion of the injunction related to Apples pricing authority
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estopped.WeconcludethatthedistrictcourtsdecisionthatAppleorchestrated
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ahorizontalconspiracyamongthePublisherDefendantstoraiseebookpricesis
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restrainedtradeinviolationof1oftheShermanAct.Wealsoconcludethatthe
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anticompetitiveharms.
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conspiracyamongthePublisherDefendantstoraiseebookprices.Nonetheless,
On appeal, Apple contends that the district courts liability finding was
large measure on an argument that Apple itself did not assert the dissent
makestwofundamentalerrors.Thefirstistoinsistthattheverticalorganizerof
establishes precisely the opposite. The dissent fails to apprehend that the
requires evaluating the nature of the restraint, rather than the identity of each
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partywhojoinsintoimposeit,indeterminingwhethertheperseruleisproperly
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invoked.Finally(andmostfundamentally)thedissentsconclusionrestsonan
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thesupremeevilofantitrust,VerizonCommcnsInc.v.LawOfficesofCurtisV.
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Trinko, LLP, 540 U.S. 398, 408 (2004) among those competing at a different
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level of the market has somehow done less damage to competition than its co
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conspirators.
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Thedissentsseconderroristoassume,ineffect,thatApplewasentitledto
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enter the ebook retail market on its own terms, even if these terms could be
achieved only via its orchestration of and entry into a pricefixing agreement
withthePublisherDefendants.ThedissenttellsastoryofAppleorganizingthis
insurmountableretailpower.Butthistaleisnotspunfromanyfactualfindings
of the district court. And the dissents armchair analysis wrongly treats the
competitioninthemarketfortradeebooks.
Morefundamentally,thedissentstheorythatthepresenceofastrong
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competitorjustifiesahorizontalpricefixingconspiracyendorsesaconceptof
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iBookstore,butitdidsobyensuringthatmarketwideebookpriceswouldriseto
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a level that it, and the Publisher Defendants, had jointly agreed upon. Plainly,
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competitionasaconditionofentry,anditiscoldcomforttoconsumersthatthey
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gained a new ebook retailer at the expense of passing control over all ebook
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collectivelyagreedonanewpricingmodelpreciselytoraisethepriceofebooks
andthusprotecttheirprofitmarginsandtheirveryexistenceinthemarketplace
inthefaceoftheadmittedlystrongheadwindscreatedbythenewtechnology.
Apple violated 1 of the ShermanAct, and because we also conclude that the
district courts injunction was lawful and consistent with preventing future
anticompetitiveharms,weaffirm.
Because we conclude that the district court did not err in deciding that
BACKGROUND
I.FactualBackground1
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We begin not with Kindles and iPads, but with printed trade books,
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which are general interest fiction and nonfiction books intended for a broad
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readership.Apple,952F.Supp.2dat648n.4.IntheUnitedStates,thesixlargest
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publishers of trade books, known in the publishing world as the Big Six, are
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Thefactualbackgroundpresentedhereisdrawnfromthedistrictcourtsfactual
findings or from undisputed material in the record before the district court. Because
thisCourtreviewsthedistrictcourtsfactualfindingsforclearerror,wemustassess
whether its view of the evidence is plausible in light of the entire record. Cosme v.
Henderson, 287 F.3d 152, 158 (2d Cir. 2002). In light of this obligation, the dissent is
wrongtosuggestthatcitationstotherecordareinappropriateormisleading.Whena
factcomesfromthedistrictcourtsopinion,wecitethatopinion;whenonecomesfrom
therecord,wecitethejointappendix(J.A.).
1
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Schuster.Together,theBigSixpublishmanyofthebiggestnamesinfictionand
nonfiction;during2010,theirtitlesaccountedforover90%oftheNewYorkTimes
bestsellersintheUnitedStates.Id.at648n.5.
business model. When a new book was ready for release to the public, the
recommendresaletoconsumersatamarkup,knownasthelistprice.Afterthe
hardcoverspentenoughtimeontheshelvesoftenayearpublisherswould
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devotedreaderswouldpaythehigherhardcoverpricetoreadthebookwhenit
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firstcameout,whilemorecasualfanswouldwaitforthepaperback.
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A. AmazonsKindle
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OnNovember19,2007,AmazonreleasedtheKindle:aportableelectronic
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device that allows consumers to purchase, download, and read ebooks. At the
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time,therewasonlyoneotherereaderavailableintheemergingebookmarket,
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andAmazonsKindlequicklygainedtraction.In2007,ebookrevenueinNorth
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America was only $70 million, a tiny amount relative to the approximately $30
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billion market for physical trade books. The market was growing, however; in
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2008ebookrevenuewasroughly$140millionand,bythetimeBarnes&Noble,
Inc. (Barnes & Noble) launched its Nook ereader in November 2009, Amazon
wasresponsiblefor90%ofallebooksales.Apple,952F.Supp.2dat64849.
with print books: publishers recommended a digital list price and received a
sellthepublishersebooksontheKindleanddeterminetheretailprice.Atleast
earlyon,publisherstendedtorecommendadigitallistpricethatwasabout20%
lower than the print list price to reflectthe fact that, withan ebook, there is no
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costforprinting,storing,packaging,shipping,orreturningthebooks.
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was in the sale of new releases and New York Times bestsellers. Rather than
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sellingmoreexpensiveversionsofthesebooksuponinitialrelease(aspublishers
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set the Kindle price at one, stable figure $9.99. At this price, Amazon was
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sellingcertainnewreleasesandbestsellersatapricethatroughlymatched,
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orwasslightlylowerthan,thewholesalepriceitpaidtothepublishers.Apple,
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encourageconsumerstoadopttheKindlebydiscountingnewreleasesandNew
York Times bestsellers and selling other ebooks without the discount. J.A. 1485.
Thedistrictcourtalsoreferredtothisasalossleader[]strategy,Apple,952F.
Supp. 2d at 650, 657, 708, and explained that Amazon believed [the $9.99]
pricingwouldhavelongtermbenefitsforitsconsumers,id.at649.Contraryto
thedissentsportrayaloftheopinion,thedistrictcourtdidnotfindthatAmazon
used the $9.99 price point to assure[] its domination in the ebook market, or
that its pricing strategy acted as a barrier to entry for other retailers.
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Dissenting Op. at 67. Indeed, in November 2009 just a few months before
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Apples launch of the iBookstore Barnes & Noble entered the ebook retail
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marketbylaunchingtheNook,Apple,952F.Supp.2dat649n.6,andasearlyas
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2007 Google Inc. (Google) had been planning to enter the market using a
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wholesalemodel,id.at686.
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B. ThePublishersReactions
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Despite the small number of ebook sales compared to the overall market
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for trade books, top executives in the Big Six saw Amazons $9.99 pricing
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strategyasathreattotheirestablishedwayofdoingbusiness.Thoseexecutives
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included:HachetteandHachetteLivreChiefExecutiveOfficers(CEOs)David
YoungandArnaudNourry;HarperCollinsCEOBrianMurray;MacmillanCEO
JohnSargent;PenguinUSACEODavidShanks;RandomHouseChiefOperating
Officer Madeline McIntosh; and Simon & Schuster President and CEO Carolyn
Reidy. In the short term, these members of the Big Six thought thatAmazons
lowerpriced ebooks would make it more difficult for them to sell hardcover
copiesofnewreleases,whichwereoftenpriced,asthedistrictcourtnoted,at
thirtydollarsormore,Apple,952F.Supp.2dat649,aswellasNewYorkTimes
bestsellers.Furtherdowntheroad,thepublishersfearedthatconsumerswould
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become accustomed to the uniform $9.99 price point for these ebooks,
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permanentlydrivingdownthepricetheycouldchargeforprintversionsofthe
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wholesale prices from the Big Six or allow authors to publish directly with
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Amazon,cuttingoutthepublishersentirely.AsHachettesYoungputit,theidea
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of the wretched $9.99 price point becoming a de facto standard for ebooks
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sickenedhim.J.A.289.
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The executives of the Big Six also recognized that their problem was a
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collectiveone.Thus,anAugust2009Penguinstrategyreport(concludedonlya
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fewmonthsbeforeApplecommenceditseffortstolaunchtheiBookstore)noted
that[c]ompetitionfortheattentionofreaderswillbemostintensefromdigital
companieswhoseobjectivemaybeto[cutout]traditionalpublishersaltogether..
response,becauseofboththeresourcesnecessaryandtheriskofretribution,so
the industry needs to develop a common strategy. J.A. 287. Similarly, Reidy
from Simon & Schuster opined in September 2009 that the publishers had no
chanceofsuccessingettingAmazontochangeitspricingpracticesunlessthey
actedwithacriticalmass,andexpressedtheneedtogathermoretroopsand
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quotationmarksomitted).
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qualms communicating about the need to act together. As the district court
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found(basedonthePublisherDefendantsowntestimony),[o]nafairlyregular
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basis, roughly once a quarter, the CEOs of the [Big Six] held dinners in the
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present, in order to discuss the common challenges they faced. Apple, 952 F.
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Supp.2dat651.Becausetheydidnotcompetewitheachotheronprice,but
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over authors and agents, the publishers felt no hesitation in freely discussing
Amazons prices with each other and their joint strategies for raising those
prices.Id.Thosestrategiesincludedeliminatingthediscountedwholesaleprice
forebooksandpossiblycreatinganalternativeebookplatform.
The most significant attack that the publishers considered and then
untilthehardcoverversionhadspentseveralmonthsinstores,apracticeknown
aswindowing.MembersoftheBigSixbothkeptoneanotherabreastoftheir
planstowindow,andactivelypushedotherstowardthestrategy.2ByDecember
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2009, the Wall Street Journal and New York Times were reporting that four of the
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BigSixhadannouncedplanstodelayebookreleasesuntilaftertheprintrelease,
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and the two holdouts Penguin and Random House faced pressure from
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theirpeers.
Citing one example, the district court referenced a fall 2009 email in which
Hachettes Young informed his colleague Nourry of Simon & Schusters windowing
plans, advising [c]ompletely confidentially, Carolyn [Reidy] has told me that they
[Simon&Schuster]aredelayingthenewStephenKing,withhisfullsupport,butwill
not be announcing this until the day after Labor Day. Apple, 952 F. Supp. 2d at 652
(firstandsecondalterationsinoriginal)(internalquotationmarksomitted).Thedistrict
court went on to observe that Young, [u]nderstanding the impropriety of this
exchange of confidential information with a competitor, . . . advised Nourry that it
wouldbeprudentforyoutodoubledeletethisfromyouremailfileswhenyoureturn
toyouroffice.Id.
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Ultimately,however,thepublishersviewedeventhisstrategytosavetheir
businessmodelasselfdestructive.Employeesinsidethepublishingcompanies
harmedlongtermsales.OneauthorwrotetoSargentinDecember2009thatthe
old model has to change and that it would be better to embrace ebooks,
publishthematthesametimeasthehardcovers,andpraytoGodtheybothsell
likecrazy.J.A.325.Sargentagreed,butexpressedthehopethatebookscould
eventuallybesoldforbetween$12.95and$14.95.Thequestionis,hemused,
howtogetthere?J.A.325.
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C. ApplesEntryintotheebookMarket
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marketplaces like iTunes and the App Store. But in 2009, Apple lacked a
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deficiency.
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EddyCue,ApplesSeniorVicePresidentofInternetSoftwareandServices
and the director of Apples digital content stores, saw the opportunity for an
ebook marketplace on the iPad. By February 2009, Cue and two colleagues
KevinSaulandKeithMoererhadresearchedtheebookmarketandconcluded
thatitwaspoisedforrapidexpansionin2010andbeyond.WhileAmazonhad
becomeapowerfulplayerinthemarketinlargepartbecauseconsumerswould
be able to do many tasks on the iPad, and would not want to carry a separate
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discussedthepossibilityofAmazonsellingebooksthroughanapplicationonthe
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iPad, but felt that it would be very easy for [Apple] to compete with and . . .
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trounce Amazon by opening up our own ebook store because [t]he book
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publisherswoulddoalmostanythingfor[Apple]togetintotheebookbusiness.
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J.A.282.
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JobsapprovedCuesplanforanebookmarketplacewhichcametobe
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knownastheiBookstoreinNovember2009.AlthoughtheiPadwouldgoto
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market with or without the iBookstore, Apple hoped to announce the ebook
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marketplaceattheJanuary27,2010iPadlaunchtoensuremaximumconsumer
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exposure and add another dramatic component to the event. Apple, 952 F.
Supp.2dat655.ThisleftCueandhisteamonlytwomonthsamidsttheholiday
season both to create a business model for the iBookstore and to assemble a
quickly.HeknewthatJobswasseriouslyill,andthat,bymakingtheiBookstore
asuccess,hecouldhelpJobsachievealongstandinggoalofcreatingadevicethat
providesasuperiorreadingexperience.
their efforts by focusing on the Big Six publishers. They began by arming
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themselveswithsomeimportantinformationaboutthestateofaffairswithinthe
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publishing industry. In particular, they learned that the publishers feared that
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Amazonspricingmodelcouldchangetheirindustry,thatseveralpublishershad
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industryasawholewasinastateofturmoil.Appleunderstood,asthedistrict
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court put it, that the Publishers wanted to pressureAmazon to raise the $9.99
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price point for ebooks, that the Publishers were searching for ways to do that,
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andthattheywerewillingtocoordinatetheireffortstoachievethatgoal.Id.at
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656.Foritspart,asthedistrictcourtfound,Applewaswillingtosellebooksat
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higherprices,buthaddecidedthatitwouldnotopentheiBookstoreifitcould
notmakemoneyonthestoreandcompeteeffectivelywithAmazon.Id.
D. ApplesNegotiationswiththePublishers
1. InitialMeetings
ApplehelditsfirstmeetingswitheachoftheBigSixbetweenDecember15
and16.ThemeetingsquicklyconfirmedCuessuspicionsabouttheindustry.As
he wrote to Jobs after speaking with three of the publishers, [c]learly, the
biggest issue is new release pricing and Amazon is definitely not liked much
becauseofsellingbelowcostforNYTBestSellers.J.A.32627.Manypublishers
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also emphasized that they were searching for a strategy to regain control over
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pricing.AppleinformedeachoftheBigSixthatitwasnegotiatingwiththeother
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majorpublishers,thatithopedtobeginsellingebookswithinthenext90days,
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and that it was seeking a critical mass of participants in the iBookstore and
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would launch only if successful in reaching this goal. Apple informed the
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publishersthatitdidnotbelievetheiBookstorewouldsucceedunlesspublishers
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agreedbothnottowindowbooksandtosellebooksatadiscountrelativetotheir
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physicalcounterparts.ApplenotedthatebookpricesintheiBookstoreneededto
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thatitcouldnottolerateamarketwheretheproductissoldsignificantlymore
omitted). Most importantly for the publishers, however, Cues team also
expressed Apples belief that Amazons $9.99 price point was not ingrained in
consumers minds, and thatApple could sell new releases and New York Times
bestsellersforsomewherebetween$12.99and$14.99.Inreturn,Applerequested
that the publishers decrease their wholesale prices so that the company could
makeasmallprofitoneachsale.
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[t]errificnews[,]asReidyputitinanemailtoLeslieMoonves,hersuperiorat
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low price point for digital books and didnt want Amazons $9.95 [sic] to
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numerousexchangesbetweenexecutivesatdifferentBigSixpublisherswho,the
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districtcourtfound,hashedovertheirmeetingswithApplewithoneanother.
