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Judge Cote Swats Apple, Orders Antitrust Monitor to Stay and Monitor

Somejudge_denise_cote_small[1] companies know when to throw in the towel on a lost fight, but not Apple.

They were back in court again today so Judge Cote could settle Apple’s latest disagreements with the DOJ and Michael Bromwich, the court-appointed antitrust monitor, and it did not go well for Apple.

According to Reuters:

Apple Inc lost a bid on Monday to block an antitrust monitor appointed after a judge’s finding that the company conspired to fix e-book prices. At a hearing, U.S. District Judge Denise Cote in Manhattan denied Apple’s request to stay an order requiring an external compliance monitor pending the company’s appeal.

"I want the monitorship to succeed for Apple," she said.

The judge also said there was "nothing improper" about a declaration filed by a lawyer chosen to serve as monitor, Michael Bromwich, that became the basis of Apple seeking his disqualification. Cote said she will promptly issue a decision explaining her reasoning. Apple will then have 48 hours to seek an emergency stay from the federal appeals court in New York, she said.

Apple will of course appeal this ruling, but I doubt that their appeal is going to accomplish anything.

Apple has never reconciled to the fact that they lost the antitrust lawsuit last July. As you probably recall, Judge Cote ruled that Apple had brokered a conspiracy so 5 US publishers could control and raise ebook prices. The publishers settled before going to trial, but Apple decided to tough it out and they lost. As a result of that loss the judge appointed an antitrust monitor whose job was to observe and monitor Apple’s internal efforts to correct the patterns of behavior that led to their past misdeeds.

Judge Cote assigned Michael Bromwich to the position in October,  and Apple has not stopped complaining ever since. They’re not happy about the fees he’s charging or his repeated requests to interview senior management at Apple. The tech company even filed a brief in late November which made a public spectacle of their fight with Bromwich, but their grandstanding accomplished absolutely nothing when they met with the judge the following week.

Judge Cote directed Apple to take their complaints about Bromwich to the DOJ. Unfortunately, Apple wasn’t any more willing to get along with the DOJ than they were with Bromwich, and as a result Judge Cote ordered both parties back into court today.

Apple lost again, but I don’t expect that to stop them. They had already vowed to appeal the July ruling, and we know that they will appeal today’s ruling.  Would anyone care to lay odds on whether either appeal will succeed?

Today’s ruling is almost certainly going to stand, but the July ruling could possibly be overturned or modified. There’s some reason to question whether Judge Cote pre-judged the case, and that might be enough to sway an appeals court. But that appeal has not yet been filed by Apple, so at this point it is little more than speculation.

I must say, when Apple lost the case in July I thought we would be in for a dry and dull period as apple licked their wounds and then moved on. Instead Apple has turned this into a media spectacle in which they keep being told that they are wrong and the DOJ and the court-appointed monitor are right. And just to make things even more fun, Apple’s ongoing media spectacle is generating all sorts of media coverage (like yesterday’s article).

It’s quite entertaining, don’t you think?

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Mackay Bell January 13, 2014 um 11:21 pm

It will be entertaining to see how this plays out.

Apple long ago gave up on this judge, so her rulings are irrelevant at this stage, other than to position Apple’s appeal. And, except for The Digital Reader, Apple is winning the argument in the press that the judge was biased and made a bad decision that hurt competition. They’ve also succeeded in completely marginalizing the court appointed monitor. So much of his dreams of breaking bread with Al Gore and Jony Ive.

Given that the current Supreme Court is very pro-business, it seems likely Apple will eventually win if they are willing to take this all the way, which clearly they are.

Chris Meadows January 14, 2014 um 2:19 am

Amazon is a business too, y’know. 🙂

Mackay Bell January 14, 2014 um 3:47 am

Yep, it is. But supposedly this isn’t about Apple vs. Amazon, but about Apple somehow violating anti-trust laws by attempting to enter a market that is already dominated by a company that is selling items at a loss. How that violates anti-trust is a mystery.

But the Supreme Court can rule in favor of Apple without commenting on Amazon’s market share, or taking a stand one way or another about Amazon.

