Apple’s E-Book Battle: I Was Wrong

The Supreme Court today punted on the e-book case, U.S.A. v. Apple.

I’m not a lawyer, an expert on the Supreme Court, or an Apple insider. But I sat through the original trial and the appeal, and I have three final thoughts:

  1. This was tricky case—one raising tough questions about how to apply 19th century antitrust laws to 21st century digital markets. I’m sorry the court declined to hear it.
  2. I wonder whether Judge Scalia’s absence was a factor. Will the rump Court be less inclined to sink its teeth into other tricky cases, like Apple vs. FBI?
  3. This doesn’t help Eddy Cue. (See below.)

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Otherwise, I have nothing to add to what I wrote nearly three years ago when U.S. District Judge Denise Cote issued her ruling. I thought the district court judge was coming around to Apple’s point of view. I was wrong.

Here’s that story, from July 2013:

The benches were hard. The courtroom was over-cooled. The reporting challenges were daunting (no Wi-Fi, no cellphones, no laptops). But the drama that unfolded over three weeks of testimony was compelling, and I was happy to be one of a handful of reporters who sat through the whole thing.

I thought I had a good handle on Apple vs. United States, a.k.a. the e-book antitrust case. I knew Judge Cote—a former prosecutor—had gone into the trial predisposed against the defendant. She said as much in a pre-trial hearing.

But I thought Apple (AAPL) had put forward a strong defense. Like the Author’s Guild and at least one U.S. Senator, I thought the government was prosecuting the wrong company. At several points during the trial, I thought the judge was coming around to Apple’s point of view.

Having read Judge Cote’s 160-page opinion, in which she questioned the credibility of Apple’s key witness, ridiculed its legal defense, and ruled decisively against the company, I see that my view from the benches wasn’t so good after all.

For more about Apple’s $450 million antitrust suit, watch:

How could I have been so wrong? In my post-game analysis, I see several factors that led me astray.

  • The Amazon factor: The context of the case, as I saw it, was Amazon’s (AMZN) monopoly control of the e-book market and the predatory $9.99 pricing rendering it impossible for Apple, Barnes & Noble (BKS), or anyone else to enter the market without selling its own e-books at a loss. But as many readers have correctly pointed out, Apple was on trial, not Amazon.
  • The publishing factor: Having worked in book publishing, I know how low the wages are, how thin the margins are, and what a crapshoot the bestseller game can be. Judge Cote may be an avid reader (she quoted an Emily Dickinson poem in an earlier e-book decision), but she came into the trial convinced that the publishers had colluded to raise the price of e-books and saw Apple’s role in that framework. Otherwise, why would they have agreed to the settlements she supervised?
  • The Cue factor: I may be a sucker for a skilled negotiator, but I found Eddy Cue—Steve Jobs’s point man in the e-book deals—to be an unusually credible witness. Judge Cote did not, as she makes clear in a series of acid footnotes. “Cue’s denial of prior knowledge of Sargent’s trip to Amazon,” she writes in No. 47, “was particularly brazen.”
  • The lawyering factor: The government’s lawyers, while competent, seemed plodding compared with Apple’s legal team, which wove complex legal arguments based on recent Supreme Court rulings that had me—but clearly not the judge—convinced. It didn’t help my objectivity that Apple’s lawyers were happy to talk on background, spinning the case their way. The only comment a government lawyer made was that in one of my stories, I’d misspelled his name.
  • The law: I am not a lawyer. Even if I were, antitrust law is a beast unto itself understood only by antitrust experts—and even they don’t agree among themselves. It seemed to me that there is fundamental difference between competitors forming a horizontal agreement to fix prices, and a vertical player negotiating deals to enter the business. It also seemed to me that there’s a difference between forcing companies to switch business models and writing a contract that creates a strong incentive for them to so. Judge Cote disagreed on both points. An appeals court may see things differently [in fact, they split 2-1 against Apple].


At this point, what do I know?

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