updated 07:11 pm EDT, Fri August 1, 2014
Raised concerns about 'escape clauses' but gives tenative OK to deal
Having just raised doubts about the fairness of the proposed settlement between Apple and a coalition of states' attorneys general and consumer groups over the alleged e-book "price fixing" scandal, US District Judge Denise Cote has apparently reconsidered the deal and given a tentative okay to the settlement, which would see Apple pay $450 million to resolve the civil claims, with a catch: Apple would only pay a total of $70 million if the case gets remanded on appeal, or nothing at all if Cote's guilty verdict is reversed.
Cote found Apple guilty last year in a bench trial of conspiring with publishers to change to an "agency model" of pricing e-books that was intended to fight Amazon's monopolistic loss-leader pricing, which publisher were (correctly) convinced would permanently devalue e-books and eventually force them into a hostage situation where Amazon was the only viable outlet and demanded unsustainable cuts in wholesale pricing. Emboldened by the verdict against Apple, Amazon has restarted a program of bullying publishers to gain concessions, exactly as former Apple CEO Steve Jobs predicted it would in 2010.
Cote had previously expressed concern with the clauses in the proposed settlement that allowed Apple to escape any significant penalties -- or any penalties at all -- if the case was remanded back to Cote's court or thrown out altogether. Under the terms she cited as problematic, "any technicality" could result in the Appeals Court returning the case to Cote for re-examination, reducing Apple's penalty to just $50 million in damages and $20 million in attorney's fees.
Should Apple be able to get its conviction reversed, it would not have to pay anything at all to the 33 states and consumer groups in the class-action suit. The publishers in the case had previously already settled with both the US Department of Justice and the states, both under protest and without admitting any wrongdoing, to the tune of $166 million.
Legal scholars believe Apple has a strong case for at least a re-examination of the original verdict, with numerous judicial errors, contradicted testimony and the subsequent actions of the e-book market and Amazon helping Apple make its case. Antitrust experts in particular were outraged at the verdict, as under that section of the law it should be impossible for a "vertical" reseller (like Apple) to join a "horizontal" conspiracy amongst publishers. Cote also ignored evidence that other booksellers had previously urged publishers to force Amazon to use the "agency" model (where publishers set prices) before Apple even began planning its iBookstore business, as Amazon's predatory pricing at the time was preventing competitors from joining the market.
Despite their being no changes made to the agreement between Apple and the states, Cote today gave the settlement a preliminary approval, saying there is "probable cause to find that the proposed settlement agreement is within the range of those that may be approved as fair and reasonable," Bloomberg reports. Final approval or rejection will come at a hearing set for November 21, and Apple would not be on the hook for any money until the appeal against Cote's verdict is heard and ruled on.