updated 01:21 am EDT, Tue June 17, 2014
Payout contingent on result of Apple's appeal of original verdict
Attorneys representing some 33 US states and territories along with some consumer groups on Monday filed a document with the court offering to settle the class-action lawsuit against Apple over alleged e-book price-fixing. The filing notes that all parties involved have agreed to the settlement, leaving Judge Denise Cote will little justification to deny it. Specific amounts were not mentioned in the agreement -- and in what could be a brilliant legal move, Apple's payment of anything is contingent on the verdict of the appeals court.
Cote has already acknowledged the letter by halting a trial scheduled for July that was set to determine damages, based on her original verdict in the federal e-book case. The consortium of plaintiffs was seeking as much as $280 million in damages from the alleged actions, but a willful finding (which seemed likely with Judge Cote again presiding) would have tripled the damages to as much as $840 million.
Specifics of the deal are currently sealed, pending a final settlement agreement that the court must approve -- which must be filed within the next 30 days. As part of the agreement filed today, however, any payment by Apple to the state attorneys general or the consumer groups depends on the finding of the appeal. Apple believes it has a strong case (supported by others) for winning at least a partial reversal of Judge Cote's decision, which has been widely criticized for both not being grounded in antitrust law as well as being a case of judicial overreach. If Apple does win on appeal, it may end up owing nothing to the civil litigants.
The company, which has vociferously denied any wrongdoing, was convicted by Cote in a bench trial of conspiring with publishers to push Amazon, then as now the dominant e-book seller online, into using a more publisher-friendly "agency" model of pricing (where the publishers can set the online price of books, sales and temporary promotions excluded) rather than Amazon's "wholesale" model, where the retailer bought books at an agreed on "wholesale" rate and then priced them as it wished.
Publishers were unhappy with Amazon because it was engaging in predatory loss-leader pricing of e-books in an effort to build the market and sell more of its own Kindle e-readers. As it has now begun doing again, Amazon would use its monopoly position to then renegotiate lower wholesale prices, hoping to boost profits but putting an economic squeeze on suppliers - exactly as publishers and critics predicted. It has now escalated an ongoing feud with Hatchette and opened up a new front against Bonnier Media Group. Various authors and the Author's Guild has openly accused the company of violating Section 2 of the Sherman Antitrust Act itself, though the DOJ has thus far been mute regarding Amazon.
In court, numerous witnesses testified that moves were afoot among the publishers to put pressure on Amazon to revert to an agency model before Apple even began talking to publishers -- however, Judge Cote and the US Department of Justice discounted that testimony, and instead ruled that Apple had led the publishers in a conspiracy that sought to damage Amazon and raise bestselling e-book prices on consumers, though in fact e-book prices did and continue to fall on average.
Apple has had mixed results in attempting to roll back Judge Cote's draconian punishments. It was successfully able to reverse some of the more onerous aspects of the antitrust monitoring Judge Cote imposed, but not remove the monitor entirely (or at least until after the appeal was concluded, if still required). Much of her judgement, however, is still in force, including the barring of Apple from entering into any new agreements with publishers and other competitive disadvantages that have effectively handed back a monopoly on e-book sales to Amazon -- which the e-tailer is now openly abusing to wrangle better deals with publishers and other content providers, including Warner Bros.
The iPhone maker has had no luck at all in getting Judge Cote to dismiss or delay the class-action suit, but the new agreement may not only avoid any trebling of damages, but provide an end-run around the judge and the lawsuit itself, if Apple can manage a reversal on appeal to the Second Circuit Court of Appeal -- the same panel of judges that largely de-fanged Cote's antitrust appointee.