Apple Faces $840 Million E-Books Claim, Fights Monitor

Apple Inc. faces as much as $840 million in state and consumer antitrust claims related to electronic-book deals with publishers as it continues to oppose a court-ordered monitor in a related U.S. government case.

Apple, in an emergency request to be considered tomorrow by a federal appeals court in New York, is seeking to halt oversight by Michael Bromwich, the court-appointed compliance monitor in the Justice Department’s lawsuit.

State attorneys general and consumers who sued the world’s most valuable technology company are seeking $280 million in damages and want that amount tripled, a lawyer for them said in a Jan. 31 filing with the Manhattan judge presiding over the federal case.

The plaintiffs said they’re entitled to triple damages under antitrust law because the U.S. had already “conclusively proven” at a trial last year that Apple orchestrated a conspiracy to fix prices. The amount sought is 0.5 percent of the $158.8 billion in cash that the Cupertino, California-based company reported that it had as of the end of 2013.

Sales of e-books, music, movies and software and services were $12.9 billion in 2012, 8.2 percent of Apple’s total revenue. Apple introduced e-books in 2010 to boost the appeal of the newly unveiled iPad tablet as a reading device.

U.S. District Judge Denise Cote concluded in July after a nonjury trial that Apple orchestrated a scheme with publishers to fix the prices of e-books. Cote also found Apple liable to 33 states that joined the U.S. Justice Department in its suit. The Justice Department didn’t ask for money damages in its case.

Apple Monitor

Bromwich, a former Justice Department inspector general, was accused by Apple of taking inappropriate actions and overbilling.

“The monitorship the district court imposed on Apple is unprecedented, impermissible and unconstitutional,” Apple said in an appeals court filing.

“The court authorized the monitor to exercise authority that is not ‘judicial’; to engage in ex parte discussions with the plaintiffs, even while the state plaintiffs are seeking hundreds of millions of dollars from Apple in another proceeding; to incur significant and unrecoverable fees that Apple is supposed to pay; and to interview anyone at Apple and demand any Apple documents,” the company said.

Cote refused to put the monitor’s work on hold, saying in a Jan. 13 ruling that Apple failed to show how it’s in the public interest.

Temporary Reprieve

A federal appeals court judge on Jan. 21 granted Apple a temporary reprieve from the monitor until the panel of appeals court judges could hear its bid for a longer stay.

Cote said she will hold a trial this year on the damages sought by the states. While almost all the documents filed by the states and Apple have been redacted or filed under seal, the plaintiffs said in a memo to Cote “the conspiracy caused widespread antitrust injury to e-book consumers” that an expert set at at least $280 million.

Kristin Huguet, a spokeswoman for Apple, declined to comment on the filing.

The U.S. sued Apple and five publishers in April 2012, claiming the maker of the iPad pushed publishers to sign agreements letting it sell digital copies of their books under what’s known as the agency model. Under that model, publishers, and not retailers, set prices for each book, with Apple getting 30 percent. Apple was the last defendant left in the case after the publishers avoided trial by settling.

After the trial Cote concluded “the publisher defendants conspired with each other to eliminate retail price competition in order to raise e-book prices, and that Apple played a central role in facilitating and executing that conspiracy.”

50 Percent

The judge found that because of the conspiracy, “the prices in the nascent e-book industry shifted upward, in some cases 50 percent or more or an individual title.”

Apple is appealing the trial judgment.

The plaintiffs, in their Jan. 31 filing, asked Cote to issue a ruling before the damages trial ordering the $280 million penalty to be tripled, based on her conclusions in the government case.

In arguing for triple damages, they cite Cote’s ruling last year in finding that Apple’s conduct led to higher consumer prices for e-books and that consumers suffered from this scheme to eliminate retail price competition and the raising of e-book prices.

Cote concluded some consumers paid more for e-books or bought cheaper ones than those they preferred, while still others deferred purchases altogether rather than pay higher prices.

“The three cases pending before this court allege the same conspiracy, by the same conspirators, with the same goals, methods, and effects,” Steven Berman, a lawyer for the plaintiffs, wrote.

The lower-court case is U.S. v. Apple Inc., 12-cv-02826, U.S. District Court, Southern District of New York (Manhattan).

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