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Id.ThedistrictcourtfoundthatthefrequenttelephonecallsamongthePublisher
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departurefromtheordinarypatternofcallsamongthem.Id.at655n.14.
2. TheAgencyModel
developabusinessmodelfortheiBookstore.Althoughtheteamwasoptimistic
about the initial meetings, they remained concerned about whether the
largeenoughmargintoallowAppletooffercompetitivepricesandstillmakea
profit. One strategy that the team considered was to ask publishers for a 25%
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wholesale (the going rate for the majority of New York Times bestsellers)Apple
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couldpurchasetheebookversionfor$9andofferitontheiBookstoreatasmall
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markup. But Cue was aware that some publishers had increased Amazons
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digitalwholesalepricesin2009inanunsuccessfulefforttoconvinceAmazonto
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changeitspricing.Id.at650;J.A.1771.Cuefeltitwouldbedifficulttonegotiate
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wholesalepricesdownfarenoughfor[Apple]togenerallycompeteprofitably
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withAmazonsbelowcostpricingonthemostpopularebooks.J.A.1772.As
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Cue saw it,Apples most valuable bargaining chip came from the fact that the
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excitedabout...theprospectthat[Apples]entry[intotheebookmarket]would
givethemleverageintheirnegotiationswithAmazon.Apple,952F.Supp.2dat
659.
abandoned the wholesale business model for a new, agency model.3 Unlike a
wholesale model, in an agency relationship the publisher sets the price that
consumers will pay for each ebook. Then, rather than the retailer paying the
publisher for each ebook that it sells, the publisher pays the retailer a fixed
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distributingthepublishersebooks.UnderthesystemAppledevised,publishers
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70%ofeachsale.Theremaining30%wouldgotoAppleasacommission.
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negotiatingwholesalepriceswiththeBigSixwhileensuringthatAppleprofited
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oneverysale.Itdidnot,however,solveallofthecompanysproblems.Because
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theagencymodelhandedthepublisherscontroloverpricing,itcreatedtherisk
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that the Big Six would sell ebooks in the iBookstore at far higher prices than
Kindles $9.99 offering. If the prices were too high,Apple could be left with a
brandnewmarketplacebrimmingwithtitles,butdevoidofcustomers.
Tosolvethispricingproblem,Cuesteaminitiallydevisedtwostrategies.
First, they realized that they could maintain realistic prices by establishing
price caps for different types of books. J.A. 359. Of course, these caps would
needtobehigherthanAmazons$9.99pricepoint,orApplewouldfacethesame
difficult price negotiations that it sought to avoid by switching away from the
wholesalemodel.ButatthispointApplewasnotcontenttoopenitsiBookstore
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offeringpriceshigherthanthecompetition.Forasthedistrictcourtfound,ifthe
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PublisherDefendantswantedtoendAmazons$9.99pricing,Applesimilarly
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desired that there be no price competition at the retail level. Apple, 952 F.
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Supp.2dat647.
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Applenextconcluded,then,asthedistrictcourtfound,that[t]oensure
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thattheiBookstorewouldbecompetitiveathigherprices,Apple...neededto
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eliminate all retail price competition. Id. at 659. Thus, rather than simply
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agreeingtopricecapsaboveAmazons$9.99pricepoint,Applecreatedasecond
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ApplewouldnotneedtocompetewithAmazononprice,andpublisherswould
beabletoeliminateAmazons$9.99pricing.Or,asCuewouldlaterdescribethe
plantoexecutivesatSimon&Schuster,Macmillan,andRandomHouse,theplan
pricingfromAmazon.4Id.at661(internalquotationmarksomitted).
OnJanuary4and5,Applesentessentiallyidenticalemailstoeachmember
of the Big Six to explain its agency model proposal. Each email described the
commission split between Apple and the publishers and recommended three
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price caps: $14.99 for hardcover books with list prices above $35; $12.99 for
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hardcover books with list prices below $35; and $9.99 for all other trade books.
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The emails also explained that, to sell ebooks at realistic prices . . . all [other]
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resellersofnewtitlesneedtobein[the]agencymodelaswell.J.A.360.Or,as
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CuetoldReidy,allpublisherswouldneedtomoveallretailerstoanagency
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model.J.A.2060.
Cuetestifiedattrialthathisreferencetosolv[ing]theAmazonissuedenoted
theproposaltopriceebooksintheiBookstoreabove$9.99,andwasnotareferenceto
raisingpricesacrosstheindustryorwrestingcontroloverpricingfromAmazon.Inthis
and other respects, the district court found Cues testimony to be not credible a
determinationthat,onthisrecord,isinnomannererroneous,muchlessclearlyso.Id.
at 661 n.19. As the district court put it, Apples pitch to the Publishers was from
beginningtoendavisionforanewindustrywidepriceschedule.Id.
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3. TheMostFavoredNationClause
Cuesthoughtsontheagencymodelcontinuedtoevolveaftertheemails
devisedanalternativetoexplicitlyrequiringpublisherstoswitchotherretailers
provision that requires one party to give the other the best terms that it makes
Clausemandatedthat,[i]f,foranyparticularNewReleaseinhardcoverformat,
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the...CustomerPrice[intheiBookstore]atanytimeisorbecomeshigherthan
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a customer price offered by any other reseller ... , then [the] Publisher shall
12
designate a new, lower Customer Price [in the iBookstore] to meet such lower
13
[customer price]. J.A. 559. Put differently, the MFN would require the
14
publisher to offer any ebook in Apples iBookstore for no more than what the
15
sameebookwasofferedelsewhere,suchasfromAmazon.
16
17
18
emails, these Contracts would split the proceeds from each ebook sale between
26
thepublisherandApple,withthepublisherreceiving70%,andwouldsetprice
caps on ebooks at $14.99, $12.99, and $9.99 depending on the books hardcover
price. But unlike the initial emails, the Contracts contained MFN Clauses in
place of the requirement that publishers move all other retailers to an agency
model.ApplethenassuredeachmemberoftheBigSixthatitwasbeingoffered
thesametermsastheothers.
The Big Six understood the economic incentives that the MFN Clause
created. Suppose a new hardcover release sells at a list price of $25, and a
wholesalepriceof$12.50.WithAmazon,thepublishershadbeenreceivingthe
10
wholesaleprice(oraslightlylowerdigitalwholesaleprice)foreveryebookcopy
11
ofthevolumesoldonKindle,evenifAmazonultimatelysoldtheebookforless
12
thanthatwholesaleprice.UnderApplesinitialagencymodelwithpricecaps
13
but no MFN Clause the publishers already stood to make less money per
14
ebookwithApple.BecauseApplecappedtheebookpriceofa$25hardcoverat
15
$12.99andtook30%ofthatprice,publisherscouldonlyexpecttomake$8.75per
16
sale. But what the publishers sacrificed in shortterm revenue, they hoped to
17
18
accordingly,theabilitytoprotecttheirhardcoversales.
27
merely desirable, that the publishers wrest control over pricing from ebook
retailersgenerally.UndertheMFN,ifAmazonstayedatawholesalemodeland
continued to sell ebooks at $9.99, the publishers would be forced to sell in the
iBookstore,too,atthatsame$9.99pricepoint.Theresultwouldbetheworstof
both worlds: lower shortterm revenue and no control over pricing. The
publishersrecognizedthat,asapracticalmatter,thismeantthattheMFNClause
wouldforcethemtomoveAmazontoanagencyrelationship.AsReidyputit,
hercompanywouldneedtomoveallitsotherebookretailerstoagencyunless
10
we wanted to make even less money in this growing market. Apple, 952 F.
11
Supp.2dat666(internalquotationmarksomitted).Thissituationalsogaveeach
12
ofthepublishersastakeinApplesquesttohaveacriticalmassofpublishersjoin
13
theiBookstorebecause,[w]hilenoonePublishercouldeffectanindustrywide
14
shiftinpricesorchangethepublicsperceptionofabooksvalue,iftheymoved
15
togethertheycould.Id.at665;seealsoJ.A.1981.
16
17
Apple did not change its thinking when it replaced the explicit requirement
18
that the publishers move other retailers to an agency model with the MFN.
28
Indeed,inthefollowingweeks,Appleassiduouslyworkedtomakesurethatthe
shift to agency occurred. Apple, 952 F. Supp. 2d at 663. But Apple also
understoodthat,asCuebluntlyputit,anydecentMFNforcesthemodelaway
fromwholesaleandtoagency.Id.(internalquotationmarksomitted).Orasthe
districtcourtfound,theMFNprotectedApplefromretailpricecompetitionasit
punishedaPublisherifitfailedtoimposeagencytermsonotheretailers.Id.at
665.
Thus, the terms of the negotiation between Apple and the publishers
became clear: Apple wanted quick and successful entry into the ebook market
10
11
12
group...unitedinanefforttoeradicatethe$9.99pricepoint.Id.at664.Both
13
sides needed a critical mass of publishers to achieve their goals. The MFN
14
played a pivotal role in this quid pro quo by stiffen[ing] the spines of the
15
16
protectingApplefromretailpricecompetition.Id.at665.
17
18
29
4. FinalNegotiations
TheproposedContractssparkedintensenegotiationsasCuesteamraced
publishers first volley was to push back on Apples price caps, which they
recognized would become the standard across the industry for pricing.5 J.A.
571.InasetofmeetingsbetweenJanuary13and14,themajorityoftheBigSix
expressedageneralwillingnesstoadoptanagencymodel,butrefusedtodoso
with the price limits Apple demanded. Cue responded by asking Jobs for
permission to create a more lenient price cap system. Under this new regime,
10
NewYorkTimesbestsellerscouldsellfor$14.99ifthehardcoverwaslistedabove
11
$30, and for $12.99 if listed below that price. As for new releases, a $12.99 cap
12
would apply to hardcovers priced between $25 and $27.50; a $14.99 cap would
13
applytohardcoverssellingforupto$30;and,ifthehardcoversoldforover$30,
14
publishers could sell the ebook for between $16.99 and $19.99. Jobs responded
15
thathecouldlivewiththepricingaslongas[thepublishers]moveAmazon
16
totheagen[cy]modeltoo.J.A.499.
As one HarperCollins executive put it, the upshot of moving to the agency
model and adopting price caps was that Apple would control price and that price
would be standard across the industry. Apple, 952 F. Supp. 2d at 670 (internal
quotationmarksomitted).
5
30
Cue proposed this new pricing regime to the Big Six on January 16 and,
withonly11daysremainingbeforetheiPadlaunch,turnedupthepressure.In
eachemailconveyingthenewprices,Cueremindedthepublishersthat,ifthey
didnotagreetotheiBookstorebythe27th,othercompanies,includingAmazon
and Barnes & Noble, would certainly build their own book store apps for the
iPad. Correspondence from within the publishing companies also shows that
Cue promoted the proposal as the best chance for publishers to challenge the
9.99pricepoint,andemphasizedthatApplewouldnotmoveforwardwiththe
store [unless] 5 of the 6 [major publishers] signed the agreement. J.A. 52223.
10
As Cue said at trial, he attempted to assure [the publishers] that they werent
11
going to be alone, so that [he] would take the fear awa[y] of the Amazon
12
retribution that they were all afraid of. J.A. 2068 (internal quotation marks
13
omitted).TheAppleteamremindedthePublishers,asthedistrictcourtfound,
14
that this was a rare opportunity for them to achieve control over pricing.
15
Apple,952F.Supp.2dat664.
16
By January 22, two publishers Simon & Schuster and Hachette had
17
verballycommittedtojointheiBookstore,whileathird,Penguin,hadagreedto
18
Applestermsinprinciple.Asfortheothers,Cuewasfrustratedthattheykept
31
chickening out because of the dramatic business change that Apple was
proposing.J.A.547.Tomakemattersworse,[p]ressreportsonJanuary18and
19alertedthepublishingworldandAmazontothePublishersnegotiationswith
Apple, Apple, 952 F. Supp. 2d at 67071, and Amazon learned from Random
House that it was facing pressure from other publishers . . . to move to [the]
agency model because Apple had made it clear that unless all of the Big Six
scheduled meetings with the publishers. As the district court found, [i]n
10
separateconversationsonJanuary20andoverthenextfewdays,thePublisher
11
12
distributionmodelwithAmazon.Apple,952F.Supp.2dat672.
13
14
found that at a January 20 lunch between John Sargent and Amazon, Sargent
15
announcedthatMacmillanwasplanningtoofferAmazontheoptiontochoose
16
eitheranagency[orwholesale]model.Id.ButatdinnerwithCuethatnight,
17
according to the district court, Cue made sure that Sargent understood the
18
consequencesoftheMFN,explainingthatMacmillanhadnochoicebuttomove
32
Apple.6 Id. The next day, Sargent emailed Cue to express his continued
relationship.
With the iPad launch fast approaching, Cue enlisted the help of others.
Cue had received an email from Simon & Schusters Carolyn Reidy, who had
alreadyverballycommittedtoApplestermsandwhomCuewouldlatercallthe
realleaderofthebookindustry,momentsafterhearingfromSargent.J.A.621.
Cue then spoke with Reidy for twenty minutes before reaching out to Brian
10
Murray, who, as the district court found, was fully supportive of the
11
requirementthatalletailersbemovedtoanagencymodel.Apple,952F.Supp.
12
2d at 673 n.39. After the discussions, Cue asked Sargent to speak with both
13
ReidyandMurray.Sargentcomplied,andspoketobothMurrayandReidyby
14
telephoneforeightandfifteenminutes,respectively.Id.at673.Minuteslater,
15
SargentcalledtheAmazonrepresentativetoinformhimthatMacmillanplanned
16
Although Cue denied discussing the MFN that night, the district court found
this testimony not credible in light of Cues deposition testimony and his
contemporaneous email to Jobs that Sargent had legal concerns over the price
matching.Apple,952F.Supp.2dat672n.38(internalquotationmarksomitted).This
determinationwasnotclearlyerroneous.
6
33
Amazonthroughanagencymodel.Id.ByJanuary23,Macmillanhadverbally
agreedtojointheiBookstore.
David Shanks agreed toApples terms on January 22, he informed Cue that he
wouldjointheiBookstoreonlyiffourotherpublishersagreedtoparticipate.By
January 25, Apple had signatures from three publishers but Penguin was still
noncommittal.CuecalledShanks,andthetwospokefortwentyminutes.Less
than an hour [later], Shanks called Reidy to discuss Penguins status in its
negotiationswithApple.Id.at675.PenguinsignedtheContractthatafternoon.
10
11
Applesproposal.Murray,itsCEO,remainedunhappyoverthesizeofApples
12
commissionandtheexistenceofpricecaps.Id.at673n.39.Unabletonegotiate
13
successfullywithMurray,CueaskedJobstocontactJamesMurdoch,theCEOof
14
the publishers parent company, and tell him we have 3 signed so there is no
15
leapoffaithhere.Id.at675(internalquotationmarksomitted).Afteraseriesof
16
emails,JobssummarizedApplespositiontoMurdoch:
17
18
19
20
[W]e simply dont think the ebook market can be successful with
pricinghigherthan$12.99or$14.99.Heck,Amazonissellingthese
books at $9.99, and who knows, maybe they are right and we will
fail even at $12.99. But were willing to try at the prices weve
34
1
2
3
4
5
6
7
8
9
10
proposed....AsIseeit,[HarperCollins]hasthefollowingchoices:
(1)Throwinwith[A]ppleandseeifwecanallmakeagoofthisto
create a real mainstream ebooks market at $12.99 and $14.99. (2)
KeepgoingwithAmazonat$9.99.Youwillmakeabitmoremoney
intheshortterm,butinthemediumtermAmazonwilltellyouthey
will be paying you 70% of $9.99. They have shareholders too. (3)
HoldbackyourbooksfromAmazon.Withoutawayforcustomers
tobuyyourebooks,theywillstealthem.
