Apple Faces Harsh Terms in Its E-Book Defense
Photograph by Justin Sullivan/Getty Images
Fresh controversy over Apple’s (AAPL) role in an alleged e-book conspiracy has raised questions about U.S. District Judge Denise Cote’s handling of the case and even led the Wall Street Journal to editorialize that Cote is a “disgrace” and to call for her removal.
These are harsh words but, according to antitrust experts, the judge may indeed be out of line. More broadly, it’s starting to look as if the overall investigation got out of hand, with an overzealous judge and the U.S. Justice Department turning Apple into a victim and the case into a farce.
The latest controversy arose after Cote appointed a monitor to oversee Apple’s compliance with a series of antitrust measures. She imposed monitor Michael Bromwich as part of a ruling this summer in which she found Apple was the mastermind of an illegal conspiracy by publishers to fix the price of e-books.
Apple will file briefs before the Second Circuit appeals court in February. In the meantime the company is asking Cote to review Bromwich’s conduct. According to Apple, Bromwich overstepped his authority by demanding immediate interviews with every important person tied to Apple—including Chief Executive Officer Tim Cook, designer Jony Ive, and board member and former U.S. Vice President Al Gore—and by going over the head of Apple’s lawyers and approaching its board members directly.
Apple, which is paying for the monitor, also balked at the $138,432 that Bromwich charged for his first two weeks of work. The company claimed that Bromwich’s $1,100 hourly rate (plus $1,025 for a sidekick) is unreasonable—especially because he lacks a background in antitrust issues, which is what the case is about. Apple is also vexed about Bromwich’s law firm having boasted about his appointment in a press release.
As Fortune has pointed out, money isn’t the issue for Apple, whose prime target is Judge Cote, whom it contends hasn’t given the company a fair shake. Recall that Cote publicly declared this summer that she “was leaning” to side with the government before the price-fixing trial even started.
Whatever the merits of Apple’s legal claims, its filings about the monitor have earned the sympathy of media outlets, which have published stories questioning Bromwich’s conduct in the case.
The most damning account to date has been “Apple’s Star Chamber,” a Wall Street Journal editorial that describes Bromwich as Cote’s friend. It called the monitor a “greenhorn” and asked: “Does he want to disinter Steve Jobs too?”
The Journal has long been skeptical about the antitrust investigation, but the paper’s criticism of Cote is extraordinarily harsh. It says Cote’s arrangements with the monitor are unconstitutional and concludes: “[S]he is giving her friend whatever he wants. The Second Circuit where her ruling is on appeal should remove her from the case. Her condominium with Mr. Bromwich is offensive to the rule of law and a disgrace to the judiciary.”
The fuss over Bromwich has some suggesting that Apple is being a bad sport: The company can’t accept that it broke the law and won’t accept its punishment, they suggest. It turns out, however, that Apple has good reason to gripe.
The main problem with Judge Cote’s Apple arrangement isn’t that Bromwich is unqualified, but that he’s going way beyond what monitors are supposed to do. According to Andre Barlow, an antitrust expert and former Justice Department lawyer, monitors are typically attorneys or industry specialists—unlike Bromwich—who watch to make sure a company is complying with specific rules.
“It is not normal for a monitor to act like a special prosecutor with investigation powers over the entire company,” Barlow says. “The monitor’s role should be limited to the order related to the antitrust issue and he should not have the power to investigate the entire company for matters unrelated to making sure the decree is carried out.”
The Bromwich situation is also unusual because monitors or “special masters” are typically appointed under a consent order, which come as part of a settlement. In this case, there is no consent order because Apple has not settled anything and is still fighting the case. Bromwich is not monitoring compliance, but trying to launch an active investigation.
Barlow and legal scholars also note that monitors are usually appointed in antitrust cases that involve mergers when an agency wants to verify that a company has gotten rid of certain assets. In this case, it appears that Bromwich wants to rummage around Apple’s business in general; indeed, the agency pricing system that originally got Apple in trouble was dropped months ago by publishers.
When you think of antitrust cases, the classic examples are those of Standard Oil or AT&T—massive companies accused of abusing monopolies until the government chose to intervene. It’s hard to see Apple and the e-book market the same way.
Although Apple is a large company, its presence in the e-book market was (and is) negligible. If you ask someone to name a big e-book retailer, it’s a safe bet they’ll name a different company whose name also starts with “A.” That doesn’t give Apple the right to organize price-fixing conspiracies (the Second Circuit is slated to confirm if the company did so), but the zeal to punish Apple by Cote and the Justice Department is starting to feel tired.
Don’t forget that Apple is still neck-deep in two related legal pile-ups involving e-books: Attorneys general in 33 states are suing Apple for money and the company also has class action lawyers hanging around its neck, with no end in sight.
Apple and its army of lawyers regularly show that they will throw down for lawsuits anywhere, anytime, and will fight to the last comma. This is not an endearing quality, and it may have exacerbated the company’s current misery with Cote and the Justice Department. But in the case of the e-books, the investigation risks becoming a farce. It’s time to leave Apple in peace while it pursues its appeal.
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