Uneducated Guess January 14, 2014 um 4:50 am

So in your opinion it’s good for consumers to have companies conspire to fix prices, and bad if one company just offers a better service at a lower price and thus has the most customers? Good thing you don’t write antitrust laws.

As Nate has said millions of times: "Judge Cote ruled that Apple had brokered a conspiracy so 5 US publishers could control and raise ebook prices."

Brokered a conspiracy to control and raise prices. Illegal.

New Name Same Guy January 14, 2014 um 4:53 am

Or maybe so each US publisher could control its own prices rather than Amazon controlling them.

Uneducated Guess January 14, 2014 um 5:00 am

The ends don’t justify the means. Amazon is a retailer and can set its prices. Agency pricing is legal too. Conspiracy is not legal.

New Name Same Guy January 14, 2014 um 4:43 am

LOL, "lawyers get paid a lot of money". Nate forgot to include that quote.
No surprise here. Cote is all in on her own corruption. She’ll play this out as long as she can and then when she loses she’ll retire and get hired by Amazon and she’ll hire Bromwich too.

Chris Meadows January 14, 2014 um 9:02 am

I’m rather looking forward to later this week, when Apple (presumably) files its request for an emergency stay with the appeals court. When the appeals court weighs in on whether the monitorship goes ahead or not, it should give us a pretty good idea of just how the appeals court is inclined to see the judge’s decision: did she indeed dot every "i" and cross every "t" for an effectively airtight ruling the way some legal experts have been saying? Or has she overstepped and revealed bias, the way other people have said? We should get our first hint in just a few days.

New Name Same Guy January 14, 2014 um 9:13 am

Yes we will.
I don’t think there is any doubt that Bromwich’s wings will tied at a minimum for reasons that have nothing to do with Apple and everything to do with Wall Street in general.

All this could have been avoided if the judge stepped out of her fool’s paradise.

Q January 14, 2014 um 10:27 am

Man, I hope Apple is getting charged serious court fees. They’re wasting time and money that they should be spending on making their products better.

Chris Meadows January 15, 2014 um 12:19 am

There’s another writeup with a lot more detail at:

The best thing about all this, as one of the commenters at The Passive Voice pointed out to me, is that Bromwich actually was abiding by the final order, which Apple’s attorneys not only signed off on, but had a hand in crafting.

It’s all there in black and white on page 13 (emphasis added by me):

The External Compliance Monitor may […] interview, either informally or on the record, any Apple personnel, who may have counsel present; any such interview to be subject to the reasonable convenience of such personnel and without restraint or interference by Apple.

The order basically gives Bromwich the power to interview anyone who works at Apple, from the janitors all the way up to the CEO. And Apple was complaining when he actually tried to use it.

Nate Hoffelder January 15, 2014 um 8:03 am

Thanks for linking to that. I hadn’t seen it yet.

New Name Same Guy January 15, 2014 um 1:43 am

LOL – I am not going to read everything, but the PW article has this quote, " Cote held that Bromwich’s actions were in fact within the bounds of his narrow mandate to help Apple craft a suitable antitrust training program," which would in effect modify "The External Compliance Monitor may […] interview, either informally or on the record, any Apple personnel, who may have counsel present…" to mean in the pursuit of the narrow mandate.
BTW you and Meadows have claimed that apart from the Apple press no one else is supporting Apple’s view. Well you will have to kill that now:
LOL, the whole deal was started by a Seattle lawyer – surprise surprise!
And this article goes a long way to discrediting everything about the government case and Amazon’s business practices.
Perhaps the Judge and Bromwich will be wearing blue stripes soon if indeed there is actually corruption involved here. It seems one of the ex-DOJ lawyers now works for Amazon too.

fjtorres January 15, 2014 um 5:48 am

So everybody who lives in Seattle is in Amazon’s pocket?
Tell that to the Microsofties.
Or these guys:

Tinfoil time!

Nate Hoffelder January 15, 2014 um 7:25 am has long been in the Amazon is evil camp and that article (like Salon’s previous articles) got a lot of details wrong:

"the whole deal was started by a Seattle lawyer"
Nope. This is one of the details that Salon intentionally got wrong.