Id.at677.CuealsoemailedMurraytoinformhimthatfourotherpublishershad
11
signed their agreements. Murray then called executives at both Hachette and
12
MacmillanbeforeagreeingtoApplesterms.
13
14
AppleconcludeditsagreementswiththePublisherDefendants,Applekeptthe
15
Publisher Defendants apprised about who was in and how many were on
16
board.7Id.at673.ThePublisherDefendantsalsokeptinclosecommunication.
17
As the district court noted, [i]n the critical negotiation period, over the three
18
days between January 19 and 21, Murray, Reidy, Shanks, Young, and Sargeant
19
calledoneanother34times,with27callsexchangedonJanuary21alone.Id.at
20
674.
As the district court found, during the period in January during which
Indeed, on the morning of January 21, Apples initial deadline for the
publishers to commit to agency, Simon & Schusters Reidy emailed Cue to get an
updateonyourprogressinherdinguscats.J.A.543.
7
35
participate in the iBookstore. The lone holdout, Random House, did not join
because its executives believed it would fare better under a wholesale pricing
modelandwereunwillingtomakeacompleteswitchtoagencypricing.Steve
JobsannouncedtheiBookstoreaspartofhispresentationintroducingtheiPad.
Whenaskedafterthepresentationwhysomeoneshouldpurchaseanebookfrom
Apple for $14.99 as opposed to $9.99 with Amazon or Barnes & Noble, Jobs
confidentlyreplied,[t]hatwontbethecase...thepricewillbethesame....
10
[P]ublisherswillactuallywithholdtheir[e]booksfromAmazon...becausethey
11
are not happy with the price.8 A day later, Jobs told his biographer the
12
publisherspositionwithAmazon:[y]ouregoingtosignanagencycontractor
13
were not going to give you the books. J.A. 891 (internal quotation marks
14
omitted).
15
16
On January 29, Simon & Schusters general counsel wrote to Reidy that she
[could not] believe that Jobs made [this] statement, which she considered
[i]ncrediblystupid.J.A.638.
8
36
E. NegotiationswithAmazon
Jobssboastprovedtobeprophetic.WhilethePublisherDefendantswere
signingApplesContracts,theywerealsoinformingAmazonthattheyplanned
onchangingthetermsoftheiragreementswithittoanagencymodel.However,
theirmoveagainstAmazonbeganinearnestonJanuary28,thedayaftertheiPad
launch.Thatafternoon,JohnSargentflewtoSeattletodeliveranultimatumon
behalfofMacmillan:thatAmazonwouldswitchitsebooksalesagreementwith
10
purchaseMacmillansprintandebooktitlesfromitswebsite.
11
Sargent, as the district court found, had informed Cue of his intention to
12
confrontAmazonbeforeeverleavingforSeattle.10Apple,952F.Supp.2dat678.
13
Onhisreturn,heemailedCuetoinformhimaboutAmazonsdecisiontoremove
As the district court found, [s]even months was no random period it was
the number of months for which titles were designated New Release titles under the
Apple Agreement and restrained by the Apple price caps and MFN. Apple, 952 F.
Supp.2dat679.
9
Attrial,CueclaimedhehadnoadvanceknowledgeofSargentsplantogoto
Seattle,butthedistrictcourtfoundthistestimonytobeincredible.Sargenthademailed
Cue about his trip days before the meeting took place. Moreover, on January 28, the
day of the meeting, Jobs told his biographer that the Publisher Defendants went to
Amazonandsaid,Youregoingtosignanagencycontractorwerenotgoingtogive
youthebooks.Apple,952F.Supp.2dat678n.47.Thedistrictcourtsassessmentof
Cuescredibilitywasnotclearlyerroneous.
10
37
Macmillan ebooks from Kindle, adding a note to say that he wanted to make
sure you are in the loop. J.A. 640. Sargent also wrote a public letter to
Macmillansauthorsandagents,describingtheAmazonnegotiations.Hachettes
ArnaudNourryemailedtheCEOofMacmillansparentcompanytoexpresshis
personal support for Macmillans actions and to ensure [him] that [he was]
not going to find [his] company alone in the battle. J.A. 643. A Penguin
executivewrotetoexpresssimilarsupportforMacmillansposition.
ThedistrictcourtfoundthatwhileAmazonwasopposedtoadoptionof
theagencymodelanddidnotwanttocedepricingauthoritytothePublishers,
10
itknewthatitcouldnotprevailinthispositionagainstfiveoftheBigSix.Apple,
11
952 F. Supp. 2d at 671, 680. When Amazon told Macmillan that it would be
12
willingtonegotiateagencyterms,SargentsentCueanemailtitledURGENT!!
13
thatread:HiEddy,Iamgonnaneedtofigureoutourfinalagencytermsofsale
14
tonight.Canyoucallmeplease?J.A.642.CueandSargentspokethatnight
15
and, while Cue denied at trial that the conversation concerned Macmillans
16
negotiations with Amazon, the district court found that his denial was not
38
agreedtoagencytermswithMacmillan.
The other publishers who had joined the iBookstore quickly followed
Macmillanslead.OnFebruary11,ReidywrotetotheheadofCBSthatSimon&
Schuster was beginning agency negotiations with Amazon. She informed him
that she was trying to delay negotiations because it was imperative . . . that
theotherpublisherswithwhomApplehasannounceddealspushforresolution
ontheirtermchangesatthesametime,thusnotleavingusouttherealone.
J.A. 701. Each of the Publisher Defendants then informed Amazon that they
10
were under tight deadlines to negotiate new agency agreements, and kept one
11
anotherinformedaboutthedetailsoftheirnegotiations.AsDavidNaggar,one
12
ofAmazonsnegotiators,testified,wheneverAmazonwouldmakeaconcession
13
onanimportantdealpoint,itwouldcomebacktousfromanotherpublisher
14
askingforthesamethingorproposingsimilarlanguage.J.A.1491.
15
Onceagain,ApplecloselymonitoredthenegotiationswithAmazon.The
16
Publisher Defendants would inform Cue when they had completed agency
17
agreements, and his team monitored price changes on the Kindle. When
Asthedistrictcourtnoted,MacmillanhadexecuteditsContractwithApplea
week earlier, so that the only final agency terms still under discussion were with
Amazon.Apple,952F.Supp.2dat681n.52.
11
39
Penguin languished behind the others, Cue informed Jobs that Apple was
didnt get their Amazon deal done. Apple, 952 F. Supp. 2d at 682 (internal
quotationmarksomitted).ByMarch2010,Macmillan,HarperCollins,Hachette,
andSimon&SchusterhadcompletedagencyagreementswithAmazon.When
PenguincompleteditsdealinJune,thecompanysexecutiveproudlyannounced
to Cue that [t]he playing field is now level. Id. (internal quotation marks
omitted).12
F. EffectonEbookPrices
10
11
capsquicklybecamethebenchmarkforebookversionsofnewreleasesandNew
12
YorkTimesbestsellers.InthefivemonthsfollowingthelaunchoftheiBookstore,
13
14
modelpriced85.7%ofnewreleasesonKindleand92.1%ofnewreleasesonthe
15
iBookstoreat,orjustbelow,thepricecaps.Apple,952F.Supp.2dat682.Prices
16
for New York Times bestsellers took a similar leap as publishers began to sell
40
iBookstore at, or just below, the Apple price caps. Id. During that same time
period, Random House, which had not switched to an agency model, saw
virtually no change in the prices for its new releases or New York Times
bestsellers.
TheApple price caps also had a ripple effect on the rest of the Publisher
Defendants catalogues. Recognizing that Apples price caps were tied to the
priceofhardcoverbooks,manyofthesepublishersincreasedthepricesoftheir
newly released hardcover books to shift the ebook version into a higher price
10
11
switchedtotheagencymodelexpectedtomakelessmoneypersalethanunder
12
thewholesalemodel,theyalsoincreasedthepricesontheirebooksthatwerenot
13
newreleasesorbestsellerstomakeupfortheexpectedlossofrevenue.13Based
14
on data from February 2010 just before the Publisher Defendants switched
15
AmazontoagencypricingtoFebruary2011,anexpertretainedbytheJustice
16
17
The five Publisher Defendants accounted for 48.8% of all retail trade ebook
salesintheUnitedStatesduringthefirstquarterof2010.
13
41
40.4%,andotherebooksincreasedby27.5%,foratotalweightedaverageebook
priceincreaseof23.9%.14Indeed,evenApplesexpertagreed,notingthat,overa
twoyear period, the Publisher Defendants increased their average prices for
hardcovers,newreleases,andotherebooks.
sold77,307fewerebooksoveratwoweekperiodaftertheswitchtoagencythan
inacomparabletwoweekperiodbeforetheswitch,whichamountedtoselling
12.9%fewerunits.Id.at684.AnotherexpertreliedondatafromRandomHouse
10
toestimatehowmanyebooksthePublisherDefendantswhoswitchedAmazon
11
to agency would have sold had they stayed with the wholesale model, and
12
concludedthattheagencyswitchandpriceincreasesledto14.5%fewersales.Id.
13
14
changingebookmarket.AmazonintroducedtheKindleinNovember2007,just
15
over two years before Apple launched the iPad in January 2010. During that
16
short period,Apple estimated that the market grew from $70 million in ebook
A weighted average price controls for the fact that different ebooks sell in
different quantities by dividing the total price that consumers paid for ebooks by the
totalnumberofebookssold.
14
42
salesin2007to$280millionin2009,andthecompanyprojectedthosefiguresto
overall ebook sales continued to grow in the two yearsafter the creation of the
iBookstore and that the average ebook price fell during those years. But as
Plaintiffs experts pointed out, the ebook market had been expanding rapidly
even before Apples entry and average prices had been falling as lowerend
publishersenteredthemarketandlargernumbersofoldbooksbecameavailable
indigitalform.Applesexpertsdidnotpresentanyanalysisthatattemptedto
control for the many changes that the ebook market was experiencing during
10
these early years of its growth, Apple, 952 F. Supp. 2d at 685, nor did they
11
estimatehowthemarketwouldhavegrownbutforApplesagreementwiththe
12
13
contrary,theundisputedfactthatthePublisherDefendantsraisedpricesontheir
14
ebooks,whichaccountedforroughly50%ofthetradeebookmarketinthefirst
15
quarterof2010,necessitatedafindingthattheactionstakenbyAppleandthe
16
PublisherDefendantsledtoanincreaseinthepriceofebooks.Id.
17
18
deconcentrat[ed]...theebookretailmarketandthuswasprocompetitive,
43
DissentingOp.at31,itisworthnotingthatthedistrictcourtseconomicanalysis
and the parties submissions at trial focused entirely on the price and sales
figures for trade ebooks. This is because both parties agreed that the relevant
marketinthiscaseisthetradeebooksmarket,nottheereadermarketorthe
ebooks system market. United States v.Apple, Inc., 889 F. Supp. 2d 623, 642
(S.D.N.Y. 2012); Apple, 952 F. Supp. 2d at 694 n.60. The district court did not
Amazonspricingpolicyacted,asthedissentaccuses,asabarrier[]toentryfor
otherpotentialretailers.DissentingOp.at24,30.
10
II.ProceduralHistory
11
On April 11, 2012, Plaintiffs filed a pair of civil antitrust actions in the
12
United States District Court for the Southern District of New York. The
13
14
HarperCollins,Macmillan,Penguin,andSimon&Schusterconspiredtoraise,
15
fix,andstabilizetheretailpricefornewlyreleasedandbestsellingtradeebooks
16
inviolationof1oftheShermanActandvariousstatelaws.Thelitigationthen
17
proceededalongtwoseparatetrajectories,oneforthePublisherDefendantsand
18
theotherforApple.
44
A. PublisherDefendants
Hachette,HarperCollins,andSimon&SchusteragreedtosettlewithDOJ
bysigningconsentdecreesonthesamedaythattheJusticeDepartmentfiledits
prior to the effective date of a consent judgment, the United Statesmust file a
competitive impact statement, which includes, inter alia, the nature and
purposeoftheproceeding,adescriptionofthepracticesoreventsgivingrise
to the alleged violation of the antitrust laws, and an explanation of the relief
obtainedbytheconsentjudgmentandtheanticipatedeffectsoncompetitionof
10
such relief. Id. 16(b). In compliance with these requirements, DOJ issued a
11
competitiveimpactstatementthatoutlinedtheremediesitplannedtoimposeon
12
13
remediesrequiredthat,fortwoyears,thethreepublishersnotrestrict,limit,or
14
impedeanEbookRetailersabilitytoset,alter,orreducetheRetailPriceofany
15
Ebook or to offer price discounts or any other form of promotions, and that
16
theynotenterintoanyagreementwithretailersthatlimitsuchpractices.J.A.
17
112627.
45
After the 60day comment period, the Justice Department moved in the
district court for a decision that the entry of the judgment is in the public
interest,15U.S.C.16(e),andforapprovaloftheconsentdecree.Indefenseof
thetwoyearlimitationsprovisions,DOJexplainedthatthePublisherDefendants
had used retail price restrictions to effectuat[e] the conspiracy and that two
yearswassufficienttoallowmovementinthemarketplaceawayfromcollusive
landscapeinthestillevolvingebooksindustry.J.A.105455.OnSeptember5,
2012,thedistrictcourtapprovedtheconsentdecreeandfoundthetwoyearban
10
11
12
termsarenotintrinsicallyunlawful,andthenascentstateofcompetitioninthee
13
booksindustry.J.A.1088.
14
15
16
with essentially the same terms that Hachette, HarperCollins, and Simon &
17
Schusterreceived.Afewmonthslater,inFebruary2013,Macmillanalsoagreed
18
46
modifications.Ratherthandelayingtheprohibitiononretaildiscountsuntilthe
courtapprovedthedecree,DOJrequiredMacmillantobegincompliancewithin
threedaysofsigningthedecree.Inexchange,theJusticeDepartmentagreedto
backdate the beginning of the limitations period to December 18, 2012 and to
reduceitslengthfromtwoyearsto23months,explainingthat[c]onsumersare
betterservedbybringingmoreimmediateretailpricecompetitiontothemarket
andthata23monthcoolingoffperiodissufficienttorestorecompetition.J.A.
116263.ThedistrictcourtapprovedPenguinsconsentdecreeonMay17,2013,
andMacmillansonAugust12,2013.
10
B. Apple
11
UnlikethePublisherDefendants,Appleoptedtotakethecasetotrial.Fact
12
and expert discovery concluded on March 22, 2013 and, after filing pretrial
13
motions, the parties agreed to a bench trial on Apples liability and injunctive
14
15
statesprevailed.
