In Apple case, ‘The line between the legal and the illegal seems so thin’

On Wednesday, Judge Denise Cote ruled that Apple had violated antitrust law by coordinating an effort among five leading publishers to raise e-book prices. Randal Picker is a professor of law at the University of Chicago and a leading antitrust scholar. We spoke by phone Wednesday afternoon. The transcript has been edited for length and clarity.


(Kimihiro Hoshino/AFP/Getty Images)

Timothy B. Lee: Judge Denise Cote described Apple coordinating a price-fixing conspiracy among the major publishers. Do you think that's a good way to think about the case?

Randal Picker: Judge Cote tells a good story about how Apple was a co-conspirator in what seems a crystal-clear conspiracy by the publishers. But I think the case is vastly more complicated than that.

There's a simple story about publishers wanting to change prices and failing until the white knight appears in the form of Steve Jobs. But there's a flip side to that. Apple would say: "we didn't do anything here that we didn't have an independent interest in doing, independent of whatever happened in e-book prices.

"We'll run a platform. We don't want to set prices. We wanted the same [30%] deal we do in the app store. We just don't want to be at a competitive disadvantage when we sell e-books. If those books are at different prices, we've got a problem. We want to those prices to be the same."

TBL: But there seems to be a lot of evidence that Apple expected e-book prices to rise as a result of its agreements, right?

RP: I wish the opinion cited to the record more, but based on [Judge Cote's] rendition of the evidence, it seems very clear that Apple should have known, probably did know, that publishers would try to raise e-book prices. But Apple also wanted to make sure they didn't go too high. If they went too high, people weren't going to buy e-books at all.

The tier structure was intended to be sure that the pricing flexibility that the publishers had would not push those prices too high. Apple should have known that those prices were going to go up and didn't want them to go up too much.

TBL: The publishers have already settled their cases with the government. Earlier you said there was a "crystal-clear conspiracy by the publishers." Do you think the government's case against the publishers was stronger than its case against Apple?

RP: Everything in the opinion suggests that would have been a straightforward case. Based on the opinion, [Judge Cote] says this is a strong case.

That complicates this case because Apple wants to say "look, there's lots of evidence of coordinating pricing [among the publishers], but that's not what we were doing."

TBL: Amazon itself seems to have a lot of market power. Doesn't preventing the publishers from colluding put them at a competitive disadvantage in the marketplace?

RP: I think the law says no. You can never say "there's a good reason for my cartel." That's not how Section 1 of the Sherman Antitrust Act [which deals with cartels] works. Under standard U.S. antitrust law, it's not a good defense to say we've organized our cartel to beat up on the monopolist.

How Amazon prices particular items is really complicated. I don't assume that Amazon is doing something that would give rise to a violation of Section 2 of the Sherman Act [dealing with monopolies]. To the extent that Amazon has monopoly power, as long as it's achieved that power through legitimate means, you get to exercise that monopoly power.

TBL: Does this ruling make it harder for firms that want to get into the digital content business?

RP: Apple tries to argue this. When you're going to launch a platform, you want to have stuff on it. An e-book store with five books is not very attractive. They're going to want to enter at a certain scale. There's a lot of parallel communications going on. That's not necessarily surprising.

[Judge Cote] goes through a list of all the individual clauses [in Apple's contracts with publishers], and says none of those are problematic individually. [But Judge Cote ruled against Apple because of] her sense that the launching pad for this particular negotiation was the lure of higher prices.

But Apple can make a defense of each of these clauses. I run into these cases with some frequency. You teach a case and you say what's the practical advice? The line between the legal and the illegal seems so thin. Apple's trying to make a decision in a very narrow window [the negotiations with publishers lasted from November 2009 to January 2010], and we're going to scrutinize it at leisure after the fact.

I'd tell [technology companies], don't say you're going to be able to raise prices, even if everyone is thinking to themselves that maybe they'll do that. That's an atmospherics point, but it also often carries a lot of weight.

I think it's fair to say that one should be concerned that when we bring antitrust liability to bear in these situations that we're going to make it harder for people to do these kinds of deals.

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