New Name Same Guy January 15, 2014 um 8:19 am

What do you mean? It’s all over the law firm’s web site?
Amazon stockholder relationship goes back to 2001

LOL you are in total denial. The same law firm representing Amazon stockholders in 2001 coincidently files a lawsuit against Apple’s ebook pricing in 2011 – that’s what you want the world to believe???

Obviously their clients in 2011 had to be individuals but how much you want to bet they are or are connected to Amazon stockholders.

The case is going south when an adult assumes responsibility.

Nate Hoffelder January 15, 2014 um 8:26 am

The whole "started by a Seattle lawyer" point is nonsense. It ignore the investigations that the state’s attorney generals started in mid-2010. Go read my post.

And I think you should take a moment and think about that earlier lawsuit. It sounds like you think that lawyer is an Amazon patsy because he represented stockholders at one point. But he was suing the company, so I don’t see how that could be.

New Name Same Guy January 15, 2014 um 9:42 am

The states thought Amazon was involved and they never filed a suit.
Your link:

Regarding selling at a loss, Amazon’s PE is 1,440.36 and EPS is 28¢.
Net income (loss) is ($39,000,000)
Apple’s PE is 13.62 and EPS is $40.11
Net income is $37,000,000,000
Not much evidence that Amazon is selling anything at a profit LOL.

So it looks to me that once Amazon dropped out of the arrangement the law firm filed (August 2011) suit and then the Justice Department got involved afterwards (April 2012).

So basically you are wrong and a big hat tip to you Nate for the useful links!

Nate Hoffelder January 15, 2014 um 9:55 am

"never filed a suit"

You could not be more wrong short of blaming it on fairies.

It’s funny how the states got a settlement from the 5 publishers without filing a lawsuit. Please note that the website says that the Apple lawsuit is ongoing (the site needs to be updated, obviously). And you should look at this filing in particular:

So the states didn’t file suit, hmmmm?

New Name Same Guy January 15, 2014 um 6:10 am

LOL, it’s a fact that the firm represents Amazon stockholders ha ha….

New Name Same Guy January 15, 2014 um 10:03 am

OK one fact confused – they filed with the Feds and after the law firm got involved so my sequence of events is correct and disproves your point.
I am betting when Amazon put itself in the clear in the investigation they keenly got involved through proxies to help give it a kick.
You can not clear Amazon from being involved.
And you can’t show Amazon is not selling the books at a loss as they aren’t making any profits.

Nate Hoffelder January 15, 2014 um 10:24 am

No, your sequence of events is still wrong. The states investigated starting in 2010 and participated in the lawsuit filed in 2012. How exactly is that 20 month long investigation after the law firm got involved?

"And you can’t show Amazon is not selling the books at a loss as they aren’t making any profits."

Wrong again. The DOJ said otherwise in their filings, and the judge concurred:

And you need to come up with a good explanation for how this law firm hoodwinked that many state attorneys general and the DOJ into suing Apple, otherwise your conspiracy theory falls apart. (You should probably loosen that tinfoil hat.)

New Name Same Guy January 15, 2014 um 10:31 am

The states didn’t file suit in 2010.
They didn’t file suit in 2011.
The law firm filed suit in 2011. <- Amazon get's involved here.
The feds and the states filed suit in 2012.

Regarding Amazon's profits, the prosecutors may have proved it to themselves and Judge Cote, but time will tell if anyone else agrees. But ONE THING IS FOR CERTAIN – if they are making profits then somewhere else they are making even greater losses than is indicated. Why are they letting that happen? LOL – there are no profits. Just red ink.

Nate Hoffelder January 15, 2014 um 10:38 am

"But ONE THING IS FOR CERTAIN – if they are making profits then somewhere else they are making even greater losses than is indicated. Why are they letting that happen? LOL – there are no profits. Just red ink."

I cannot believe you are this uninformed. Amazon has been generating a positive cash flow for well over a decade now. The reason that cash flow doesn’t translate into profits is that Amazon invests in new tech, new startups, and other ways to boost Amazon’s revenues.