16
On July 10, 2013, after conducting a threeweek bench trial, the district
17
courtconcludedthatApplehadviolated1oftheShermanActandvariousstate
18
antitrustlaws.Inbrief,thecourtfoundthatAppleorchestrat[ed]aconspiracy
47
amongthePublisherDefendantstoeliminateretailpricecompetition[inthee
bookmarket]inordertoraisetheretailpricesofebooks.Apple,952F.Supp.2d
PublisherDefendantsassembledbyAppletoincreaseprices,itconstituteda
Act.Id.at694.Itconcluded,moreover,thateveniftheagreementtoraiseprices
andeliminateretailpricecompetitionwereanalyzedundertheruleofreason,it
wouldstillconstituteanunreasonablerestraintoftradeinviolationof1.Id.In
the district courts view, Plaintiffs experts persuasively demonstrated that the
10
agreementfacilitatedanacrosstheboardpriceincreaseinebookssoldbythe
11
12
otherhand,failedtoshowthattheexecutionoftheAgreements,asopposedto
13
the launch of the iPad and evolution of digital publishing more generally
14
(whichwereindependentoftheAgreements),hadanyprocompetitiveeffects.
15
Id.
16
After the district court issued its liability decision, the parties submitted
17
briefingoninjunctiverelief.Thecourtconductedahearingontheissueand,on
18
September5,2013,issuedafinalinjunctiveorderagainstAppleandenteredfinal
48
otherretailers,oragreeingwithanyofthePublisherDefendantstorestrict,limit,
or impede Apples ability to set ebook retail prices; (2) Required Conduct,
which, among other things, forcesApple to modify its agency agreements with
the Publisher Defendants and to treat ebook apps sold in the iTunes store like
any other app sold there; (3) Antitrust Compliance, which requires Apple to
improveitsinternalsystemforpreventingantitrustviolations;and(4)External
10
11
monitortoensureApplescompliancewiththeinjunctiveorder.
12
13
and Simon & Schuster filed this appeal. The parties have not yet conducted a
14
trialtoassessthedamagesstemmingfromthestateantitrustclaims.
49
DISCUSSION
restraintoftrade.CapitalImagingAssocs.v.MohawkValleyMed.Assocs.,996F.2d
537,542(2dCir.1993);see15U.S.C.1.Onappeal,Applechallengesnumerous
aspects of the district courts 1 analysis and also contends that the injunctive
order that the district court imposed on the company is unlawful. Macmillan
and Simon & Schuster have joinedApples challenge to the injunction, arguing
10
that it impermissibly interferes with their consent decrees and is barred by the
11
12
determinationwassoundanditsinjunctiveorderlawful.Wethereforeaffirmthe
13
judgmentofthedistrictcourt.
14
Toholdadefendantliableforviolating1oftheShermanAct,adistrict
I.StandardofReview
15
Followingabenchtrial,thisCourtreviewsthedistrictcourtsfindingsof
16
fact for clear error and its conclusions of law and mixed questions de novo.
17
Connorsv.Conn.Gen.LifeIns.Co.,272F.3d127,135(2dCir.2001);seeFed.R.Civ.
18
P. 52(a). The district courts evidentiary rulings and its fashioning of equitable
50
reliefarereviewedforabuseofdiscretion.SeeZeregaAve.RealtyCorp.v.Hornbeck
Offshore Transp., LLC, 571 F.3d 206, 21213 (2d Cir. 2009) (evidentiary rulings);
Abrahamsonv.Bd.ofEduc.OftheWappingersFallsCent.Sch.Dist.,374F.3d66,76
(2dCir.2004)(equitablerelief).
II.ApplesLiabilityUnder1
competitorsatthesamelevelof[a]marketstructure,andverticalagreements
on pricing, which are created between parties at different levels of [a] market
10
structure. Anderson News, L.L.C. v. Am. Media, Inc., 680 F.3d 162, 182 (2d Cir.
11
2012) (internal quotation marks omitted). Under 1 of the Sherman Act, the
12
formerare,withlimitedexceptions,perseunlawful,whilethelatterareunlawful
13
14
reveals that they unreasonably restrain trade. See Leegin Creative Leather Prods.,
15
Inc.v.PSKS,Inc.,551U.S.877,893(2007).
16
Althoughthisdistinctionissharpintheory,determiningtheorientationof
17
anagreementcanbedifficultasamatteroffactandturnsonmorethansimply
18
identifyingwhethertheparticipantsareatthesamelevelofthemarketstructure.
51
conspiracies in which an entity at one level of the market structure, the hub,
HowardHessDentalLabs.Inc.v.DentsplyIntl,Inc.,602F.3d237,255(3dCir.2010);
see also Toys R Us, Inc. v. FTC, 221 F.3d 928, 93234 (7th Cir. 2000). These
arrangements consist of both vertical agreements between the hub and each
spoke and a horizontal agreement among the spokes to adhere to the [hubs]
terms,oftenbecausethespokeswouldnothavegonealongwith[thevertical
agreements] excepton the understanding that the other [spokes] were agreeing
10
to the same thing. VI Phillip E.Areeda & Herbert Hovenkamp, Antitrust Law
11
1402c (3d ed. 2010) (citing PepsiCo, Inc. v. CocaCola Co., 315 F.3d 101 (2d Cir.
12
2002));seealsoAm.BarAssn,AntitrustLawDevelopments2426(6thed.2007);XII
13
Areeda&Hovenkamp,supra,2004c.15
14
15
ofparallelbutindependentverticalagreements,acharacterizationthatformsthe
16
basis for its two primary arguments against the district courts decision. First,
ApplecharacterizesitsContractswiththePublisherDefendantsasaseries
52
Applearguesthatthedistrictcourtimpermissiblyinferreditsinvolvementina
Apples view) the Contracts were vertical, lawful, and in Apples independent
economic interest, the mere fact that Apple agreed to the same terms with
prices even if the effect of its Contracts was to raise those prices. Second,
Applearguesthat,evenifitdidorchestrateahorizontalpricefixingconspiracy,
10
properapplicationoftheruleofreasonrevealsthatitsconductwasnotunlawful.
11
Forthereasonssetforthbelow,werejectthesearguments.Onthisrecord,
12
the district court did not err in determining that Apple orchestrated an
13
14
15
conspiracyunreasonablyrestrainedtradeinviolationof1oftheShermanAct.
16
A. TheConspiracywiththePublisherDefendants
17
18
contract,combination,orconspiracy.BellAtl.Corp.v.Twombly,550U.S.544,553
53
(2007)(internalquotationmarksomitted).ThefirstcrucialquestioninaSection
Entmt, 592 F.3d 314, 321 (2d Cir. 2010) (alteration in original) (quoting Theatre
Enters.,Inc.v.ParamountFilmDistrib.Corp.,346U.S.537,540(1954)).
Identifyingtheexistenceandnatureofaconspiracyrequiresdetermining
whethertheevidencereasonablytendstoprovethatthe[defendant]andothers
unlawful objective. Monsanto Co. v. SprayRite Serv. Corp., 465 U.S. 752, 764
10
11
12
13
14
Twombly,550U.S.at556n.4(internalquotationmarksomitted).Indeed,parallel
15
behavior that does not result from an agreement is not unlawful even if it is
16
anticompetitive.SeeInreTextMessagingAntitrustLitig.,782F.3d867,87379(7th
17
Cir. 2015); In re Flat Glass Antitrust Litig., 385 F.3d 350, 36061 (3d Cir. 2004).
18
54
when viewed in conjunction with the parallel acts, can serve to allow a fact
findertoinferaconspiracy.ApexOilCo.v.DiMauro,822F.2d246,253(2dCir.
1987).
that the defendants entered into an agreement like a recorded phone call in
whichtwocompetitorsagreedtofixprices.Mayor&CityCouncilofBaltimore,
Md. v. Citigroup, Inc., 709 F.3d 129, 136 (2d Cir. 2013). But plaintiffs may also
presentcircumstantialfactssupportingtheinferencethataconspiracyexisted.
10
Id.Circumstancesthatmayraiseaninferenceofconspiracyincludeacommon
11
motive to conspire, evidence that shows that the parallel acts were against the
12
13
14
marksomitted).Parallelconductalonemaysupportaninferenceofconspiracy,
15
16
pricingstructuremadeattheverysametimebymultiplecompetitors,andmade
17
fornootherdiscerniblereason.Id.at137(internalquotationmarksomitted).
55
independent action and not from an actual unlawful agreement, the Supreme
thatisequallyconsistentwithindependentconductaswithillegalconspiracy
or,astheCourthascalledit,ambiguousevidence.MatsushitaElec.Indus.Co.v.
Zenith Radio Corp., 475 U.S. 574, 597 n.21 (1986). Thus, a finding of conspiracy
requiresevidencethattendstoexcludethepossibilitythatthedefendantwas
actingindependently.Monsanto,465U.S.at764.Thisrequirement,however,
[does] not mean that the plaintiff must disprove all nonconspiratorial
10
explanations for the defendants conduct; rather, the evidence need only be
11
12
explanationismorelikelythannot.InrePublnPaperAntitrustLitig.,690F.3d
13
51, 63 (2d Cir. 2012) (quoting Phillip E. Areeda & Herbert Hovenkamp,
14
FundamentalsofAntitrustLaw14.03(b),at1425(4thed.2011));accordMatsushita,
15
475U.S.at588(requiringthattheinferenceofconspiracyisreasonableinlight
16
17
SyrupAntitrustLitig.,295F.3d651,65556(7thCir.2002).
56
Apple portrays its Contracts with the Publisher Defendants as, at worst,
unwittinglyfacilitat[ing]theirjointconduct.AppleBr.at23.AllAppledid,it
contractual provisions an agency model, the MFN Clause, and tiered price
caps which ensured the company a small profit on each ebook sale and
insulated it from retail price competition. This had the effect of raising prices
ebookpricesindustrywide.ButalthoughAppleknewthatitscontractualterms
10
wouldenticethePublisherDefendants(whowantedtodoawaywithAmazons
11
$9.99pricing)toseekcontroloverpricesfromAmazonandotherebookretailers,
12
13
incentives, it contends, does not suggest that it joined a conspiracy among the
14
15
becauseitsContractswiththePublisherDefendantswerefullyconsistentwithits
16
17
18
MatsushitaandMonsantoininferringsuchaconspiracy.
57
PublisherDefendants.Asexplainedbelow,andasthedistrictcourtconcluded,
Apple understood that its proposed Contracts were attractive to the Publisher
DefendantsonlyiftheycollectivelyshiftedtheirrelationshipswithAmazontoan
10
evidence identified by the district court established both that the Publisher
11
DefendantsshiftingtoanagencymodelwithAmazonwastheresultofexpress
12
collusion among them and that Apple consciously played a key role in
13
organizingthatcollusion.ThedistrictcourtdidnoterrinconcludingthatApple
14
wasmorethananinnocentbystander.
15
Apple offered each Big Six publisher a proposed Contract that would be
16
17
agencymodel,thepublishersstoodtomakelessmoneypersalethanundertheir
18
wholesaleagreementswithAmazon,butthePublisherDefendantswerewilling
58
to stomach this loss because the model allowed them to sell new releases and
bestsellersformorethan$9.99.BecauseoftheMFNClause,however,eachnew
release and bestseller sold in the iBookstore would cost only $9.99 as long as
Defendantwouldbeabletoaccomplishtheshifttoagencyandthereforehave
anincentivetosignApplesproposedContractsonlyifitactedintandemwith
10
its competitors. See Starr, 592F.3d at324; Flat Glass, 385 F.3d at36061; see also
11
J.A.1974(notingthattheagreementswouldnotfixthepublishersproblemsif
12
theycouldnotmoveAmazontoanagencymodel).Bytheveryactofsigninga
13
Contract with Apple containing an MFN Clause, then, each of the Publisher
14
15
facilitating their collective action. As the district court explained, the MFNs
16
stiffenedthespinesofthePublisherDefendants.Apple,952F.Supp.2dat665.
17
18
59
was the very purpose of the MFN, which Apples Saul devised as an elegant
adoptanagencymodelwithotherretailers.AsCueputit,theMFNforce[d]the
model from wholesale to agency. J.A. 865. Indeed, the MFNs capacity for
forcing collective action by the publishers was precisely what enabled Jobs to
predictwithconfidencethatthepricewillbethesameontheiBookstoreand
the Kindle when he announced the launch of the iPad the same, Jobs said,
10
threateningtowithholdtheirebooks.J.A.891.Applewasalsofullyawarethat
11
oncethePublisherDefendantsseizedcontroloverconsumerfacingebookprices,
12
those prices would rise. It knew from the outset that the publishers hated
13
Amazons $9.99 price point, and it put price caps in its agreements because it
14
specificallyanticipatedthatoncethepublishersgainedcontroloverprices,they
Apples argument on appeal that it did not have sufficient market power to
coordinatethePublisherDefendantsisbesidethepoint.Marketpowermayaffordone
meansbywhichacompanycancoerceotherstocomplywithitswishes,butbruteforce
is not the only way to foster an agreement. Here, both Apple and the Publisher
Defendants understood that Apple was in a position to solve the publishers
Amazonproblembyhelpingthemeliminatewhattheysawasamortalthreattotheir
businessesnamely,the$9.99pricepoint.
16
60
wouldpushthemhigherthan$9.99,higherthanAppleitselfdeemedrealistic.
Apple,952F.Supp.2dat692(internalquotationmarksomitted).
Onappeal,ApplenonethelessdefendstheContractsthatitproposedtothe
publishersasanaikidomovethatshrewdlyleveragedmarketconditionstoits
own advantage. Apple Br. at 17. [A]ikido move or not, the attractiveness of
successfullyhelporganizethemtoforceAmazontoanagencymodelandthento
usetheirnewfoundcollectivecontroltoraiseebookprices.TheSupremeCourt
10
11
Monsanto,465U.S.at764(internalquotationmarksomitted).Plainly,thisuseof
12
13
DefendantstoparticipateintheiBookstoreconstitutedaconsciouscommitment
14
to the goal of raising ebook prices. Antitrust law has never required identical
15
motivesamongconspiratorswhentheirindependentreasonsforjoiningtogether
16
leadtocollusiveaction.SpectatorsCommcnNetworkInc.v.ColonialCountryClub,
17
253F.3d215,220(5thCir.2001)(emphasisadded).Putdifferently,independent
18
reasonscanalsobeinterdependent,andthefactthatApplesconductwasin
61
itsowneconomicinterestinnowayunderminestheinferencethatitenteredan
(internalquotationmarksomitted).
NorwasthePublisherDefendantsjointactionagainstAmazonaresultof
isnotunlawfulunder1oftheShermanAct,evenifitisanticompetitive.See
agreement,aplaintiffneedonlypresentsufficientevidencethatsuchagreement
10
was more likely than not. On this record, the district court had ample basis to
11
conclude that it was not equally likely that the nearsimultaneous signing of
12
13
14
decisions,asopposedtoameetingof[the]minds.Monsanto,465U.S.at765;
15
see Toys R Us, 221 F.3d at 93536 (holding that exclusivedealing agreements
16
17
individualselfinterestbutconsistentwiththeircollectiveinterestsupportedthe
18
inferenceofahorizontalconspiracyinwhichtheretailerparticipated);VIAreeda
62
defendantsactionwouldhavebeencontrarytoitsselfinterestintheabsenceof
Amazoncanhardlybedisputed.Indeed,Appleneverseriouslyarguesthatthe
PublisherDefendantswerenotactinginconcert.
Evenso,Appleclaims,itcannothaveorganizedtheconspiracyamongthe
Apple Br. at 23. But this argument founders and dramatically so on the
10
factual findings of the district court. As the district court explained, Apples
11
Contracts with the publishers must be considered in the context of the entire
12
record.Apple,952F.Supp.2dat699.EvenifApplewasunawareoftheextent
13
63
Appleconsciouslyplayedakeyroleinorganizingtheirexpresscollusion.From
theoutset,CuetoldthepublishersthatApplewouldlaunchitsiBookstoreonlyif
asufficientnumberofthemagreedtoparticipateandthateachpublisherwould
receive identical terms, assuring them that a critical mass of major publishers
thepublishersupdatedabouthowmanyoftheirpeerssignedApplesContracts,
and reminded them that it was offering the best chance for publishers to
10
expectations. J.A. 522. When time ran short, Apple coordinated phone calls
11
betweenthepublisherswhohadagreedandthosewhoremainedonthefence.18
and help explain how the agreement among Apple and the Publisher Defendants
thereafteremerged.
AppletakesissuewiththedistrictcourtsconclusionthatApplewasawareof,
and facilitated, communication between the Publisher Defendants. But the district
courtfoundthatCuebelievedReidywasaleaderinthepublishingindustryandthat,
on at least two occasions toward the end of the negotiating period, Cue called a
recalcitrant executive, who then spoketoReidybeforeagreeing toApplesterms. See
Apple, 952 F. Supp. 2d at 65960; J.A. 201920. Reidy herself adverted to Cues role in
herding us cats. J.A. 543. Moreover, the publishing executives frequently denied
havinganyconversationsaboutAppleduringthisperiod,despitestrongdocumentary
andphonerecordevidencetothecontrary.Thedistrictcourtfoundthatthesedenials
lackedcredibilityandstronglysupport[ed]afindingofconsciousnessofguilt.Apple,
952F.Supp.2dat693n.59.Thisviewofthefactsisnotclearlyerroneous.
18
64
As Cue said at trial, Apple endeavored to assure [the publishers] that they
werent going to be alone, so that [Apple] would take the fear awa[y] of the
Amazonretributionthattheywereallafraidof.J.A.2068.
Applesinvolvementintheconspiracycontinuedevenpastthesigningof
itsagencyagreements.BeforeSargentflewtoSeattletomeetwithAmazon,he
toldCue.ApplestayedabreastofthePublisherDefendantsprogressastheyset
coordinated deadlines with Amazon and shared information with one another
10
11
12
see Monsanto, 465 U.S. at 76566 (concluding that message about getting the
13
marketplaceinordercouldleadtoinferenceofconspiracy(internalquotation
14
marksomitted));seealsoStarr,592F.3dat324;ApexOil,822F.2dat25557.
15
16
17
18
65
antitrustcases,[t]hecharacterandeffectofaconspiracyarenottobejudgedby
whole.ContlOreCo.v.UnionCarbide&CarbonCorp.,370U.S.690,699(1962).
CombinedwiththeunmistakablepurposeoftheContractsthatAppleproposed
to the publishers, and with the collective move againstAmazon that inevitably
followed the signing of those Contracts, the emails and phone records
demonstrate that Apple agreed with the Publisher Defendants, within the
eliminating retail price competition. The district court did not err in rejecting
10
11
Defendantsconspiracywasambiguous.
12
Giventherecordandthedistrictcourtsfactualfindings,wedonotshare
13
Apple and its amicis concern that we will stifle productive enterprise by
14
inferringanagreementamongAppleandthePublisherDefendantsonthebasis
15
16
beginwith,itiswellestablishedthatverticalagreements,lawfulintheabstract,
17
18
66
multiple competitors sign vertical agreements that would be against their own
interests were they acting independently, see, e.g., Interstate Circuit v. United
States, 306 U.S. 208, 222 (1939); Toys R Us, 221 F.3d at 93536. The MFNs in
Contracts were only attractive to the Publisher Defendants to the extent they
acted collectively. That these contract terms had such an effect under the
particularcircumstancesofthiscaseandthereforefurnishpartoftheevidence
ofApplesagreementwiththePublisherDefendantssaysnothingabouttheir
10
particularcontextinwhichApplescontracttermsweredeployed.Inanyevent,
11
wearebreakingnonewgroundinconcludingthatMFNs,thoughsurelyproper
12
inmanycontexts,canbemisusedtoanticompetitiveendsinsomecases.Blue
13
Cross&BlueShieldUnitedofWis.v.MarshfieldClinic,65F.3d1406,1415(7thCir.
14
1995);seeStarr,592F.3dat324(findingMFNevidenceofconspiracy).Underthe
15
16
17
coordinatedhorizontalarrangement.JonathanB.Baker,VerticalRestraintswith
18
HorizontalConsequences:CompetitiveEffectsofMostFavoredCustomerClauses,64
67
AntitrustL.J.517,52021(1996);seealsoJonathanB.Baker&JudithA.Chevalier,
2013,
edu/cgi/viewcontent.cgi?article=1280&context=facsch_lawrev.19
at
2026,
available
at
http://digitalcommons.wcl.american.
that the district court erred in concluding that Apple conspir[ed] with the
prices.Apple,952F.Supp.2dat691.Havingconcludedthatthedistrictcourt
10
11
argumentsthatthisagreementdidnotviolate1oftheShermanAct.
Nor does our holding remotely suggest that price caps are always unlawful,
which they are not. See State Oil Co. v. Khan, 522 U.S. 3 (1997) (holding that vertical
maximumpricefixingagreementsshouldbeanalyzedundertheruleofreason).Apple
required price caps because it knew that once the Publisher Defendants moved on
Amazon to seize control over ebook prices, they would raise them. Apple wanted to
ensurethatthePublisherDefendantssetrealisticpricesthatreflectedthelowercosts
ofproducingebooks.J.A.359.ThePublisherDefendantsandAppleunderstoodthat
these caps would become the standard across the industry. J.A. 573. The price
negotiationsthereforereflectedacommonunderstandingthatpriceswouldrise,buta
difference of opinion among the coconspirators over how high they could reasonably
go.SeeUnitedStatesv.Andreas,216F.3d645,680(7thCir.2000)(Theneedtonegotiate
somedetailsoftheconspiracywiththecartelmembers...doesnotstripadefendantof
theorganizerrole.).
19
68
B. UnreasonableRestraintofTrade
restraint of trade, [the Supreme] Court has long recognized that Congress
intendedtooutlawonlyunreasonablerestraints.StateOilCo.v.Khan,522U.S.
thecommonschemedesignedbytheconspiratorsconstitutedanunreasonable
restraintoftradeeitherperseorundertheruleofreason.CapitalImaging,996
F.2dat542.
Inantitrustcases,[p]erseandruleofreasonanalysisare...twomethods
10
11
12
USA Petroleum Co., 495 U.S. 328, 342 (1990). Because this balancing typically
13
requires casebycase analysis, most antitrust claims are analyzed under [the]
14
rule of reason, according to which the finder of fact must decide whether the
15
16
522U.S.at10;seealsoGattCommcns,Inc.v.PMCAssocs.,L.L.C.,711F.3d68,75
17
n.8 (2d Cir. 2013). However, some restraints have such predictable and
18
69
benefit, that they are deemed unlawful per se. Khan, 522 U.S. at 10. This rule
reflect[s]alongstandingjudgmentthatcasebycaseanalysisisunnecessaryfor
unreasonablyrestraincompetition.FTCv.Sup.Ct.TrialLawyersAssn,493U.S.
411,433(1990)(internalquotationmarksomitted).
thearchetypalexampleofaperseunlawfulrestraintontrade.Catalano,Inc.v.
Target Sales, Inc., 446 U.S. 643, 647 (1980). By contrast, the Supreme Court in
recent years has clarified that vertical restraints including those that restrict
10
pricesshouldgenerallybesubjecttotheruleofreason.SeeLeegin,551U.S.at
11
882 (holding that the rule of reason applies to vertical minimum pricefixing);
12
Khan,522U.S.at7(holdingthattheruleofreasonappliestoverticalmaximum
13
pricefixing).
14
Inthiscase,thedistrictcourtheldthattheagreementbetweenAppleand
15
thePublisherDefendantswasunlawfulundertheperserule;inthe alternative,
16
even assuming that a ruleofreason analysis was required, the district court
17
concluded that the agreement was still unlawful. See Apple, 952 F. Supp. 2d at
18
694.Onappeal,weconsiderthreeprimaryargumentsagainstapplicationofthe
70
perserule.First,Appleandourdissentingcolleaguearguethattheperseruleis
Defendantswerevertical,nothorizontal.Evenifthechallengedagreementhere
Finally,Applecontendsthateveniftheagreementwashorizontal,itwasnot,in
We address, and reject, these arguments in turn. Because the ebook industry,
however, is new and at least arguably involves some new ways of doing
business, I also consider, writing only for myself, Apples ruleof reason
10
argument.
11
1. WhetherthePerSeRuleApplies
12
a. HorizontalAgreement
13
Inlightofourconclusionthatthedistrictcourtdidnoterrindetermining
14
thatAppleorganizedapricefixingconspiracyamongthePublisherDefendants,
15
Apple and the dissents initial argument against the per se rule thatApples
16
17
18
cannotsucceed.
71
competitionorwhetheritissuchasmaysuppressorevendestroycompetition.
Bd. of Trade of City of Chi. v. United States, 246 U.S. 231, 238 (1918) (emphasis
committeditselftoachiev[ing][that]unlawfulobjective,Monsanto,465U.S.at
764 (internal quotation marks omitted): namely, collusion with and among the
PublisherDefendantstosetebookprices.Thistypeofagreement,moreover,isa
restraint that would always or almost always tend to restrict competition and
10
decreaseoutput.Leegin,551U.S.at886(internalquotationmarksomitted).
11
The response, raised by Apple and our dissenting colleague, that Apple
12
13
misconstruestheShermanActanalysis.ItisthetypeofrestraintAppleagreedto
14
impose that determines whether the per se rule or the rule of reason is
15
16
17
scheme.Atl.Richfield,495U.S.at342(emphasisadded)(internalquotationmarks
18
omitted);seealsoNatlCollegiateAthleticAssnv.Bd.ofRegentsoftheUniv.ofOkla.,
72
468U.S.85,103(1984)(BothperserulesandtheRuleofReasonareemployed
toformajudgmentaboutthecompetitivesignificanceoftherestraint.(internal
quotationmarksomitted)).
Consistent with this principle, the Supreme Court and our Sister Circuits
10
manufacturertoenforcetheircartel,...canbedealtwithundertheconventional
11
12
BroadwayHaleStores,Inc.,forexample,theSupremeCourtconsideredwhethera
13
prominentretailerofelectronicappliancescouldbeheldliableunder1ofthe
14
ShermanActforfosteringanagreementwithandamongitsdistributorstohave
15
those companies boycott a competing retailer. 359 U.S. 207 (1959). The Court
16
17
combinationconsistingofmanufacturers,distributorsandaretailer.Id.at212
18
13. It then decided that, if the combination were proved at trial, holding the
73
refusalsbytraderstodealwithothertraders,areperseunreasonablerestraints
oftrade.Id.at212.
TheSupremeCourtfollowedasimilarapproachinUnitedStatesv.General
MotorsCorp.,384U.S.127(1966),whenitconsideredwhether1prohibitedacar
prevent other dealers from selling cars at discount prices. The majority called
entertainGeneralMotorsrequesttoconsiderthecompanysreasonsforcreating
10
theconspiracy.Id.at140.TheCourtexplainedthat[t]herecanbenodoubtthat
11
theeffectofthecombination...herewastorestraintradeandcommercewithin
12
13
action,ofdiscountersfromaccesstothemarketisaperseviolationoftheAct.
14
Id. at 145; see, e.g., Toys R Us, 221 F.3d at 936; Dennys Marina, Inc. v. Renfro
15
Prods.,Inc.,8F.3d1217,122021(7thCir.1993);UnitedStatesv.MMRCorp.(LA),
16
907 F.2d 489, 498 (5th Cir. 1990); see also Albert Foer & Randy Stutz, Private
17
EnforcementofAntitrustLawintheUnitedStates29(2012).
74
effects,andnottheidentityofeachactorwhoparticipatesinimposingit,Apple
andthedissentsobservationthattheSupremeCourthasrefusedtoapplytheper
anditsdistributorsto,forinstance,limitthepriceatwhichthedistributorssell
themanufacturersgoodsorthelocationsatwhichtheysellthem.SeeLeegin,551
U.S. at 881; Contl T.V., Inc. v. GTE Sylvania Inc., 433 U.S. 36, 57 (1977). These
verticalrestrictionsarewidelyusedinourfreemarketeconomy,canenhance
10
11
competition. Contl T.V., 433 U.S. at 5758 (internal quotation marks omitted).
12
But the relevant agreement in restraint of trade in this case is not Apples
13
14
15
agreementthatAppleorganizedamongthePublisherDefendantstoraiseebook
16
prices.Asexplainedbelow,horizontalagreementswiththepurposeandeffect
17
ofraisingpricesareperseunreasonablebecausetheyposeathreattothecentral
18
nervoussystemoftheeconomy,UnitedStatesv.SoconyVacuumOilCo.,310U.S.
75
150, 224 n.59 (1940); that threat is just as significant when a vertical market
participantorganizestheconspiracy.Indeed,asthedissentnotes,thePublisher
Defendantscoordinationtofixpricesisuncontestedonappeal.SeeDissenting
Op. at 23. The competitive effects of that same restraint are no different merely
becauseadifferentconspiratoristhedefendant.
Accordingly, when the Supreme Court has applied the rule of reason to
verticalagreements,ithasexplicitlydistinguishedsituationsinwhichavertical
playerorganizesahorizontalcartel.Forinstance,inBusinessElectronicsCorp.v.
10
11
restraint that should be evaluated under the rule of reason. 485 U.S. 717, 726
12
(1988). The Court distinguished General Motors and Klors on the grounds that
13
both cases involved horizontal combinations, id. at 734, and noted that a
14
15
coercedbyahorizontalcarte[l]...isinrealityahorizontalrestraint,id.at730
16
n.4 (alteration in original). More recently, in NYNEX Corp. v. Discon, Inc., the
17
Courtruledthatabuyersdecisiontobuyfromonesellerratherthananother
18
is subject to analysis under the rule of reason. 525 U.S. 128, 130 (1998). In
76
arriving at this conclusion, the Court took care to distinguish, rather than
overturn, Klors, noting that per se liability was appropriate for the organizer of
the conspiracy in that case because the agreement at issue was not simply a
agreement among competitors. Id. at 136 (citing Bus. Elecs. Corp., 485 U.S. at
734).
nodifferent.551U.S.877(2007).InLeegin,aleathermanufacturerenteredinto
separate agreements with each of its retailers, which required them to sell its
10
goodsatcertainprices.Theplaintiffaretailerwhorefusedtocomplywiththe
11
12
constitutedperseviolationsoftheShermanAct.TheSupremeCourtdisagreed,
13
concludingthatverticalpricerestraintsaretobejudgedbytheruleofreason.
14
Id.at882.Itsanalysiswascarefultodistinguishbetweenverticalrestraintsand
15
horizontalones.Verticalpricerestraintsareunfitfortheperserulebecausethey
16
canbeusedtoencourageretailerstoinvestinpromotingaproductbyensuring
17
thatotherretailerswillnotundercuttheirpricesforthatgood.Seeid.at89092.