And you still have not proven your rather ambitious conspiracy theory. How exactly did one law firm hoodwink the DOJ and 50 state attorneys general?

Chris Meadows January 15, 2014 um 10:34 am

If Amazon wasn’t making any money, how do you think they got so big?

Amazon "isn’t making a profit" because it’s immediately plowing all its revenues back into more improvements. Kind of like when you play a real-time strategy game. You often end up with very few resources early in the game, because you’re immediately plowing them back into building more stuff as soon as you get them.

Amazon showed its books to the DoJ, and the DoJ determined that they were, in fact, doing what they testified in court they were: pricing only the newest bestsellers at $9.99 to lure people into buying stuff. The "long tail" of other stories (like all the other books written by the author for whom that $9.99 bestseller is only the latest) are all priced well over wholesale. If Amazon loses $4 on one e-book, then makes $2 each for the five other e-books a customer buys after that, then overall it’s come out $6 ahead. And that played out all across the thousands and thousands of people buying those e-books.

That’s what it’s still doing, even now. Look at John Scalzi’s Old Man’s War series. Early e-books in the series are priced at $5.99, on a $7.99 paperback list price. If we assume it’s getting the same 50% wholesale cut for those, it’s making $2 per book. But the latest book is $10.99 on a $25.99 hardcover. So it’s losing $2 on that book (assuming the 50% of retail wholesale), making $2 on each earlier book in the series. If it were trying to sell everything at a loss, it would be selling those older books at $2 each, too.

That’s clever marketing. Lose a little money up front, make it in spades on the back end. The publishers might be unhappy about seeing their latest and greatest books priced cheaply as loss leaders, but they’re not the ones trying to get the consumers to buy them. The DoJ went away satisfied. Of course, they didn’t make the information available publicly because Amazon’s not the one on trial here, and Amazon generally doesn’t make anything public it doesn’t have to because competitors could use that information to get ahead.

Not that I really expect this to change your mind, of course.

Paul January 16, 2014 um 2:28 pm

The first comment in this piece explains how Amazon can undercut other businesses and still make some profit.

Nate Hoffelder January 16, 2014 um 2:57 pm

No, it does not, and frankly that whole comment is a waste of time to read. His proposed deceptive business practices lawsuit is idiotic. Amazon might be gouging but they are quite open about it. There is no deception involved.

New Name Same Guy January 15, 2014 um 10:47 am

LOL you’ve got to be kidding??
Since Amazon’s revenues were $61 billion in 2012, that’s an awfully big plow.
Not buying it – sorry.

And the trend is away from profits so perhaps one can even find a statistical link between the growth of Amazon’s Epub business and the growing corporate loses.
Cash flow is not profit and the two should not be confused.

New Name Same Guy January 15, 2014 um 11:05 am

BTW reinvesting money does not lower profits as investments are depreciated over time – depending on the asset. It is very uncommon for a mature business to operate on this model over an extended period of time. New businesses might lose money because they don’t have any sales or cash flow. But the Amazon case with such large sales is a red herring. The DOJ is going to have to work hard to defend the charge of predatory pricing.

William Ockham January 16, 2014 um 2:46 pm

People really need to stop believing the B.S. put out by the Apple-loving press and get the facts. Apple has zero chance of winning on their complaints about the monitor. Zero. They are just making stuff up at this point.

They have almost no chance at succeeding on the overall appeal of the case either. All that "Cote prejudged the case" is B.S. In a case like this one, the judge has a duty to encourage a settlement and part of that is telling the parties where they stand before it goes to trial. The facts of this case are so blindingly obvious that if you can read, you should be able to figure out who was going to win.

Let me tell you a secret about lawyers. They are advocates. Their job is to be able to make a convincing-sounding case when they have no case. Just because a few lawyers who want to get their names in the press are willing to come up with an argument why Apple could win, that doesn’t mean that Apple can really win.

New Name Same Guy January 16, 2014 um 3:12 pm

LOL, you have presented exactly zero arguments, so I can’t disagree with zero.