18
However,verticalpricerestraintscanalsobeusedtoorganizehorizontalcartels
TheCourtsdecisioninLeeginCreativeLeatherProducts,Inc.v.PSKS,Inc.,is
77
to increase prices, which are, and ought to be, per se unlawful. Id. at 893.
Whenusedforsuchapurpose,theverticalagreementmaybeusefulevidence
... to prove the existence of a horizontal cartel. Id.; see also VI Areeda &
Hovenkamp, supra, 1402c. The Court made clear that it was addressing only
the lawfulness of the manufacturers vertical agreements and not the plaintiffs
with competing retailers. Id. at 90708; see also PSKS, Inc. v. Leegin Creative
LeatherProds.,Inc.,615F.3d412(5thCir.2010)(consideringplaintiffshuband
spoketheoryonremand).
10
OurdissentingcolleaguesuggeststhatLeeginalsorejectedperseliability
11
forhubandspokesagreements.DissentingOp.at18.Thispositionreliesona
12
singlesentencefromtheopinionsanalysisofhowverticalresalepricerestraints
13
14
minimumresalepricesisenteredupontofacilitateahorizontalcartel,itwould
15
needtobeheldunlawfulundertheruleofreason.Leegin,551U.S.at893.Ifthe
16
SupremeCourtmeanttooverturnGeneralMotorsandKlorsprecedentsthatit
17
hasconsistentlyreaffirmedthiscrypticsentencewascertainlyanoddwayto
18
accomplishthatresult.TheSupremeCourtdoesnotnormallyoverturn,or so
78
dramatically limit, earlier authority sub silentio. Shalala v. Ill. Council on Long
Term Care, Inc., 529 U.S. 1, 18 (2000); see also, e.g., Nestor v. Pratt & Whitney, 466
F.3d65,72n.8(2dCir.2006)(Itisnotwithinourpurviewtoanticipatewhether
theSupremeCourtmayonedayoverruleitsexistingprecedent.(quotingUnited
States v. Santiago, 268 F.3d 151, 155 n.6 (2d Cir. 2001) (internal quotation marks
omitted))).
lawgoverninghubandspokeconspiracies,however,becausethepassagerelied
upon by the dissent is entirely consistent with holding the hub in such a
10
11
12
otherpartiestothoseagreementsknowingabout,oragreeingto,thehorizontal
13
14
compliance with a scheme to fix prices by having every member require its
15
dealerstoadheretospecifiedresaleprices.VIIIAreeda&Hovenkamp,supra,
16
1606b.Becauseitmaybedifficulttodistinguishsuchfacilitatingpracticesfrom
17
procompetitiveverticalresalepriceagreements,thequotedpassagefromLeegin
18
notesthatthoseverticalagreement[s]...wouldneedtobeheldunlawfulunder
79
theruleofreason.551U.S.at893.Butthereisnosuchpossibilityforconfusion
in the hubandspoke context, where the vertical organizer has not only
horizontalconspiracy.Inthatsituation,thecourtneednotconsiderwhetherthe
horizontalrestraint,whichisandoughttobe,perseunlawful.Id.20
contracts with the Publisher Defendants. How the law might treat Apples
10
SinceLeegin,theSixthCircuithasacknowledgedthatplaintiffscanestablish[]
aperseviolation[oftheShermanAct]underthehubandspoketheory.TotalBenefits
PlanningAgency,Inc.v.AnthemBlueCross&BlueShield,552F.3d430,435n.3(6thCir.
2008). To the extent that the Third Circuit decided otherwise in Toledo Mack Sales &
Serv.,Inc.v.MackTrucks,Inc.,530F.3d204,225(3dCir.2008),itsmorerecentopinions
castdoubtonthatdecision.InInreInsuranceBrokerageAntitrustLitigation,forexample,
the court noted that hubandspoke conspiracies have a long history in antitrust
jurisprudence, and cited Total Benefits for the position that [t]he critical issue for
establishing a per se violation with the hub and spoke system is how the spokes are
connected to each other. 618 F.3d 300, 327 (3d Cir. 2010) (internal quotation marks
omitted).Thecourtalsoacknowledgedthat[t]heanticompetitivedangerinherentin
allegedhorizontalcollusionisnotnecessarilymitigatedbythefactthatabrokerata
different level of the market structure managed the details of each bid, nor by the
likelihood that the horizontal collusion would not have occurred without the brokers
involvement.Id.at338.ThepanelinInsuranceBrokerage,however,hadnooccasionto
revisitToledoMackbecausetheplaintiffshadfailedtoestablishahorizontalagreement
theriminthehubandspokesconspiracy.Id.at362.
20
80
restraint that is any less anticompetitive than its coconspirators, and can
applicationoftheperserule.
b. EnterpriseandProductivity
Appleseeksrefugefromtheperserulebyinvokingalineofcasesinwhich
10
horizontalpricefixingarrangementsthatwouldordinarilybecondemnedperse
11
12
13
AcidAntitrustLitig.,703F.3d1004,1011(7thCir.2012))(internalquotationmark
14
omitted).Thedecisionsfallinginthislinearenarrow,andtheydonotsupport
15
16
17
18
works for a flat fee. 441 U.S. 1, 46 (1979). Although this scheme literally
81
undertheruleofreasonbecauseblanketlicensesweretheonlywaytoeliminate
licenses, monitoring licensees use of their work, and enforcing the licenses
UniversityofOklahoma(NCAA),theCourtreliedonBMIinapplyingtheruleof
CollegiateAthleticAssociation(NCAA)onthenumberoffootballgamesthat
itsmemberscouldagreewithtelevisionnetworkstobroadcast.468U.S.85,103
10
(1984). Many of the NCAAs restrictions on its members were essential if the
11
product[amateurathletics]istobeavailableatall,soafairevaluationofthe
12
13
NCAAsjustificationsfortherestraints.Id.at101,103.
14
15
situationswheretherestraintsoncompetitionareessentialiftheproductisto
16
be available at all. Am. Needle, Inc. v. Natl Football League, 560 U.S. 183, 203
17
(2010)(quotingNCAA,468U.S.at101)(internalquotationmarksomitted).But
18
even if read broadly, these cases, and others in this category, apply the rule of
82
reason only when the restraint at issue was imposed in connection with some
1908b;see,e.g.,SulfuricAcid,703F.3dat1013(describingjointventureformed
invokeonlycertain,limitedkindsofenterpriseandproductivitytoreceivethe
ruleofreasonsadvantages.AstheSupremeCourthasexplainedincludingin
BMIitself,see441U.S.at8&n.11theperserulewouldloseallthebenefitsof
beingperseifconspiratorscouldseektojustifytheirconductonthebasisofits
purportedcompetitivebenefitsineverycase.Here,therewasnojointventureor
10
11
conspiracy that Apple joined. Apple also does not claim, nor could it, that
12
13
coordinatewithoneanotheronprice.
14
c. PriceFixingConspiracy
15
Asnoted,theSupremeCourthasfornearly100yearsheldthathorizontal
16
collusiontoraisepricesisthearchetypalexampleofaperseunlawfulrestraint
17
18
thepowertosetpricesamongtheconspirators,includingthepowertocontrol
83
themarketandtofixarbitraryandunreasonableprices.UnitedStatesv.Trenton
PotteriesCo.,273U.S.392,397(1927).Andevenifunsuccessfulornot...aimed
atcompleteeliminationofpricecompetition,theconspiraciesposeathreatto
thecentralnervoussystemoftheeconomybycreatingadangerouslyattractive
SoconyVacuumOil,310U.S.at224n.59(1940).Thus:
7
8
9
10
11
12
13
14
15
16
17
18
19
1509,at41213(1986)).
20
Apple and its amici argue that the horizontal agreement among the
21
22
treatmentinthefirstplace.Butitiswellestablishedthatpersecondemnationis
23
not limited to agreements that literally set or restrict prices. Instead, any
24
conspiracy formed for the purpose and with the effect of raising, depressing,
84
fixing,pegging,orstabilizingthepriceofacommodity...isillegalperse,and
theprecisemachineryemployed...isimmaterial.SoconyVacuumOil,310U.S.
at 223; see also Catalano, 446 U.S. at 64748 (collecting cases); XII Areeda &
Hovenkamp,supra,2022a,d.TheconspiracyamongAppleandthePublisher
Defendantscomfortablyqualifiesasahorizontalpricefixingconspiracy.
model (with Apples help) was to eliminate Amazons $9.99 pricing for new
releases and bestsellers, which the publishers believed threatened their short
10
term ability to sell hardcovers at higher prices and the longterm consumer
11
perceptionofthepriceofanewbook.Theyhadgrownaccustomedtoabusiness
12
in which they rarely competed with one another on price and could, at least
13
partially,controlthepriceofnewreleasesandbestsellersbyreleasinghardcover
14
copies before paperbacks. Amazon, and the ebook, upset that model, and
15
reduced prices to consumers by eliminating the need to print, store, and ship
16
physical volumes. Its $9.99 price point for new releases and bestsellers
17
representedasmalllossonasmallpercentageofitssalesdesignedtoencourage
18
consumerstoadoptthenewtechnology.
85
grab control over price. Collectively, the Publisher Defendants accounted for
48.8%ofebooksalesin2010.J.A.1571.Onceorganized,theyhadsufficientclout
todemandcontroloverpricing,intheformofagencyagreements,fromAmazon
andotherebookdistributors.Thiscontroloverpricingfacilitatedtheirultimate
goal of raising ebook prices to the price caps. See VIIIAreeda & Hovenkamp,
supra, 1606b (Even when specific prices are not agreed upon, an express
10
horizontal agreement that each manufacturer will use resale price maintenance
11
orotherdistributionrestraintsshouldbeillegal.Itsonlybusinessfunctionisto
12
13
PublisherDefendantstookbycollusionwhattheycouldnotwinbycompetition.
14
And Apple used the publishers frustration with Amazons $9.99 pricing as a
15
16
theirpushtoraisepricesthroughouttheindustry.Acoordinatedefforttoraise
17
pricesacrosstherelevantmarketwaspresentineverychapterofthisstory.
86
This conspiracy to raise prices also had its intended effect. Immediately
increasedtheKindlepricesof85.7%oftheirnewreleasesand96.8%oftheirNew
YorkTimesbestsellerstowithin1%oftheApplepricecaps.Theyalsoincreased
the prices of their other ebook offerings. Within two weeks of the move to
whichaccountedforjustunderhalfofallebooksalesin2010hadincreasedby
18.6%, while the prices for Random House and other publishers remained
relativelystable.
10
11
Defendantsandprovedtobedurable.Oneanalysiscomparedtwoweekperiods
12
before and after the Publisher Defendants took control over pricing and found
13
thattheysold12.9%fewerebooksaftertheswitch.AnotherexpertforPlaintiffs
14
15
following the switch, the Publisher Defendants sold 14.5% fewer ebooks than
16
theywouldhavehadthepriceincreasesnotoccurred.Nonetheless,ebookprices
17
forthePublisherDefendantsoverthosesixmonths,controllingforotherfactors,
18
remained 16.8% higher than before the switch. And even Apples expert
87
producedachartshowingthatthePublisherDefendantspricesfornewreleases,
bestsellers,andotherofferingsremainedelevatedafulltwoyearsaftertheytook
controloverpricing.
Apple points out that, in the two years following the conspiracy, prices
across the ebook market as a whole fell slightly and total output increased.
However,whentheagreementatissueinvolvespricefixing,theSupremeCourt
hasconsistentlyheldthatcourtsneednotevenconductanextensiveanalysisof
anticompetitivecharacter.FTCv.Ind.FednofDentists,476U.S.447,460(1986);
10
seealsoNatlSocyofProflEngrsv.UnitedStates,435U.S.679,69293(1978).The
11
12
coupled with the unambiguous increase in the prices of their ebooks, was
13
sufficient to confirm that price fixing was the goal, and the result, of the
14
conspiracy.SeeCal.DentalAssnv.FTC,526U.S.756,77980(1999).
15
Moreover,Applesevidenceregardinglongtermgrowthandpricesinthe
16
ebook industry is not inconsistent with the conclusion that the pricefixing
17
18
88
marginal costs associated with selling books. When Apple launched the
iBookstorejusttwoyearsafterAmazonintroducedtheKindle,theebookmarket
wasalreadyexperiencingrapidgrowthandfallingprices,andthosetrendswere
expectedtocontinue.J.A.1630,1647.ThedistrictcourtfoundthatthePublisher
Amazons $9.99 price point for new releases and New York Times bestsellers
tapped the brakes on those trends, causing prices to rise across their offerings
and slowing their sales growth relative to other publishers.21 No court can
presumetoknowtheproperpriceofanebook,butthelongjudicialexperience
10
applying the Sherman Act has shown that [a]ny combination which tampers
11
with price structures . . . would be directly interfering with the free play of
12
market forces. SoconyVacuum Oil, 310 U.S. at 221; see alsoArizona v. Maricopa
13
Cnty.Med.Socy,457U.S.332,346(1982).Bysettingnew,durablepricesthrough
Significantly,thePublisherDefendantsareallmajorproducersofnewreleases
and New York Times bestsellers, and they collectively increased prices in those
categories. Those prices remained high notwithstanding the influx of new publishers
and lowcost ebooks, to the detriment of consumers interested in that segment of the
market.See42ndParallelN.v.ESt.DenimCo.,286F.3d401,40506(7thCir.2002)(The
keyinquiryinamarketpoweranalysisiswhetherthedefendanthastheabilitytoraise
prices without losing its business. (internal quotation marks omitted)); K.M.B.
Warehouse Distribs., Inc. v. Walker Mfg. Co., 61 F.3d 123, 12829 (2d Cir. 1995); cf. U.S.
DeptofJustice&Fed.TradeCommn,HorizontalMergerGuidelines6.1(2010)(noting
that,[i]ndifferentiatedproductindustries,someproductscanbeveryclosesubstitutes
...whileotherproductsaremoredistantsubstitutes).
21
89
collusionratherthancompetition,AppleandthePublisherDefendantsimposed
theirviewofproperpricing,supplantingthemarketsfreeplay.Thisevidence,
viewedinconjunctionwiththedistrictcourtsfindingsastoandanalysisofthe
conspiracyshistoryandpurpose,issufficienttosupporttheconclusionthatthe
agreementtoraiseebookpriceswasaperseunlawfulpricefixingconspiracy.
2. RuleofReason
As explained above, neither Apple nor the dissent has presented any
particularlystrongreasontothinkthattheconspiracywehaveidentifiedshould
besparedpersecondemnation.Myconcurringcolleaguewouldthereforeaffirm
10
the district courts decision on that basis alone. I, too, believe that per se
11
12
referencestoinnovationasadistractionfromthestraightforwardnatureofthe
13
conspiracyprovenattrial.Nonetheless,IammindfulofApplesargumentthat
14
thenascentebookindustryhassomenewandunusualfeaturesandthattheper
15
seruleisnotfitforbusinessrelationshipswheretheeconomicimpactofcertain
16
practicesisnotimmediatelyobvious.Leegin,551U.S.at887(internalquotation
17
marks omitted); accord Major League Baseball Props., Inc. v. Salvino, Inc., 542 F.3d
18
290, 316 (2d Cir. 2008) (Per se treatment is not appropriate ... where the
90
SulfuricAcid,703F.3dat1011(Itisabadideatosubjectanovelwayofdoing
the sake of argument, that it is appropriate to apply the rule of reason and to
PublisherDefendants.