William Ockham January 16, 2014 um 5:41 pm

Here’s my argument. Apple broke the law. They engaged in a price-fixing conspiracy. In combination with 5 big publishers, they established a price list for certain categories of ebooks. The actual price list was entered into evidence in the case. Price-fixing is a 'per se' violation of the law. That means that nothing Amazon did or didn’t do has anything to do with this case. Those are facts.

You can throw up all the various irrelevancies that you want, you can babble about conspiracies and corrupt judges and all the other paranoid fantasies, but we will know the outcome of this case. When we do, if I’m wrong, I’ll come here and admit that you were right. I’ll even donate $50 to the charity of your choice. What will you do?

New Name Same Guy January 17, 2014 um 3:09 am

The reason I won’t take you up on this is that there is a huge distance between being guilty and where we are now. Apple just agreed to pay an increased fine today on child in-app purchases. Apple has been found guilty of many things in the past. Their health insurance practices for part-time employees is immoral in my opinion. Dragging their feet on recognising European warranty laws is another example of bad business practices. No way should my opinions here be confused with an "Apple can do no wrong" position.

But there is a lot of prima facia evidence of dubious legal practices and a connection between Amazon and this case.

Meanwhile we are working with the judgement of only one person which has been twisted to mean "without a doubt" proof that Apple has behaved in what descriptions here and elsewhere come close to describing as even criminal. There was no jury trial.

Even if the verdict isn’t set aside altogether, my guess is that the appeal will nevertheless yield a very positive result for Apple.

And there is even a possibility that Amazon could be dragged in to the dock as well. The explanation that they aren’t selling ebooks at a lose is laughable. It definitely wins the John McEnroe "YOU CAN’T BE SERIOUS!" award.

William Ockham January 17, 2014 um 6:18 pm

Amazon’s actions have nothing to do with the guilt or innocence of Apple. Why is that so hard for you to understand? Amazon could be sacrificing babies to Cthulu to keep ebook prices low and it wouldn’t matter. It doesn’t matter if they instigated the suit. It doesn’t matter if they selling ebooks below cost. All the crap you spewed above is totally irrelevant. Do a search for "per se antitrust violation".

It doesn’t matter if Bromwich and Cote are having an affair with Jeff Bezos. The only thing that matters about this case is whether or not Apple helped those publishing companies raise prices on ebooks. And they did. No one disputes that because there is documentary evidence that they did it. Steve Jobs laid the whole thing out on camera at the iPad launch.

New Name Same Guy January 18, 2014 um 1:42 am

Silly. Everything matters, especially when assessing the remedies.
If you are caught speeding you don’t expect a tax audit for which you have to pay.
If your little kid throws sand in nursery school, you don’t expect your family to be investigated for racism and have to pay for it.

William Ockham January 18, 2014 um 1:47 pm

You can deny it all you want. You can continue to bring up irrelevent crap. The facts don’t change. Apple engaged in a price-fixing conspiracy. They don’t even deny the basic facts because the documentary evidence is overwhelming. They sent a price list to the publishers along with a contract that said the publishers would force other retailers to go along.

This isn’t a case of being punished for something they didn’t do. They are being required to demonstrate that they won’t engage in future misconduct. Everything that they are being required to do is the direct result of their own actions. They could have suffered far worse penalties, but the DoJ, under both Democrats and Republicans, tends to apply the lightest possible penalties to corporate malfeasance. And that is exactly what happened here.

New Name Same Guy January 18, 2014 um 2:04 pm

LOL, I don’t see any denial in my last response.
I am arguing about the remedy.
I expect Apple is prepared to pay something if they lose the appeal, but I don’t think they expected to pay so much to Bromwich to wonder the halls of Apple feeling groovy.
A few comments ago, I listed some of Apple’s sins.

But you folks here haven’t recognised that there is a lot wrong with the Judge, Bromwich and Amazon’s roll. You are the folks in denial. You are not prepared to be disappointed by the appeal.
I think you all are in for some humble pie.

But that’s why they play the game!

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