Notably, however, the ample evidence here concerning the purpose and
theruleofreasonanalysiscalledforinthiscase.Underaprototypicallyrobust
10
ruleofreasonanalysis,theplaintiffmustdemonstrateanactualadverseeffect
11
oncompetitionintherelevantmarketbeforetheburdenshiftstothedefendants
12
13
Pharms.Tech.Corp.v.BarrLabs.Inc.,386F.3d485,50607(2dCir.2004)(internal
14
quotation marks omitted). The factfinder then weighs the competing evidence
15
todetermineiftheeffectsofthechallengedrestrainttendtopromoteordestroy
16
competition.Id.at507.Butnoteverycasethatrequiresruleofreasonanalysis
17
91
779. What is required, rather, is an enquiry meet for the case, looking to the
circumstances,details,andlogicofarestraint.Id.at781.
Tothatend,theSupremeCourthasappliedanabbreviatedversionofthe
whoseanticompetitiveeffectsareeasilyascertained.Seeid.at779.Thisquick
lookeffectivelyrelievestheplaintiffofitsburdenofprovidingarobustmarket
1914d ([W]hen the restraint appears on its face to be one that tends to . . .
10
11
burden of proof rather than to cut off the inquiry, asis usually true in a per se
12
case.). Thus, in NCAA, the Supreme Court refrained from applying the per se
13
ruletothechallengedtelevisionbroadcastrestrictions,butitdidnotrequirean
14
15
character. 468 U.S. at 109 (internal quotation marks omitted). And in Indiana
16
Federation of Dentists, the Court did notapply theper se rule to a group boycott
17
when, in the relevant market, the economic impact was not immediately
18
92
anticompetitivecharacter.476U.S.at459;seealsoMajorLeagueBaseball,542F.3d
at317;UnitedStatesv.BrownUniv.,5F.3d658,669(3dCir.1993).
condemnationisthecorrectwaytodisposeofthisappealalsosupportsatmosta
quick look inquiry under the rule of reason. Contrary to the dissents
suggestion,thisapproachdoesnotsomehowtainttheruleofreasonanalysis.
The dissent concedes that the conscious object of Apples signing its Contracts
themtoraiseconsumerfacingebookprices.SeeDissentingOp.at26(notingthat
10
priceincreasesweretheexpectedresultofthedefendantsagreement).Itis
11
12
13
14
15
defensesanyshortershriftthanIotherwisewouldunderamorerobustanalysis.
16
MyrejectionofApplesdefensesthushasnothingtodowithmyapplicationof
17
18
defensesare.
93
a.MarketEntry
ApplesinitialargumentthatitsagreementwiththePublisherDefendants
pricepoint,theagreementenabledAppleandotherebookretailerstoenterthe
market and challenge Amazons dominance. But this defense that higher
explained:
10
11
12
13
14
15
16
17
18
19
20
Catalano,446U.S.at649.
21
22
horizontal cartel at one level of the market promoted market entry at another,
23
enhancingcompetition.Mydissentingcolleaguesviewthatdeconcentrating,
[I]nanycaseinwhichcompetitorsareabletoincreasethepricelevel
or to curtail production by agreement, it could be argued that the
agreement has the effect of making the market more attractive to
potential new entrants. If that potential justifies horizontal
agreements among competitors imposing one kind of voluntary
restraintoranotherontheircompetitivefreedom,itwouldseemto
followthatthemoresuccessfulanagreementisinraisingtheprice
level, the safer it is from antitrust attack. Nothing could be more
inconsistentwithourcases.
Nordoesthisargumentbecomestrongerwhenitisasserted,ashere,thata
94
DissentingOp.at27,Amazonsshareofretailebooksalesjustifiesconcentrating
power over pricing in the hands of the Publisher Defendants reflects a basic
New entrants to a market are desirable to the extent that consumers would
choosetobuytheirproductsatthepriceoffered.Whenamarketisconcentrated
valueforthesamegoods.Dominantfirmswhowanttodetercompetitionso
that they can keep charging supracompetitive prices may erect barriers to
10
entrytokeepthesenewcompetitorsout,andthedissentisquiterightthatthese
11
barriersaregenerallyundesirable.
12
13
product,businessacumen,orhistoricaccident,andisnotonlynotunlawful;it
14
is an important element of the free market system. Trinko, 540 U.S. at 407
15
(internalquotationmarksomitted).Theabilitytoprovidegoodsatparticularly
16
low prices is one way that a firm can gain such an edge in the marketplace.
17
18
among other things, superior products and lower prices. But success is not
95
guaranteed.Adominantfirmcharginglowpricesmayhaveprovenitselfmore
efficientthanitscompetitors,suchthatapotentialnewentrantsinabilitytoearn
aprofitwouldresultnotfromanyartificialbarrierstoentry,butratherfrom
the fact that, in light of the value proposition offered by the dominant firm,
consumerswouldnotchoosetobuythenewentrantsproductsatthepriceitis
willing and able to offer. See Einer Elhauge, United States Antitrust Law and
Economics 2 (2d ed. 2011) (If a firm makes a better mousetrap, and the world
beatsapathtoitsdoor,itmaydriveoutallrivalsandestablishamonopoly;but
thatisagoodresult,notabadone.).
10
Fromthisperspective,thedissentscontentionthatApplecouldnothave
11
entered the ebook retail market without the pricefixing conspiracy, because it
12
13
Amazonspricing,isacompletenonsequitur.Thepositeddilemmaisthewhole
14
pointofcompetition:ifApplecouldnotturnaprofitbysellingnewreleasesand
15
bestsellersat$9.99,orifitcouldnotmaketheiBookstoreandiPadsoattractive
16
thatconsumerswouldpaymorethan$9.99tobuyandreadthoseebooksonits
17
platform, then there was no place for its platform in the ebook retail market.
18
Neither the district court nor Plaintiffs had an obligation to identify a viable
96
enterthemarketonitspreferredterms.DissentingOp.at35.
Althoughlowpricesthatdeternewentrymaysimplyreflectthedominant
efficientlevel(whateverthatmighthavebeen),itstillwouldnothavebeenable
to enter the market on a profitable basis. But Amazon was taking a risk by
10
encourage readers to adopt the Kindle. That belowcost pricing may impose
11
painfullossesonitstargetisofnomomenttotheantitrustlawsifcompetitionis
12
notinjured:Itisaxiomaticthattheantitrustlawswerepassedfortheprotection
13
of competition, not competitors. Brooke Grp. Ltd. v. Brown & Williamson Tobacco
14
Corp., 509U.S. 209,224 (1993) (quotingBrownShoe Co. v. United States, 370 U.S.
15
294,320(1962)).Becauselowerpricesimproveconsumerwelfare(allelsebeing
16
17
dangerousprobabilitythatthefirmengaginginitwilllaterrecoupitslossesby
18
raisingpricestomonopolylevelsafterdrivingitsrivalsoutofthemarket.Id.If
97
Apple and the Publisher Defendants thought thatAmazons conduct was truly
anticompetitive under this standard, they could have sued under 2 of the
ShermanAct.(WhetherDOJwouldhavepursueditsownenforcementactionis
Amazons pricing was part of the competitive landscape that competing ebook
retailershadtoaccept.22
ShermanActhorizontalcollusiontofixpricestocureaperceivedabuseof
market power. Whatever its merit in the abstract, that preference for collusion
10
over dominance is wholly foreign to antitrust law. See Trinko, 540 U.S. at 408
11
12
termthreattocompetition,theShermanActdoesnotauthorizehorizontalprice
13
14
15
457U.S.at346(quotingSoconyVacuumOil,310U.S.at221).Indeed,theattempt
16
to justify a conspiracy to raise prices on the basis of the potential threat that
Whilethedissentaccusesusofsupposingthatcompetitionshouldbegenteel,
lawyerdesigned,andfairundersportingrules,DissentingOp.at5,itisthedissents
positionthatwouldhaveebookconsumerssubsidizeApplesentryintothemarketby
payingmoreforebookssothatApplewouldnothavetocompeteonprice.
22
98
competitionposes...isnothinglessthanafrontalassaultonthebasicpolicyof
the Sherman Act. Natl Socy of Profl Engrs, 435 U.S. at 695. And it is
particularly ironic that the terms that Apple was able to insist upon by
organizingacartelofPublisherDefendantstomoveagainstAmazonnamely,
theeliminationofretailpricecompetitionaccomplishedthepreciseopposite
provide. In short, Apple and the dissent err first in equating a symptom (a
singleretailermarket)withadisease(alackofcompetition),andthenerragain
byprescribingthediseaseitselfasthecure.
10
Thedissentsfrontalassaultoncompetitionlawisnotonlywrongasa
11
legalmatterforallthereasonsjustgiven;itisalso,despiteitsprofessedfidelity
12
tothedistrictcourtsviewofthefacts,premisedonvariousmischaracterizations
13
of the record. Put simply, it is far from clear that either Apple itself or other
14
ebook retailers could not have entered the ebook retail market withoutApples
15
16
district court noted, [Apple] did not attempt to argue or show at trial that the
17
18
fixingschemesanddidnotsuggest[]thattheonlywayitcouldhaveentered
99
the ebook market was to agree with the Publisher Defendants to raise ebook
prices.Apple,952F.Supp.2dat708.
ThedistrictcourtsstatementthatApplefearedlosingmoneyifittriedor
was forced to match Amazons pricing, Id. at 658 the peg on which the
would have lost money had it entered a market that featured retail price
competition. Barnes & Noble, for its part, had chosen to enter and stay in the
market in the face of Amazons pricing. Google, too, had plans to enter the
ebookmarketbeforeApplelaunchedtheiBookstore.Moreover,thedistrictcourt
10
neverfoundthatApplecouldnothaveenteredthemarketonawholesalemodel
11
while charging more thanAmazon for new releases and bestsellers. To fill this
12
hole in its theory, the dissent suggests that Apple would have impair[ed] its
13
brandbychargingmorethanAmazon.DissentingOp.at34(internalquotation
14
marks omitted). But putting aside the fact thatApples perception of its brand
15
valueisirrelevantdoesthedissentreallythinkitisdesirabletorequiremore
16
efficientcompetitorstochargethesameastheirlessefficientrivalssolelysothe
17
latter will be spared the indignity of not charging the best price? the district
18
court actually found that Apple believed it would have been unrealistic[] to
100
chargemorethanitspricecapsafterswitchingtoanagencymodel,Apple,952F.
Supp.2dat692,afindingthatsaysnothingaboutwhatApplewouldhavebeen
willingtochargeunderawholesalemodel.
The record makes clear the flaws in the dissents argument. When Cue
was still contemplating a wholesale model, his objective was not for Apples
pricingtomatchAmazonsprecisely,butratherforthatpricingtobegenerally
competitive. J.A. 1758. And had Apple opted to compete on both price and
platform but concluded that it could not match Amazons $9.99 pricing, some
consumers might well have paid somewhat more to read new releases and
10
11
thantheKindle.23TheiPadwascomingtomarketwithorwithoutapricefixing
ApredictionthatconsumerswouldhavepaidmoretoreadebooksontheiPad
than on the Kindle because of the iPads improved reading experience or other
attractivefeaturesdoesnotsomehowsuggestthatebooksareVeblengoods[or]Giffen
goods.DissentingOp.at33n.7.ThedissentalsosuggeststhatApplecouldnothave
dependedontheiPadshardwareadvantagesaspartofastrategytochargemorethan
AmazonbecauseantitrustlawwouldhaverequiredittoopenuptheiPadtoaKindle
app.Id.at34.Butforaunilateralrefusaltodealtobeunlawful,thedefendantmust
havemonopolypower,whichAppleplainlydidnot.See,e.g.,UnitedStatesv.Microsoft
Corp., 253 F.3d 34, 51 (D.C. Cir. 2001) (en banc) (While merely possessing monopoly
powerisnotitselfanantitrustviolation,itisanecessaryelementofamonopolization
charge.(citationomitted));Elhauge,supra,at268(Afirmthatlacksdominantmarket
power ... can unilaterally choose with whom they deal without fear of antitrust
liability.); see also Trinko, 540 U.S. at 408 (Under certain circumstances, a refusal to
cooperatewithrivalscanconstituteanticompetitiveconductandviolate2.Wehave
been very cautious in recognizing such exceptions, because of the uncertain virtue of
23
101
conspiracy,andsomeiPadownerswhowantedtoreadebookssurelywouldnot
have wanted to buy a separate Kindle solely to benefit from Amazons $9.99
pricingfornewreleasesandbestsellers.(WhetherApplewouldhaveviewedits
profits under that scenario as large enough to justify entry is not an antitrust
concern.)
Inactuality,thedistrictcourtsfactfindingillustratesthatAppleorganized
thePublisherDefendantspricefixingconspiracynotbecauseitwasanecessary
Applewasoperatingunderaloomingdeadlineandrecognizedthat,byaligning
10
11
raisepricesacrosstheebookmarket,itcouldgainquickentryintothemarketon
12
13
fromAmazon.Buttheoffertoorchestrateahorizontalconspiracytoraiseprices
14
isnotalegitimatewaytosweetenadeal.
15
The facts also do not support the conclusion that Amazons market
16
positionwouldhavediscouragedotherebookretailersfromenteringthemarket
17
absentthepricefixingconspiracyorchestratedbyApple.Amazonpopularized
forcedsharingandthedifficultyofidentifyingandremedyinganticompetitiveconduct
byasinglefirm.).
102
ebookswiththelaunchoftheKindleinlate2007,andenjoyedastrongmarket
position because of its innovation. Cf. Trinko, 540 U.S. at 407 (noting that the
opportunitytogainmarketpowerinducesrisktakingthatproducesinnovation
andeconomicgrowth).Barnes&NoblewasAmazonsfirstmajorcompetitor,
andwhenitenteredthemarketonawholesalemodelwiththeintroduction
of the Nook in 2009, it began to erodeAmazons market share. The iPad itself
alsopromisedtointroducemorecompetitionwithorwithoutApplesiBookstore
10
11
12
Barnes&NoblebeforeAppleofferedawaytoswaptherigorsofcompetitionfor
13
thecomfortofcollusion.
14
15
16
necessarytobringmoreretailersintothemarkettochallengeAmazon,nordoes
17
the record evidence support this conclusion. More importantly, even if there
18
were such evidence, the fact that a competitors entry into the market is
103
monopolisticconductbythemarketsdominantfirm,whichcannotlawfullybe
challengedbycollusion)thatthecompetitorisinefficient,i.e.,thatitsentrywill
not enhance consumer welfare. For these reasons, I would reject the argument
benefitofthehorizontalpricefixingconspiracyitorchestrated.
b.OtherJustifications
Apart from its and other retailers entry into the market,Apple points to
10
Defendants, namely, eventual price decreases in the ebook industry and the
11
12
13
benefitsandtheconspiracyamongAppleandthePublisherDefendants.Apple,
14
952F.Supp.2dat694;seeNCAA,468U.S.at11315(concludingthattheneedto
15
coordinatetoproduceintercollegiateathleticswasnotrelatedtocoordinationon
16
televisionrights);XIAreeda&Hovenkamp,supra,1908b.
17
Whileitmaybetruethatebookpriceseventuallydeclinedindustrywide,
18
new publishers were adopting the digital format and prices were falling even
104
beforeApples entry into the market. Apple did not introduce any admissible
evidence linking the continued influx of new titles into the ebook market to its
forhowthispricefixingagreementalteredthebusinessandpricingdecisionsof
otherpublishersinaprocompetitivedirection.Thedistrictcourtsrefusaltogive
Applecreditforthesetrendswasthereforeproper.
backlittouchscreen,audioandvideocapabilities,andabilitytoofferconsumersa
10
ApplesoughttointroduceexperttestimonyfromDr.MichelleBurtis,whichit
believedwouldlinkcontinuedlongtermgrowthandpricechangestoitslaunchofthe
iBookstore.However,thedistrictcourtexcludedthistestimonyonthegroundsthatDr.
Burtis did not offer any scientifically sound analysis of the cause for this purported
price decline or seek to control for the factors that may have led to it. Apple, 952 F.
Supp.2dat694n.61.Thiswasnoabuseofdiscretion.SeeZeregaAve.Realty,571F.3dat
21213. [T]he proponent of expert testimony has the burden of establishing by a
preponderanceoftheevidencethattheexpertsopinionisbasedonsufficientfacts,is
the product of reliable principles and methods, and applies those principles and
methodsreliablytothefactsathand.UnitedStatesv.Williams,506F.3d151,160(2dCir.
2007);seeFed.R.Evid.702.Dr.Burtismerelycomparedtheaverageebookpricesfrom
the two years before Apples entry into the market with the average prices two years
after.Shedidnotaccountfortherapidgrowthandchangeinthatindustryorexplain
the process she used to determine whether Apples agency agreements were
responsibleforlowerprices.SeeGen.Elec.Co.v.Joiner,522U.S.136,146(1997);United
Statesv.Dukagjini,326F.3d45,54(2dCir.2003).Thedistrictcourtthereforeactedwell
withinitsdiscretioninexcludingDr.Burtisstestimony.
24
105
Appleswitnessestestified,thecompanyhadeveryintentionofbringingtheiPad
to market with or without the iBookstore. Moreover, Apple was not the only
entitythatcouldusetheiPadsnewfeaturestoenhancetheebookexperience
otherretailers,orthepublishersthemselves,couldhavedesignedandlaunched
ebook applications on the platform. The district court was correct not to score
thesehardwareinnovationsasprocompetitivebenefitsoftheagreementbetween
AppleandthePublisherDefendantstoraiseprices.
Accordingly,Iagreewiththedistrictcourtsdecisionthat,undertherule
10
11
applicabilityoftheperseruleinthiscontext,theanalysishereislargelyoffered
12
inresponsetothedissent.Ialsoconfidentlyjoinwithmyconcurringcolleague
13
14
violationof1oftheShermanAct.
15
III.TheInjunctiveOrder
16
Next,AppleandtwoofthePublisherDefendantsMacmillanandSimon
17
&SchusterchallengespecificportionsofthedistrictcourtsSeptember5,2013
18
injunctiveorder.Inparticular,MacmillanandSimon&Schusteraskustovacate
106
the provision which prohibits Apple, for a period of time, from entering
agreements with the Publisher Defendants that restrict its ability to set ebook
prices.S.P.A.205.Appleseparatelyseeksvacaturofaprovisionrequiringitto
applythesametermsandconditionstoebookapplicationsinitsAppStoreasit
compliancemonitor.Weaddresseachofthepartiesargumentsinturn.
A. MacmillanandSimon&Schuster
Apple shall not enter into or maintain any agreement with a Publisher
10
Defendantthatrestricts,limits,orimpedesApplesabilitytoset,alter,orreduce
11
the Retail Price of any Ebook or to offer price discounts or any other form of
12
promotions. S.P.A. 205. This prohibition began upon entry of the order and
13
expires at different times for each of the Publisher Defendants. The earliest
14
expiration date lifts the ban for agreements between Apple and Hachette
15
beginning 24 months after entry of the injunctive order. Expiration dates for
16
agreementswitheachoftheotherPublisherDefendantsarethensetinsixmonth
17
intervals,withSimon&Schustersbanexpiring36monthsafterentryofthefinal
18
judgmentandMacmillansbanendingafter48months.
IntheSeptember5,2013injunctiveorder,thedistrictcourtmandatedthat
107
Macmillan and Simon & Schuster seek vacatur of this prohibition. Both
publishers are subject to separate consent decrees, which prohibit them from
signingagreementswithanyebookretailerswhichrestricttheretailersabilityto
set,alter,orreduceebookprices,ortoofferpricediscounts.J.A.1126;J.A.
1148. The prohibition lasts two years for Simon & Schuster and 23 months for
injunctiveorderagainstApple,inlightoftheseconsentdecrees,isunlawfulfor
tworeasons.First,theycontendthattheinjunctiveorderimpermissiblymodifies
theirconsentdecreesbyextendingthetimeduringwhichtheycannotnegotiate
10
torestrictthepriceatwhichApplesellsebooks.25Second,theyarguethatDOJ
11
shouldhavebeenjudiciallyestoppedfromseekingaprohibitiononagreements
12
limitingApplesdiscountingauthoritythatlastslongerthantwoyearsbecause,
13
in the filings in support of the consent decrees, it argued that two years was a
14
15
objectionispersuasive.
Macmillan also contends that the injunctive order broadens the restrictions
imposed by its consent decree because the decree allows the company to set certain
limitsonpricediscounts,whichitcannolongersetforebookssoldbyApple.
25
108
Procedure60(b)establishesthegroundsforseekingrelieffromafinaljudgment,
decrees. Rufo v. Inmates of Suffolk Cnty. Jail, 502 U.S. 367, 37879 (1992); United
States v. Eastman Kodak Co., 63 F.3d 95, 101 (2d Cir. 1995). The rule adopts a
allowing alterations for any other reason that justifies relief. Fed. R. Civ. P.
60(b).[A]partyseekinganalterationunderthiscatchallprovisionbearsthe
10
11
modification.UnitedStatesv.SecyofHous.&UrbanDev.,239F.3d211,217(2d
12
Cir.2001).
13
14
courts injunctive order modified their consent decrees and therefore should
15
16
Macmillans and Simon & Schusters consent decrees prohibit them from
17
restricting any retailers authority to set prices. The injunctive order does not
18
alterthetermsofthosedecrees.Instead,itprovidesreliefagainstadifferentparty
ThePublisherDefendantsargumentrestsonthepremisethatthedistrict
109
agreements with any of the Publisher Defendants. The fact that the order also
has the effect of preventing the Publisher Defendants from restricting Apples
pricing authority does not render it [r]elief from a final judgment, order, or
contract[]. SEC v. Citigroup Global Mkts., Inc., 752 F.3d 285, 297 (2d Cir. 2014)
(internalquotationmarksomitted).Itsscopemustbediscernedwithinitsfour
corners, and not by reference to what might satisfy the purposes of one of the
10
partiestoit.UnitedStatesv.Armour&Co.,402U.S.673,682(1971);seealsoPerez
11
v.DanburyHosp.,347F.3d419,424(2dCir.2003).Aninjunctiveorderagainstan
12
entitythatisnotpartytotheconsentdecreeandneitherchangesthetermsofnor
13
interpretsthedecreedoesnotmodifythecontractandthereforedoesnotrequire
14
a Rule 60(b) motion. Indeed, as a practical matter, injunctions often alter the
15
optionsavailabletootherparties.Rule60(b)doesnotholddistrictcourtsissuing
16
injunctionstoahigherstandardsimplybecausetheinjunctionmayaffectrights
17
addressedinadifferentpartysconsentdecree.
110
better.Judicialestoppelisinvokedbyacourtatitsdiscretion,andisdesigned
deliberatelychangingpositionsaccordingtotheexigenciesofthemoment.New
Hampshire v. Maine, 532 U.S. 742, 74950 (2001) (citation omitted) (internal
heavilyonthespecificfactualcontext[]beforethecourt,wetypicallyconsider
whether the partys argument is clearly inconsistent with its earlier position,
10
position,andwhetherthepartyseekingtoassertaninconsistentpositionwould
11
deriveanunfairadvantageorimposeanunfairdetrimentontheopposingparty
12
ifnotestopped.Id.at75051(internalquotationmarksomitted);seealsoAdelphia
13
RecoveryTrustv.Goldman,Sachs&Co.,748F.3d110,116(2dCir.2014).[R]elief
14
isgrantedonlywhenthe...impactonjudicialintegrityiscertain.Republicof
15
Ecuador v. Chevron Corp., 638 F.3d 384, 397 (2d Cir. 2011) (internal quotation
16
marksomitted).
17
18
WeconcludethatDOJsargumentsinsupportoftheinjunctiveorderwere
111
support of the consent decrees, the Justice Department argued that a twoyear
considerthecontextsinwhichapparentlycontradictorystatementsaremadeto
Anesthesia Grp. of Onondaga, P.C., 369 F.3d 113, 119 (2d Cir. 2004). And here,
10
11
betweenthePublisherDefendantsandanyretailers.Theinjunctiveorder,onthe
12
otherhand,pertainedonlytothePublisherDefendantsagreementswithApple.
13
Given the extensive factfinding at trial about the relationship that Apple
14
developedwiththePublisherDefendantsanditswillingnesstocoordinatetheir
15
conspiracy,DOJhadabasisfordistinguishingthelengthoftherestrictionsinthe
16
consentdecreesfromthoseintheinjunctiveorder.Thiswasnotacaseofaparty
17
reversing courses, to the detriment of the legal system, simply because his
18
interestshavechanged.NewHampshire,532U.S.at749.
112
Furthermore, the district court did not approve the Justice Departments
requestforafiveyearbanonalldiscountingrestrictionsbetweenAppleandthe
system, which prevents Apple from agreeing to limit its pricing authority for
between24and48monthsdependingonthePublisherDefendant.Thedistrict
court imposed this interval system so there would be no point in time when
Applewouldberenegotiatingwithallofthepublisherdefendantsatonce[,and]
noonepointintimewhen[a]publisherdefendant[]couldbeassuredthatitwas
takingthesamebargainingpositionasitspeersvisvisApple.J.A.2376.This
10
independentrationalefortheinjunctiveorderensuresthatDOJsargumentdid
11
12
process.Simonv.SafeliteGlassCorp.,128F.3d68,72(2dCir.1997).
113
B. Apple
Apple,likeMacmillanandSimon&Schuster,objectstotheportionofthe
addition,thecompanyasksustovacateanotherprovision,whichrequiresitto
apply the same terms and conditions to the sale or distribution of an Ebook
App through Apples App Store as [it] applies to all other apps sold or
distributed through [the]App Store. S.P.A. 207. Apple contends that neither
provisionisnecessarytoprotectthepublic.26Wedisagree.
Apple also argues that the district courts decision to appoint a monitor to
supervisethecompanyscompliancewiththeinjunctionwentbeyonditspowersunder
theShermanActandviolatedbothFederalRuleofCivilProcedure53andseparation
ofpowers principles. Apple devoted only two conclusory sentences to these three
separate facial challenges to the district courts authority. We therefore deem the
argumentsforfeitedanddonotconsiderthem.Frankv.UnitedStates,78F.3d815,833
(2d Cir. 1996) (Issues not sufficiently argued are in general deemed waived and will
notbeconsidered on appeal.), vacated on othergrounds, 521U.S.1114 (1997);Zhangv.
Gonzales, 426 F.3d 540, 545 n.7 (2d Cir. 2005). We also note that, following Rule 53s
amendment in 2003, the Advisory Committee stated that [r]eliance on a master
appointed under that Rule is appropriate when a complex decree requires complex
policing,particularlywhenapartyhasprovedresistantorintransigent,andthatboth
theSupremeCourtandthisCourthaveapprovedsuchappointments.Fed.R.Civ.P.53
advisorycommitteesnote(2003Amendments)(citingLocal38oftheSheetMetalWorkers
Intl Assn v. E.E.O.C., 478 U.S. 421, 48182 (1986)); see also Republic of the Philippines v.
N.Y. Land Co., 852 F.2d 33, 3637 (2d Cir. 1988) (collecting cases). In light of this
background, it would be inappropriate to excuseApples failure to argueand for this
panel to entertain its facial challenges to the district courts authority on the scant
briefingbeforeus.
Judge Jacobs, who sat on a separate panel of this Court that considered an as
appliedchallengetothemonitorsconduct,contendsthattheinjunctionwarpstherole
26
114
reliefnecessarytoprotectthepublicfromfurtheranticompetitiveconductandto
U.S. 155, 170 (2004) (emphasis added). Thus, [w]hen the purpose to restrain
tradeappearsfromaclearviolationoflaw,itisnotnecessarythatalluntraveled
roadstothatendbeleftopenandthatonlythewornonebeclosed.IntlSaltCo.
v. United States, 332 U.S. 392, 400 (1947), abrogated on other grounds by Ill. Tool
WorksInc.v.IndependentInk,Inc.,547U.S.28(2006).Thedistrictcourthaslarge
discretiontomodel[its]judgmentstofittheexigenciesoftheparticularcase,id.,
10
and all doubts about the remedy are to be resolved in [the Governments]
11
favor,UnitedStatesv.E.I.duPontdeNemours&Co.,366U.S.316,334(1961).
12
13
give up its pricing authority and to require thatApple treat ebook applications
14
thesamewaythatittreatsotherapplications.Applerelinquisheditsauthorityto
ThedistrictcourtwaswellwithinitsdiscretiontorestrictApplesabilityto
ofaneutral,courtappointedrefereeintothatofanadversaryparty.DissentingOp.at
36. Whatever the merits of this argument, it is not properly before us on this appeal.
Here,Applehasassertedonly(andwithoutargumentationofanysort)thatappointing
a monitor, in general, violates the Sherman Act, Rule 53, and separationofpowers
principles. The dissents position eschews that broad facial challenge and instead
focuses on the conduct of the monitor in this particular case, drawing entirely on a
record not before this panel, but presented to a separate panel in another appeal. See
United States v. Apple Inc., 2015 WL 3405534 (2d Cir. 2015). We do not believe it is
propertoresolvethisappealwithreferencetoargumentsthatApplehasfailedtomake.
115
set prices as part of its conspiracy with the Publisher Defendants. By delaying
injunctiveorderensuredthatAppleandthePublisherDefendantswouldnotbe
able to use that same strategy as part of a new conspiracy. The provision
requiring ebook applications in the App Store to receive the same terms and
conditionsasotherapplicationsfurthersthatgoal.Thedistrictcourtexpressed
concernthatAppleandthePublisherDefendantsmayuseebookapplicationsto
circumventtheinjunctionsrulesaboutApplespricingauthority,orthatApple
10
mayimposerestrictionsonebookapplicationstopunishpublisherswhorefused
11
toactinconcertwiththeircompetitors.Forinstance,thecourtfoundevidence
12
thatRandomHouseeventuallyjoinedtheiBookstoreonApplesdesiredtermsin
13
partbecauseApplepreventedthecompanyfromlaunchinganebookapplication
14
in the App Store. The district court was therefore correct to decide that these
15
provisions of the injunctive order were necessary to protect the public from
16
furtheranticompetitiveconduct.F.HoffmannLaRoche,542U.S.at170.
116
CONCLUSION
Wehaveconsideredtheappellantsremainingargumentsandfindthemto
bewithoutmerit.BecauseweconcludethatAppleviolated1oftheSherman
ActbyorchestratingahorizontalconspiracyamongthePublisherDefendantsto
raise ebook prices, and that the injunctive relief ordered by the district court is
judgmentofthedistrictcourtisAFFIRMED.
117